UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
x Annual
report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 2006
OR
o Transition
report under Section 13 or 15(d) of the Securities Exchange Act of
1934
COMMISSION
FILE NUMBER: 0-9376
INNOVATIVE
FOOD HOLDINGS, INC.
(Name of
Small Business Issuer in its Charter)
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FLORIDA
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20-116776
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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1923 Trade Center Way, Suite One Naples,
Florida
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34109
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(239)
596-0204
(Issuer's
Telephone Number, including Area Code)
SECURITIES
REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
NONE
SECURITIES
REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:
(Title
of class)
Check whether the
Issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the
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
o No
x
Check
if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Indicate by checkmark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No
x
On
December 31, 2006, 151,310,796 shares of our common stock were
outstanding.
On
April 14, 2008,
171,787,638 shares of our common stock were outstanding.
The
aggregate market value of the voting and non-voting stock held by non-affiliates
was approximately $3,650,929 as of April 14, 2008, based upon a
closing price of $0.03 (post-reverse split) for the issuer's common stock on
such date.
The Issuer's revenues for the fiscal year ended
December 31, 2006 were $7,074,088.
Check whether the issues is not required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act o
INNOVATIVE FOOD HOLDINGS, INC.
INDEX
TO ANNUAL REPORT ON FORM 10-KSB
FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2006
ITEMS
IN FORM 10-KSB
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PART
I
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PAGE
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Item
1.
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3
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Item
2.
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9
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Item
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Item
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PART
II
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Item
5.
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10
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Item
6.
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12
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Item
7.
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21
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Item
8.
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21
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Item
8A.
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Item
8B.
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21
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PART
III
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Item
9.
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22
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Item
10.
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23
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Item
11.
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25
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Item
12.
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Item
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Item
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Signatures |
59
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Explanatory
Note
This
amendment is being filed to respond to comments received from the SEC, as well
as to revise certain parts of our financial statements as detailed in a Current
Report on Form 8-K we filed on February 15,
2008. Regardless of the date this 2006 Annual Report is
filed, it continues to speak only as of December 31, 2006 unless explicitly
stated to the contrary.
FORWARD
LOOKING INFORMATION
MAY
PROVE INACCURATE
THIS
ANNUAL REPORT ON FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND
INFORMATION RELATING TO US THAT ARE BASED ON THE BELIEFS OF MANAGEMENT, AS WELL
AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO US. WHEN USED IN
THIS DOCUMENT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," “SHOULD,” AND
"EXPECT" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO US, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT OUR CURRENT VIEWS WITH
RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS, INCLUDING THOSE DESCRIBED IN THIS ANNUAL REPORT ON FORM 10-KSB.
SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM
THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED OR EXPECTED. WE DO
NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
PART
I
ITEM 1. Description of Business
Our
History
We were
initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation.
From June 1979 through February 2003, we were either inactive or involved in
discontinued business ventures. We changed our name to Fiber Application Systems
Technology, Ltd. in February 2003. In January 2004, we changed our state of
incorporation by merging into Innovative Food Holdings, Inc. (IVFH), a Florida
corporation formed for that purpose. As a result of the merger we changed our
name to that of Innovative Food Holdings, Inc. In January 2004 we also acquired
Food Innovations, Inc., a Delaware corporation, for 25,000,000 shares
(post-reverse split) of our common stock.
Our
Operations
Our
business is currently conducted by our subsidiary, Food Innovations, Inc.
(“FII”), which was incorporated in the state of Delaware on January 9, 2002.
Since its incorporation our subsidiary has been in the business of providing
premium restaurants with the freshest origin-specific perishables and specialty
products shipped directly from our network of vendors within 24 –
48 hours. Our customers include restaurants, hotels, country clubs,
national chain accounts, casinos, and catering houses. In our
business model, we take orders from our customers and then forward the orders to
our various suppliers for fulfillment. In order to preserve
freshness, we do not warehouse or store our products, thereby significantly
reducing our overhead. Rather, we carefully select our suppliers
based upon, among other factors, their reliability and access to overnight
courier services.
Our
Products
We
distribute over 3,000 perishable and specialty food products, including
origin-specific seafood, domestic and imported meats, exotic game and poultry,
artisanal cheeses, caviar, wild and cultivated mushrooms, micro-greens, heirloom
and baby produce, organic farmed and manufactured food products, estate-bottled
olive oils and aged vinegars. We are constantly adding other products that food
distributors cannot effectively warehouse, including organic products and
specialty grocery items. We offer our customers access to the best food products
available nationwide, quickly and cost-effectively. Some of our best-selling
items include:
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Seafood - Alaskan wild
king salmon, Hawaiian sashimi-grade ahi tuna, Gulf of Mexico day-boat
snapper, Chesapeake Bay soft shell crabs, New England live lobsters,
Japanese hamachi
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Meat & Game - Prime
rib of American kurobuta pork, dry-aged buffalo tenderloin, domestic lamb,
Cervena venison, elk tenderloin
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Produce - White
asparagus, baby carrot tri-color mix, Oregon wild ramps, heirloom
tomatoes
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Poultry - Grade A foie
gras, Hudson Valley quail, free range and organic chicken, airline breast
of pheasant
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Specialty - Truffle
oils, fennel pollen, prosciutto di Parma, wild boar
sausage
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Mushrooms - Fresh morels,
Trumpet Royale, porcini powder, wild golden
chanterelles
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Cheese - Maytag blue,
buffalo mozzarella, Spanish manchego, Italian gorgonzola
dolce
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In 2006
seafood accounted for 24% of sales, meat and game accounted for 28% of sales,
specialty items accounted for 25% of sales, produce accounted for 8% of sales,
cheese accounted for 10% of sales, and poultry accounted for 5% of
sales.
Customer
Service and Logistics
Our
“live” chef-driven customer service department is available by telephone every
weekday, from 7 a.m. to 7 p.m., Florida time. The team is made up of four chefs
who
are full-time employees of the Company, and who are experienced in all
aspects of perishable and specialty products. By employing chefs to handle
customer service, we are able to provide our customers with extensive
information about our products, including:
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Flavor
profile and eating qualities
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Recipe
and usage ideas
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Origin,
seasonality, and availability
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Cross
utilization ideas and complementary uses of
products
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Our
logistics team tracks every package to ensure timely delivery of products to our
customers. The logistics manager receives tracking information on all products
ordered, and packages are monitored from origin to delivery. In the event that
delivery service is interrupted, our logistics department begins the process of
expediting the package to its destination. The customer is then contacted before
the expected delivery commitment time allowing the customer ample time to make
arrangements for product replacement or menu changes. Our logistics manager
works directly with our vendors to ensure our strict packaging requirements are
in place at all times.
Chef
Advisory Board
In addition to our
in-house chefs, we rely upon the assistance of our Chef Advisory Board.
The Chief
Advisory Board provides the Company with “on the ground” industry information
and information on the latest food trends. The Chief Advisory Board
was not compensated in 2006.
Chef
Joseph Amendola
Chef Joe
Amendola was the American Culinary Federation Chef of the Year for 2002. With
over sixty years of experience, Chef Amendola is world renowned as more than a
culinary professional. He is the author of The Bakers Manual,
Understanding
Baking, Ice
Carving Made Easy, Professional Baking and
Practical Cooking, and Baking for Schools and
Institutions, all of which are used in culinary institutes around the
world. For over forty years he served as senior vice president, acting
president, director of development, dean of students, and baking instructor at
the Culinary Institute of America in Hyde Park, NY. During that period more than
25,000 persons were graduated from that chef training institute. He has served
the Culinary Institute of America as ambassador since 1989.
Chef
Don Pintabona
Chef
Pintabona graduated from the Culinary Institute of America in 1982. He worked
under such chefs as Nishitani in Osaka, Japan; Georges Blanc in Vonnes, France;
and Charles Palmer in New York. He sought out the most unusual local foodstuffs
and then developed his own style of contemporary American cuisine. Last year,
Chef Pintabona published his own book entitled The Tribeca Grill Cookbook:
Celebrating Ten Years of Taste. He currently teaches a special course at
the Cornell School of Hotel Management. He has been a frequent guest Chef on
ABC's “Good Morning America,” he also has been on the Food Network's “Cooking
Live” television shows and has been featured in Bon Appéti , Gourmet, GQ, Nation's Restaurant
News, and the New York
Times.
Chef
Bob Ambrose
Chef
Ambrose is a graduate of the Culinary Institute of America and has been employed
in the hospitality industry for over 20 years. During his career Chef Ambrose
received invitations to cook at many James Beard functions, including The World
Gourmet Summit in Singapore. Following his career in hospitality, Chef Ambrose
served as a Sales Manager for LaBelle Farms, one of our preferred vendors. He
now owns Bella Bella Gourmet Foods.
Relationship
with U.S. Foodservice
In 2003,
Next Day Gourmet, L.P., a subsidiary of USF, a $20 Billion broadline distributor
owned by Dutch grocer Royal Ahold, contracted FII to handle the distribution of
over 3,000 perishable and specialty products. Under the current terms of the
contract FII is the exclusive supplier of overnight delivered, perishable sea
foods, fresh produce, and other exotic fresh foods. Such products are difficult
for broadline food distributors to manage profitably and keep in warehouse stock
due to their perishable nature and
high-end limited customer base. Through USF’s sales associates, FII’s
products are available to USF accounts nationwide, ensuring superior freshness
and extended shelf life to their customers. While the current contract with USF
expires in September 2006 the extension negotiations are currently underway. We
expect to reach an agreement with USF but we can give no assurances that we will
do so. During the years ended December 31, 2006, 2005, and 2004, Next
Day Gourmet L.P. accounted for 97%, 94%, and 94% of total
sales respectively. Other than our business arrangements with
USF, we are not affiliated with either USF or Next Day Gourmet, L.P.
Growth
Strategy
Restaurant
food sales continue to grow, both in total dollars spent (from $295 billion in
1995 to over $511 billion projected for 2006) and in share of the food dollar
spent in the United States (from 25% in 1955 to 47% projected for 2006),
according to the National Restaurant Association website
(www.restaurant.org).
For our
continued growth within the food industry we rely heavily on the availability to
our customers of our chefs' culinary skills and sales available through our
relationship with USF.
In
addition to attempting to grow our current business, we are also looking to grow
laterally in the food industry generally and are looking into the possibility of
acquiring a food manufacturer and/or a restaurant. We have no specific plans at
this point, nor do we know how we would finance any such acquisition. We
anticipate that, given our current cash flow situation, any acquisition would
involve the issuance of additional shares of our common stock. No acquisition
will be consummated without thorough due diligence. No assurance can be given
that we will be able to identify and successfully conclude negotiations with any
potential target.
Competition
While we
face intense competition in the marketing of our products and services, it is
our belief that there is no other single company in the United States that
offers such a broad range of customer
service oriented quality chef driven perishables for delivery in 24 to 48
hours. Our primary competition is from local meat and seafood purveyors that
supply a limited local market and have a limited range of products. However,
many of our competitors are well established, have reputations for success in
the development and marketing of these types of products and services and have
significantly greater financial, marketing, distribution, personnel and other
resources. These financial and other capabilities permit such companies to
implement extensive advertising and promotional campaigns, both generally and in
response to efforts by additional competitors such as us, to enter into new
markets and introduce new products and services.
Insurance
We
maintain a general liability insurance policy with a per occurrence limit of
$1,000,000 and aggregate policy covering $2,000,000 of liability. In addition,
we have non-owned automobile personal injury coverage with a limit of
$1,000,000. Such insurance may not be sufficient to cover all potential claims
against us and additional insurance may not be available in the future at
reasonable costs.
Government
Regulation
Various
federal and state laws currently exist, and more are sure to be adopted,
regulating the delivery of fresh food products. However, our business plan does
not require us to deliver fresh food products directly, as third-party vendors
ship the products directly to our customers. We require all third-party vendors
to maintain $2,000,000 liability insurance coverage and compliance with Hazard
Analysis and Critical Control Point (HACCP), an FDA- and USDA-mandated food
safety program. Any changes in the government regulation of delivering of fresh
food products that hinders our current ability and/or cost to deliver fresh
products, could adversely impact our net revenues and gross margins and,
therefore, our profitability and cash flows could also be adversely
affected.
Employees
We
currently employ 13 full-time employees, including 5 chefs and 2 executive
officers. We believe that our relations with our employees are satisfactory.
None of our employees are represented by a union.
Transactions
with Major Customers
Transactions
with major customers and related economic dependence information is set forth
under the heading Transactions with Major Customers in Note 15 to the
Consolidated Financial Statements included in the Financial Statements section
hereof and is incorporated herein by reference.
How
to Contact Us
Our
executive offices are located at 1923 Trade Center Way, Suite One, Naples,
Florida 34109; our Internet address is www.foodinno.com; and
our telephone number is (239)596-0204.
Risk
Factors
Risks Relating to Our
Business:
We
Have a History Of Losses Which May Continue, Requiring Us To Seek Additional
Sources of Capital Which May Not Be Available, Requiring Us To Curtail Or Cease
Operations.
We earned
net income of $12,137,413 for the year ended December 31, 2006. However, this
income did not derive from operations but from changes in the fair value
of warrant and option liabilities and a mark to market liability. We
cannot assure you that we can achieve or sustain profitability on a quarterly or
annual basis in the future. If revenues grow more slowly than we anticipate, or
if operating expenses exceed our expectations or cannot be adjusted accordingly,
we will incur losses. We will also incur losses if the
fair value of warrants, options, etc changes unfavorably. We will incur
operating losses until we are able to establish significant sales.
Our possible success is dependent upon the successful development and marketing
of our services and products, as to which we can give no assurance. Any future
success that we might enjoy will depend upon many factors, including factors out
of our control or which cannot be predicted at this time. These factors may
include changes in or increased levels of competition, including the entry of
additional competitors and increased success by existing competitors, changes in
general economic conditions, increases in operating costs, including costs of
supplies, personnel, marketing and promotions, reduced margins caused by
competitive pressures and other factors. These conditions may have a materially
adverse effect upon us or may force us to reduce or curtail operations. In
addition, we will require additional funds to sustain and expand our sales and
marketing activities, particularly if a well-financed competitor emerges. We
anticipate that we will require up to approximately $250,000 in additional funds
with no repayment of existing debt of 2007 maturities and maturities in default.
to fund our continued operations for the next twelve months, depending on
revenue from our operations. We can give no assurance that financing will be
available in amounts or on terms acceptable to us, if at all. In Our inability
to obtain sufficient funds from our operations or external sources would require
us to curtail or cease operations. `
If
We Are Unable to Obtain Additional Funding Our Business Operations Will be
Harmed and If We Do Obtain Additional Financing Our Then Existing Shareholders
May Suffer Substantial Dilution.
Additional
capital will be required to effectively support our operations and to otherwise
implement our overall business strategy. However, we can give no assurance that
financing will be available when needed on terms that are acceptable to us. Our
inability to obtain additional capital will restrict our ability to grow and may
reduce our ability to continue to conduct business operations. If we are unable
to obtain additional financing, we will likely be required to curtail our
marketing and development plans and possibly cease our operations. Any
additional equity financing (or equity
related financing such as convertible debt financing) may involve
substantial dilution to our then existing shareholders.
Our
Independent Auditors Have Expressed Substantial Doubt About Our Ability to
Continue As a Going Concern, and We Concur With This Assessment
In their
report dated April 14, 2008, our independent auditors stated that our financial
statements for the year ended December 31, 2006 were prepared assuming that we
would continue as a going concern. Our ability to continue as a going concern is
an issue raised as a result of our significant losses from operations since
inception and our working capital deficiency. We continue to experience net
operating losses. Our ability to continue as a going concern is subject to our
ability to generate a profit and/or obtain necessary funding from outside
sources, including obtaining additional funding from the sale of our securities,
increasing sales or obtaining loans and grants from various financial
institutions where possible. Our continued net operating losses increase the
difficulty in our meeting such goals and we can give no assurance that such
methods will prove successful.
We
Have Historically Derived Substantially All of Our Revenue From One Client and
if We Were to Lose Such Client We Will Be Unable to Generate New Sales to Offset
Such Loss, We May Be Forced to Cease or Curtail Our Operations.
In 2003,
Next Day Gourmet, L.P. contracted with our subsidiary to handle the distribution
of over 3,000 perishable and specialty food products to USF’s customers.
Our contract with USF expires in September 2006. Our sales through
USF’s sales force generated gross revenues for us of $6,915,550 in
the year ended December 31, 2006, $5,253,040 in the year
ended December 31, 2005, and and $3,873,318 in the year ended
December 31, 2004. Those amounts contributed 97%, 94%,
and 94%, respectively of our total sales in those periods. Our sales
efforts are for the most part dependant upon the efforts of the U.S.
Sales associates. Although we have generated revenues from
additional customers other than USF, if we do not renew our contract with USF in
September 2006 or if the contract is terminated for any reason and we are unable
to generate new sales or offset such loss, we may be forced to cease or curtail
our operations. While we have begun discussions with USF to extend the
agreement, we can give no assurance that we will be successful and if the
agreement terminates in September it will adversely effect our sales in a
material fashion to the extent that we may be forced to cease
operations.
We
May Be Unable to Manage Our Growth Which Could Result in Our Being Unable to
Maintain Our Operations.
Our
strategy for growth is focused on continued enhancements to our existing
business model, offering a broader range of services and products and
affiliating with additional vendors and through possible joint ventures.
Pursuing this strategy presents a variety of challenges. We may not experience
an increase in our services to our existing customers, and we may not be able to
achieve the economies of scale, or provide the business, administrative and
financial services, required to sustain profitability from servicing our
existing and future customer base. Should we be successful in our expansion
efforts, the expansion of our business would place further demands on our
management, operational capacity and financial resources. To a significant
extent, our future success will be dependent upon our ability to maintain
adequate financial controls and reporting systems to manage a larger operation
and to obtain additional capital upon favorable terms. We can give no assurance
that we will be able to successfully implement our planned expansion, finance
its growth, or manage the resulting larger operations. In addition, we can give
no assurance that our current systems, procedures or controls will be adequate
to support any expansion of our operations. Our failure to manage our growth
effectively could have a material adverse effect on our business, financial
condition and results of our operations.
The
Foodservice Industry is Very Competitive, Which May Result in Decreased Revenue
for Us as Well as Increased Expenses Associated With Marketing Our Services and
Products.
We
compete against other providers of quality foods, some of which sell their
services globally, and some of these providers have considerably greater
resources and abilities than we have. These competitors may have greater
marketing and sales capacity, established distribution networks, significant
goodwill and global name recognition. Furthermore, it may become necessary for
us to reduce our prices in response to competition. This could impact our
ability to be profitable.
Our
Success Depends on Our Acceptance by the Chef Community and if the Chef
Community Does Not Accept Our Products Then Our Revenue Will be Severely
Limited.
The chef
community may not embrace our products. Acceptance of our services will depend
on several factors, including: cost, product freshness, convenience, timeliness,
strategic partnerships and reliability. Any of these factors could have a
material adverse effect on our business, results of operations and financial
condition. We also cannot be sure that our business model will gain wide
acceptance among chefs. If the market fails to continue to develop, or develops
more slowly than we expect, our business, results of operations and financial
condition will be adversely affected.
We
Rely Upon Outside Vendors and Shippers for Our Specialty Food Products and
Interruption in the Supply of Our Products May Negatively Impact Our
Revenues.
Shortages
in supplies of the food products we sell may impair our ability to provide our
services. Our vendors are independent and we cannot guarantee their future
ability to source the products that we sell. Many of our products are
wild-caught, and we cannot guarantee their availability in the future.
Unforeseen strikes and labor disputes may result in our inability to deliver our
products in a timely manner. Since our customers rely on us to deliver their
orders within 48 hours, delivery delays could significantly harm our
business.
We
Are and May Be Subject to Regulatory Compliance and Legal
Uncertainties.
Changes
in government regulation and supervision or proposed Department of Agriculture
reforms could impair our sources of revenue and limit our ability to expand our
business. In the event any future laws or regulations are enacted which apply to
us, we may have to expend funds and/or alter our operations to insure
compliance.
Health
Concerns Could Affect Our Success.
We
require our vendors to produce current certification that the vendor is
H.A.C.C.P. compliant, and a current copy of their certificate of liability
insurance. However, unforeseen health issues concerning food may adversely
affect our sales and our ability to continue operating our
business.
The
Issuance of Shares Upon Conversion of Convertible Notes and Exercise
of Outstanding Warrants May Cause Immediate and Substantial Dilution to Our
Existing Stockholders.
The
issuance of shares upon conversion of convertible notes and exercise of warrants
may result in substantial dilution to the interests of other stockholders since
the note/warrant holders may ultimately convert or exercise and sell the full
amount of shares issuable on conversion / exercise. Although, for the most part,
such note/warrant holders may not convert their convertible notes and/or
exercise their warrants if such conversion or exercise would cause them to own
more than 4.99% of our outstanding common stock unless
waived in writing by the investor with 60 day notice to the Company, this
restriction does not prevent them from converting and/or exercising some of
their holdings, selling off those shares, and then converting the rest of their
holdings. In this way, they could sell more than this limit while never holding
more than this limit. We anticipate that eventually, over time, the full amount
of the convertible notes will be converted into shares of our common stock, in
accordance with the terms of the secured convertible notes.
If
We Are Required for any Reason to Repay Our Outstanding Convertible Notes or if
We Elect to Make Monthly Payments in Cash as Opposed to Stock, We Would Be
Required to Deplete Our Working Capital, If Available, or Raise Additional
Funds.
We are
required to repay our convertible notes commencing in August 2005 with respect
to the convertible notes issued in connection with the February 2005 Securities
Purchase Agreement and in February 2006 in connection with the August 2005
Securities Purchase at the rate of 1/18th of the outstanding principal on the
convertible note on a monthly basis. We may make such monthly payment in either
cash or shares of common stock that are registered under the Securities Act of
1933, as amended. If we are required to repay the secured convertible notes, we
would be required to use our limited working capital and/or raise additional
funds (which may be unavailable) which would have the effect of causing further
dilution and lowering shareholder value.
We
Are Currently In default Under Certain Convertible Notes Which Could Result in
Legal Action Against Us, Which Could Require the Sale of Substantial
Assets.
We are
currently in default under certain of our outstanding convertible notes which
could require the early repayment of the convertible notes, including a default
interest rate of 15% on the outstanding principal balance of the notes if the
default is acted upon by the note holders and not cured within the specified
grace period. If we were unable to repay the notes when required, the note
holders could commence legal action against us and foreclose on all of our
assets to recover the amounts due. Any such action would require us to curtail
or cease operations.
Risks Relating to Our Common
Stock:
Our
Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading
Market in Our Securities is Limited, Which Makes Transactions in Our Stock
Cumbersome and May Reduce the Value of an Investment in Our Stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share (post-reverse
split) or with an exercise price of less than $5.00 per share (post-reverse
split), subject to certain exceptions. For any transaction involving a penny
stock, unless exempt, the rules require:
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that
a broker or dealer approve a person's account for transactions in penny
stocks; and
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the
broker or dealer receives from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
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In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
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obtain
financial information and investment experience objectives of the person;
and
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make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
|
·
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
|
|
·
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
ITEM 2. Description of Property
We lease
approximately 2,800 square feet of space at 1923-1925 Trade Center Way, Naples,
Florida, all of which is currently used for our principal executive offices and
sales operations. The lease for these premises expires in September 2008 and is
with a non-affiliated landlord. The aggregate base rent is $4,257 per month for
the remainder of the term of the lease. We intend to negotiate an extension of
that lease; however, if we are unable to do so, we expect that we will be able
to lease or acquire other similar space in close proximity to our
existing space. We believe that appropriate space is and will be available if
needed at acceptable prices
ITEM 3. Legal Proceedings
Defaults
Upon Senior Securities
In
September 2006 we commenced an action in New York Supreme Court, Nassau County,
against Pasta Italiana, Robert Yandolino and Lloyd Braider to collect on
outstanding promissory notes totaling $345,000 (plus interest and collection
expenses) of which $65,000 were personally guaranteed by the two individual
defendants. The defendants have counterclaimed for an unspecified
amount of damages due to our alleged breach of an agreement to purchase the
corporate defendant. As of December 31, 2006 the action had barely
commenced and its outcome is too speculative to predict. However, we
think it unlikely at this time that we will suffer a net material loss on our
loan.
ITEM 4. Submission of Matters to a Vote of Security
Holders
None.
PART
II
ITEM 5. Market For Common Equity, Related Stockholder Matters and
Small Business Issuer Purchases of Equity Securities
Market
Information
Prices
for our common stock are quoted in the Pink Sheets. Since March 2004, our common
stock has traded under the symbol "IVFH". Prior thereto, our common stock traded
under the symbol "FBSN". 151,310,796 shares (post-reverse split) of common stock
were outstanding as of December 31, 2006. The following table sets forth the
high and low sales prices of our common stock as reported in the Pink Sheets for
each full quarterly period within the three most recent fiscal
years.
|
HIGH
|
LOW
|
|||||||
|
Fiscal
Year Ending December 31, 2006
|
||||||||
|
First
Quarter
|
$ | 0.055 | $ | 0.0314 | ||||
|
Second
Quarter
|
0.07 | 0.04 | ||||||
|
Third
Quarter
|
0.037 | 0.008 | ||||||
|
Fourth
Quarter
|
0.008 | 0.003 | ||||||
|
Fiscal Year Ended
December 31, 2005
|
||||||||
|
First
Quarter
|
$ | 0.026 | $ | 0.010 | ||||
|
Second
Quarter
|
0.11 | 0.021 | ||||||
|
Third
Quarter
|
0.14 | 0.022 | ||||||
|
Fourth
Quarter
|
0.084 | 0.028 | ||||||
|
Fiscal Year Ended December 31,
2004
|
||||||||
|
First
Quarter
|
$ | 3.800 | $ | 0.42 | ||||
|
Second
Quarter
|
1.050 | 0.250 | ||||||
|
Third
Quarter
|
0.540 | 0.025 | ||||||
|
Fourth
Quarter
|
0.055 | 0.004 | ||||||
The quotations listed above reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. They have also been adjusted to reflect the effect of historical reverse splits. see spreadsheet
We were
inactive for many years until the first quarter of 2003 when we absorbed a new
business, received new management and underwent a significant reverse
split. Unfortunately, this new business venture was unsuccessful and
has unwound clearing the way for our current business which we absorbed during
the first quarter of 2004, along with new management and another significant
reverse split of our common stock. We believe that these activities
contributed to the large fluctuations in the price of our stock during 2003 and
2004.
Security
Holders
On
December 31, 2006, there were approximately 5,262 record
holders of our common stock. In addition, we believe there are numerous
beneficial owners of our common stock whose shares are held in "street
name."
Dividends
We have
not paid dividends during the three most recently completed fiscal years, and
have no current plans to pay dividends on our common stock. We currently intend
to retain all earnings, if any, for use in our business.
Recent
Sales and Other Issuances of Our Equity Securities
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 Technology, Ltd. (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 the
shares outstanding. The par value of the 25,000,000 shares
(post-reverse split), or $2,500, was charged to additional paid-in
capital. There were 157,037 shares (post-reverse split)
outstanding of Fiber at the time of the reverse acquisition; the par value of
these shares, or $16, was charged to additional paid-in capital at
the time of the reverse acquisition.
The
Company had a 1-for-200 reverse split of its common stock effective March 8,
2004. There were a total of 30,011,706 shares issued and outstanding
immeditately before the reverse split, and 157,037 shares issued and outstanding
immediately after the reverse split.
During
the twelve months ended December 31, 2004, the Company also had the following
transactions:
The
Company issued 15,000,000 shares (post-reverse split) of common stock with a
fair value of $320,225 to consultants for services performed.
The
Company issued 4,910,000 shares (post-reverse split) of common stock for
conversion of notes payable and current liabilities in the mount
of $788,176.
The
Company issued 18,700,000 shares (post-reverse split) of common stock with a
fair value of $2,420,000 to consultants for services performed.
The
Company issued 1,300,000 shares (post-reverse split) of common stock
for conversion of current liabilities in the amount of $339,750.
The
Company issued 7,925,000 shares (post-reverse split) of common stock with a fair
value of $204,500 to employees and board members for services
performed.
During
the twelve months ended December 31, 2005, the Company had the
following transactions:
The
Company issued 5,000,000 shares (post-reverse split) of common stock pursuant to
the conversion of a note payable.
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.
The
Company issued 300,000 shares (post-reverse split) of common stock with a fair
value of $3,900 to consultants for services performed.
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.
The
Company issued 13,400,000 shares (post-reverse split) of common stock for
$67,000 cash.
The
Company issued 8,800,000 shares (post-reverse split) of common
stock pursuant to the conversion of a note payable in the amount of
$44,000.
The
Company issued 1,000,000 shares (post-reverse split) of common stock pursuant to
the conversion of a note payable in the amount
of $5,000.
The
Company accrued the issuance of 600,000 shares (post-reverse split) of common
stock with a fair value of $36,000 as employee bonuses for services. The amount
of $36,000 was charged to common stock subscribed during the year ended December
31, 2006.
During
the twelve months ended December 31, 2006, the Company had the following
transactions:
The
Company issued 600,000 shares (post-reverse split) of common stock with a fair
value of $36,000 to employees for services performed. Said amount of
$36,000 was charged to operations during the prior year ended December 31, 2005,
and this amount was charged against common stock subscribed when the shares were
issued during the year ended December 31, 2006.
The
Company issued 34,718,759 shares of common stock pursuant to the conversion of
notes payable in the aggregate amount of $145,728.
The
Company issued 10,000,000 shares (post-reverse split) of common stock for an
potential acquisition. This acquisition was never consummated, and
these shares were subsequently cancelled. The Company charged the par
value of these shares of $1,000 to additional paid-in capital during the year
ended December 31, 2006.
The
Company issued 900,000 shares (post reverse-split) with a fair value of $32,400
to an employee as a bonus.
The
Company issued 350,000 shares (post reverse-split) with a fair value of $17,500
to an officer as a bonus.
All of
the issuances described above were exempt from registration pursuant to
Section 4(2)
of the Securities Act of 1933 for the following reasons: (1) none of
the issuances involved a public offering or public advertising of the payment of
any commissions or fees; (2) the issuances for cash were to “accredited
investors”; (3) the issuances upon conversion of notes were for notes held at
least 12 months and did not involve the payment of any other considerations; and
(4) all issuances to affiliates and to non-affiliates holding the securities for
less than 2 years carried restrictive legends.
Derivative
Securities Currently Outstanding
The
Company has issued convertible notes payable in the aggregate
principal amount of $1,072,000 with and accrued interest of $257,355
which if converted to common stock , will result in our issuance
of approximately 252,080,120 shares (post-reverse split)
of common stock at a conversion rates ranging from $0.005 to $0.010
per share (post-reverse split). The Company has warrants to purchase an
additional 189,000,000 shares (post-reverse split) of common stock at
December 31, 2006. The Company has also committed to issue, pursuant
to a penalty calculation regarding the registration of shares of our common
stock, an additional 87,520,000 shares (post-reverse split) of common
stock. The Company also has outstanding at December 31, 2006
options to purchase 15,500,000 shares (post-reverse split) of common stock. In
addition, accrued salary in the amount of $9,000 to the Company’s interim
President is convertible into 1,800,000 shares of common stock at December 31,
2006. The total number of additional shares of common stock issuable
at December 31, 2006 is 545,900,120. The company does not
currently have sufficient shares of common stock authorized to satisfy these
additional issuances of shares.
Securities
Authorized for Issuance Under Equity Compensation Plans
We do not
currently have any equity compensation plans.
ITEM 6. Management's Discussion and Analysis
The
following discussion should be read in conjunction with the consolidated
financial statements and the related notes thereto, as well as all other related
notes, and financial and operational references, appearing elsewhere in this
document.
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 business plan,
|
|
·
|
Our
ability to implement our business
plan,
|
|
·
|
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,
|
|
·
|
The
lack of diversification of our business
plan,
|
|
·
|
The
general volatility of the capital markets and the establishment of a
market for our shares, 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.
|
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 of Financial Condition and Plan of
Operations 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
We were
initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation.
From June 1979 through February 2003, we were either inactive or involved in
discontinued business ventures. In February 2003 we changed our name to Fiber
Application Systems Technology, Ltd.
In
January 2004, we changed our state of incorporation by merging into Innovative
Food Holdings, Inc. (“IVFH”), a Florida shell corporation. As a result of the
merger we changed our name to that of Innovative Food Holdings, Inc. In February
2004 we also acquired Food Innovations, Inc. (“FII”) a Delaware corporation
incorporated on January 9, 2002 and through FII we are in the business of
national food distribution using third-party shippers.
Transactions
With a Major Customer
Transactions
with a major customer and related economic dependence information is set forth
(1) following our discussion of Liquidity and Capital Resources, (2) under the
heading Transactions with Major Customers in Note 12 to the Consolidated
Financial Statements, and (3) as the fourth item under Risk Factors.
RESULTS
OF OPERATIONS
The
following is a discussion of our financial condition and results of operations
for the years ended December 31, 2006 and 2005, respectively. 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.
Year
Ended December 31, 2006 Compared to Year Ended December 31, 2005
Revenue
Revenue
increased by $1,521,323, or approximately 27%, to $7,074,088 for the year ended
December 31, 2006 from $5,552,765 in the prior year. A substantial portion
of the increase was attributable to an increase of $ 1,307,405 in specialty
seafood products. Additionally, sales of meats and game increased by
$227,727 and sales in cheese products increased by $218,332. However,
sales of non-specialty seafood products decreased by $154,841. Our
expansion of product line offerings was responsible for a majority of our sales
growth. The decrease in non-specialty seafood sales was due to increased
competition in this product line. We expect seafood, meats and games and
specialty to continue to represent a substantial part of our revenue in the
future. Nevertheless, we continue to assess the potential of new revenue
sources from the manufacture and sale of proprietary food products and will
implement that strategy if we deem it beneficial to us.
Any
changes in the food distribution operating landscape that materially hinders our
current ability and/or cost to deliver our fresh produce to our customers could
potentially cause a material impact on our net revenue and gross margin and,
therefore, our profitability and cash flows could be adversely
affected.
See
"Transactions with Major Customers" and the Securities and Exchange Commission's
("SEC") mandated FR-60 disclosures following the "Liquidity and Capital
Resources" section for a further discussion of the significant customer
concentrations, loss of significant customer, critical accounting policies and
estimates, and other factors that could affect future results.
Cost of
sales
Our cost
of sales for the year ended December 31, 2006 was
$5,372,349, an increase of $1,054,353 or approximately 24% compared to cost of
sales of $4,317,996 for the year ended December 31, 2005. The
primary reason for the increase in the cost of sales was an increase in sales
volume. Gross profit as a percentage of sales was 24% for the year ended
December 31, 2006 compared to 22% for the year ended December 31, 2005. This increase in gross profit
percentage is due to better
pricing and cost controls as a result of volume.
Selling, general, and
administrative expenses
Selling,
general, and administrative expenses increased by $241,563 or
approximately 13%, from $1,847,027 during the year ended December 31,
2005 to $2,088,590 for the year ended December 31, 2006.
The increase was
attributable primarily to corporate overhead, with such cost increases including
(i) professional fees incurred, primarily with respect to addressing matters
relating to our past compliance with corporate and securities laws and
regulations, and (ii) other non-allocable SG&A. The
primary components of selling, general, and administrative expenses for the
twelve months ended December 31, 2006 were payroll and related costs of
$952,275; consulting and professional fees of $562,262; facilities
costs of $90,557; non-cash compensation to employees and consultants of $84,894;
insurance of $75,841; amortization and depreciation of $54,298;
and public relations of $24,894.
Penalty for Late
Registration of Shares
During
the twelve months ended December 31, 2006, the Company accrued a liability for
the issuance of 58,560,000 shares (the “Penalty Shares”) of the
Company’s common stock pursuant to a penalty calculation with regard
to the late registration of common stock underlying convertible notes
payable. The Company charged to operations the amount
of $1,668,792, during the twelve months ended December 31, 2006,
representing the fair value of the Penalty Shares. The Company
accrued the issuance of an additional 28,870,000 Penalty Shares during prior
periods for a total of 87,520,000 Penalty Shares
issuable. During the year ended December 31, 2006,
the Company revalued the 87,520,000 Penalty Shares using the
Black-Scholes valuation method, and at December 31, 2006 the Company had a total
liability for the issuance of Penalty Shares in the amount of
$262,560. This revaluation resulted in a gain of $2,332,952 which the
Company recorded in operations during the year ended December 31, 2006.
Change in Fair Value of
Warrant and
Option Liability
At
December 31, 2006, the Company has outstanding warrants and options to purchase
an aggregate 204,200,000 shares of the Company’s common stock. The
Company valued this warrant liability at December 31, 2006 at
$521,606. This revaluation resulted in a gain of $5,579,541 which the
Company included in operations for the year ended December 31,
2006. This is an increase of $1,232,828 or approximately 28% compared
to a gain of $4,346,713 from the revaluation of the warrant and option liability
which the Company recorded during the twelve months ended December 31,
2005.
Change in Fair Value of Conversion Option
Liability
At
December 31, 2006, the Company had outstanding a liability to issue an aggregate
of 245,145,320 shares of the Company’s common stock pursuant to convertible
notes payable. The Company revalued this liability at December 31,
2006 at $521,606. This revaluation resulted in a gain of $6,666,068
which the Company included in operations for the year ended December 31,
2006. This is an increase of $1,304,110 or approximately 24% compared
to a gain of $5,361,958 from the revaluation of the conversion option liability
which the Company recorded during the twelve months ended December 31,
2005.
Interest (income)
expense
Interest
(income) expense decreased by $366,278 or approximately 49% to
$385,505 during the twelve months ended December 31, 2006, compared to $751,783
during the twelve months ended December 31, 2005. The primary reason
for the decrease was a decrease in the amortization of the beneficial
conversion features associated with convertible notes payable.
Net Income
For the
reasons above, the Company had a net income for the period ended December 31,
2006 of $12,137,413, an increase of by $4,719,503 or approximately
64% to compared net income of $7,417,910 during the twelve months
ended December 31, 2005.
As
explained above, this net income is primarily the result of non-operational,
non-cash items. During 2006, the Company reduced its operating loss by $225,407
or approximately 37% from $612,258 in 2005 to an operating loss of $386,851 in
2006.
Year
Ended December 31, 2005 Compared to Year Ended December 31, 2004
Revenue
Revenue
increased by $883,532, or approximately 19%, to $5,552,765 for the
year ended December 31, 2005 from $4,669,233 in the prior year. The increase was
primarily attributable to an increase of approximately $300,000 in sales of
meats and game, and an increase of approximately $500,000 in sales of specialty
food products, and an
incease of approximately $250,000 in cheese products; these increases were
partially offset by a decrease in seafood of approximately $170,000. We
expect seafood and meat sales to continue to represent a substantial part of our
revenue in the future. Nevertheless, we continue to assess the potential of new
revenue sources from the manufacture and sale of proprietary food products and
will implement that strategy if we deem it beneficial to us.
Any
changes in the food distribution operating landscape that materially hinders our
current ability and/or cost to deliver our fresh produce to our customers could
potentially cause a material impact on our net revenue and gross margin and,
therefore, our profitability and cash flows could be adversely
affected.
See
"Transactions with Major Customers" and the Securities and Exchange Commission's
("SEC") mandated FR-60 disclosures following the "Liquidity and Capital
Resources" section for a further discussion of the significant customer
concentrations, loss of significant customer, critical accounting policies and
estimates, and other factors that could affect future results.
Cost of
sales
Our cost
of sales for the year ended December 31, 2005 was
$4,317,996, an increase of $448,201 or approximately 12% compared to cost of
sales of $3,869,795 for the year ended December 31, 2004. The
primary reason for the increase in the cost of sales was an increase in sales
volume. Gross profit as a percentage of sales was 22% for the year ended
December 31, 2005 compared to 17% for the year ended December 31, 2004. The
reason for the increase in the gross profit margin of 5% was better pricing due
to improved purchasing efficiencies resulting from higher sales
volume.
Selling, general, and
administrative expenses
Selling,
general, and administrative expenses decreased by $2,790,971 or
approximately 60%, from $4,637,998 during the year
ended December 31, 2005 to $1,847,027 for the year ended
December 31, 2005. The primary components of selling, general, and
administrative expenses for the year ended December 31, 2005 payroll and related
costs of $906,819; consulting
and professional fees of $330,285; facilities costs of $82,641; bad debt expense
of $75,000; food show expenses of $70,487; insurance costs of $58,128; public
relations of $59,627; and amortization and depreciation of
$54,184.
The
increase was attributable primarily to non-cash compensation, increase in
professional fees and food show related expenses.
Interest
expense
Interest
expense increased by $60,982 or approximately 9% to $751,783 during the twelve
months ended December 31, 2005, compared to $690,801 during the twelve months
ended December 31, 2004. The primary reasons for the increase were an
increase in interest on convertible notes payable during 2005, along with the
amortization of the beneficial conversion features associated with those
convertible notes payable which is a non-cash charge.
Cost of penalty for
late registration of shares
During
the twelve months ended December 31, 2005, the Company accrued a liability for
the issuance of 28,960,000 shares (“Penalty Shares”) of the Company’s
stock pursuant to a penalty calculation with regard to the late registration of
shares underlying convertible notes payable. The Company charged to
operations $2,162,560 during the twelve months ended December 31, 2005,
representing the fair value of the Penalty Shares. During the year
ended December 31, 2005, the Company revalued the Penalty Shares using
the Black-Scholes valuation method, and at December 31, 2005 the
Company had a total liability for the issuance of Penalty Shares of
$926,720. This revaluation resulted in a gain of $1,235,840 which the
Company recorded in operations during the year ended December 31,
2005.
Change in Fair Value of
Warrant and
Option Liability
At
December 31, 2005, the Company has outstanding warrants and options to purchase
an aggregate 188,700,000 shares of the Company’s common stock. The
Company valued this warrant liability at December 31, 2005 at
$6,016,252. This revaluation resulted in a gain of $4,346,713
which the Company included in operations during the year ended December 31,
2005. There was no such gain or loss during the prior year.
Change in Fair Value of Conversion Option
Liability
At
December 31, 2005, the Company had outstanding a liability to issue an aggregate
of 242,291,720 shares of the Company’s common stock pursuant to convertible
notes payable. The Company revalued this liability at December 31,
2005 to $7,103,275. This revaluation resulted in a gain of $5,361,958
which the Company included in operations for the year ended December 31, 2005.
There was no such gain or loss during the prior year.
Net Income (Loss)
For the
reasons above the Company’s net income for the period
ended December 31, 2005 increased by $11,947,271 or approximately 264% to
$7,417,910, compared to a net loss of ($4,529,361) during the twelve months
ended December 31, 2004. The net income of $7,417,910 the twelve months
ended December 31, 2005 includes the following non-cash (income) and
expenses: stock issued for services of $45,400 and stock issued as bonuses to
employees of $36,000; depreciation and amortization of $54,183; cost of penalty
due to late registration of shares of $2,162,560; change in fair value of
warrant liability $4,346,713; change in fair value of conversion option
liability $5,361,958; change in fair value of penalty shares of
($1,235,840); amortization of discount on notes payable and
convertible interest of $667,069 ; and reserve for bad debt expense of
$75,000.
Liquidity
and Capital Resources at December 31, 2006
As of
December 31, 2006, the Company had current assets of $741,873, consisting of
cash of $118,518, loans receivable of $ 285,000, interest receivable of $7,147,
other current assets of $15,509, and trade accounts receivable of
$315,699. Also, at December 31, 2006, the Company had current
liabilities of $3,721,355, consisting of accounts payable and accrued
liabilities of $886,145, accrued interest of $172,590 (net of discount of
$21,387); accrued interest – related parties of $105,194 (net of discount of
$0); amount due under bank credit line of $24,272, current portion of
notes payable of $927,421; current portion of notes payable – related parties of
$384,000; warrant liability of $521,606; conversion option liability of
$437,207; and penalty for late registration of shares of
$262,560. This resulted in a working capital deficit of
$2,979,482.
During
the twelve months ended December 31, 2006, the Company had cash provided by
operating activates of $178,775. The Company charged to operations $49,901 for
stock issued to employees for services performed, $84,895 for the value of
options and warrants issued, and $54,298 for depreciation and
amortization. The Company generated net cash from financing
activities of $145,985, through the proceeds of issuing debt of $160,000, and
the principal payments of debt of $14,015. The Company used cash of
$216,445 in investing activities, which included the purchase of property and
equipment of $26,445 and a loan in the amount of $190,000.
Liquidity
and Capital Resources at December 31, 2005
As of
December 31, 2005, the Company had current assets of $552,967, consisting of
cash of $10,203, loans receivable of $95,000, interest receivable of $7,147,
other current assets of $1,507, and trade accounts receivable of
$439,110. Also, at December 31, 2005, the Company had current
liabilities of $16,004,022, consisting of accounts payable and
accrued liabilities of $654,331, accrued interest of $28,260 (net of discount of
$42,710); accrued interest – related parties of $41,937 (net of discount of
$16,093); amount due under bank credit line of $24,247, current
portion of notes payable of $784,000; current portion of notes payable – related
parties of $425,000; warrant liability of $6,016,252; conversion option
liability of $7,103,275; and penalty for late registration of shares of
$926,720. This resulted in a working capital deficit of
$15,451,055.
During
the twelve months ended December 31, 2005, the Company had cash used in
operating activates of $474,479. The Company charged to operations $36,000 and
$45,400 for stock issued to employees and consultants, respectively, for
services performed, and $54,183 for depreciation and
amortization. The Company generated net cash from financing
activities of $671,727, through the proceeds of issuing debt of
$605,000, principal payments of debt of $273, and the sale of stock
for cash of $67,000. The Company used cash of $215,056 in
investing activities, which included the purchase of property and equipment of
$45,056 and a loan in the amount of $170,000.
Liquidity
and Capital Resources at December 31, 2004
As of
December 31, 2004, the Company had current assets of $353,509, consisting of
cash of $28,011 and trade accounts receivable of $325,498. Also, at
December 31, 2004, the Company had current liabilities of $767,800,
consisting of accounts payable and accrued liabilities of $618,915, accrued
interest of $1,743 (net of discount of $5,978); accrued interest – related
parties of $7,622 (net of discount of $16,093); amount due under bank credit
line of $24,520, and current portion of notes payable –
related parties of $115,000. This resulted in a working capital
deficit of $414,291.
During
the twelve months ended December 31, 2004, the Company had cash used in
operating activates of $974,004. The Company charged to operations $68,500 and
$136,000 for stock issued to employees and directors, respectively, for services
performed, $2,420,000 for the value of stock issued to consultants for services
performed; and $52,049 for depreciation and amortization. The Company
generated net cash from financing activities of $1,036,527 consisting of
$715,920 from the issuance of notes, $382 from a bank credit line, and $320,225
from the sale of common stock for cash. The Company used cash of $78,644 in
investing activities, for the purchase of property and equipment.
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.
The
Company’s cash on hand may be insufficient to fund its planned operating
needs. Management is continuing to pursue new debt and/or equity
financing and is continually evaluating the Company’s cash and capital
needs.
The
Company expects 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, or the Company will be able to
obtain such funds on favorable terms and conditions. It the Company
cannot secure additional funds it will not be able to continue as a going
concern.
By
adjusting its operation and development to the level of available
resources, management believes it has sufficient capital resources to
meet projected cash flow through the next twelve months. The
Company also intends to increase market share and cash flow from operations by
focusing its sales activities on specific market segments. However, if
thereafter, the Company is 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. Currently, we do not
have any material long-term obligations other than those described in Note 8 to
the financial statements included in this report, nor have we identified any
long-term obligations that we contemplate incurring in the near future. 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.
The
independent auditors report on our December 31, 2006 financial statements state
that our recurring losses raise substantial doubts about our ability as a going
concern.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues, or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
Inflation
In the
opinion of management, inflation has not had a material effect on the Company’s
financial condition or results of its operations.
New
Accounting Pronouncements
In April
2003, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (SFAS) No. 149, Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends SFAS No. 133 to
provide clarification on the
financial accounting and reporting of derivative
instruments and hedging activities and requires that contracts with similar
characteristics be accounted for on a comparable basis. The provisions of SFAS
149 are effective for contracts entered into or modified after June 30, 2003,
and for hedging relationships designated after June 30, 2003. The adoption of
SFAS 149 did not have a material impact on the Company's results of operations
or financial position.
In May
2003, the FASB issued SFAS
No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both liabilities and
Equity. SFAS 150 establishes standards on
the classification and measurement of
certain financial instruments with characteristics of both
liabilities and equity. The provisions of SFAS 150 are effective for
financial instruments entered into or
modified after May 31, 2003 and to all
other instruments that exist as of the beginning of the
first interim financial reporting period beginning after
June 15, 2003. The adoption of
SFAS 150 did not have
a material impact on the Company's results of
operations or financial position.
In December 2003, the FASB issued a revision of
SFAS No. 132, "Employers' Disclosures About Pensions And
Other Postretirement Benefits." This pronouncement, SFAS
No.
132-R, expands employers' disclosures about
pension plans and other post-retirement benefits, but does not change the
measurement or recognition of such plans required by SFAS No. 87, No. 88, and
No. 106. SFAS No. 132-R retains the existing disclosure requirements of SFAS No.
132, and requires
certain additional disclosures about defined
benefit post-retirement plans. Except as described in the
following sentence, SFAS No. 132-R is effective for
foreign plans for fiscal years ending after June 15,
2004; after the effective date, restatement for some of the new
disclosures is required for earlier annual periods. Some of the interim-period
disclosures mandated by SFAS No. 132-R (such as the components of net periodic
benefit cost, and certain key assumptions) are effective for
foreign plans for
quarters beginning after December 15, 2003;
other interim-period disclosures will not be required for the Company
until the first quarter of 2005. Since
the Company does not have
any defined benefit
post-retirement plans, the adoption of
this pronouncement did not have any impact on the
Company's results of operations or financial condition.
In
November 2004, the FASB issued SFAS
151, Inventory Costs-- an amendment of ARB No. 43, Chapter
4. This Statement amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and
wasted material (spoilage). Paragraph 5 of ARB 43, Chapter
4, previously stated that ". . . under
some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as
current period charges. . . ." This
Statement requires that those items be
recognized as current-period charges
regardless of whether they meet the criterion of
"so abnormal." In addition, this
Statement requires that allocation of
fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This Statement is effective for
inventory costs incurred during
fiscal years beginning after June 15,
2005. Management does not believe the
adoption of this Statement will have
any immediate material impact on the
Company. In December 2004, the FASB issued SFAS
No.152, "Accounting for RealEstate Time-Sharing
Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS 152)
The amendments made by Statement 152
This Statement amends FASB
Statement No. 66, Accounting for Sales
of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in
AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing Transactions. This Statement also amends
FASB Statement No. 67, Accounting for Costs and
Initial Rental Operations of Real Estate
Projects, to state that the guidance for (a)
incidental operations and (b)
costs incurred to
sell real estate projects does not
apply to real estate time-sharing transactions. The accounting for
those operations and costs is subject to
the guidance in SOP
04-2. This Statement is effective for
financial statements for
fiscal years beginning after June
15, 2005. with
earlier application encouraged. The Company does not anticipate that
the implementation of this standard will have a
material impact on its financial position, results
of operations or cash flows.
On December 16, 2004, the
FASB published Statement of Financial Accounting Standards No. 123 (Revised
2004), Share-Based Payment ("SFAS 123R"). SFAS
123R requires that compensation cost related to share-based
payment transactions be recognized in
the financial statements. Share-based
payment transactions within the scope of
SFAS 123R include stock options,
restricted stock plans, performance-based awards, stock appreciation rights, and
employee share purchase plans. The provisions of SFAS 123R
are effective as of the first interim period that
begins after June
15, 2005. Accordingly, the Company has
implemented the revised standard in the third quarter of
fiscal year 2005. Previously, the Company accounted
for its share-based payment transactions
under the provisions of
APB 25, which does not necessarily require the
recognition of compensation cost in the
financial statements.
On
December 16, 2004, FASB issued Statement of Financial Accounting Standards No.
153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No.
29, Accounting for Nonmonetary Transactions (" SFAS
153"). This statement amends APB Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Under SFAS
153, if a nonmonetary exchange of similar productive assets meets a
commercial-substance criterion and fair value is determinable, the
transaction must be accounted for at
fair value resulting in recognition of
any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods
that begin after June 15, 2005. The
Company does not anticipate that
the implementation of this standard will have
a material impact on
its financial position, results of operations
or cash flows.
In May
2005, the FASB issued FASB Statement No. 154, ("FAS 154"), "Accounting Changes
and Error Corrections." FAS 154 establishes retrospective application as the
required method for reporting a change in accounting principle in the absence of
explicit transition requirements specific to the newly adopted accounting
principle. FAS 154 also provides guidance for determining whether retrospective
application of a change in accounting principle is impracticable and for
reporting a change when retrospective application is impracticable. FAS 154
becomes effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005
In
February 2006, the FASB issued SFAS No. 155. “Accounting for certain Hybrid
Financial Instruments an amendment of FASB Statements No. 133 and 140,”
or SFAS No. 155. SFAS No. 155 permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of Statement No. 133, establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006. We do not expect the adoption of SFAS 155 to have a material
impact on our consolidated financial position, results of operations or cash
flows.
In March
2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
Financial Assets - an amendment to FASB Statement No. 140. Statement 156
requires that an entity recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into a
service contract under certain situations. The new standard is effective for
fiscal years beginning after September 15, 2006. The adoption of SFAS No.156 did
not have a material impact on the Company's financial position and results of
operations.
In July
2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting for uncertainty in Income
Taxes”. FIN 48 clarifies the accounting for Income Taxes by prescribing
the minimum recognition threshold a tax position is required to meet before
being recognized in the financial statements. It also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition and clearly scopes income taxes
out of SFAS 5, “Accounting for
Contingencies”. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company does not expect adoption of this standard will
have a material impact on its financial position, operations or cash
flows.
In
September 2006 the FASB issued its Statement of Financial Accounting Standards
157, Fair Value Measurements. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
However, for some entities, the application of this Statement will change
current practice. FAS 157 effective date is for fiscal years beginning after
November 15, 2007. The Company does not expect adoption of this standard will
have a material impact on its financial position, operations or cash
flows.
In
September 2006 the FASB issued its Statement of Financial Accounting Standards
158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans”. This Statement improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. This Statement also improves financial reporting by requiring an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. The effective date for
an employer with publicly traded equity securities is as of the end of the
fiscal year ending after December 15, 2006. The Company does not expect adoption
of this standard will have a material impact on its financial position,
operations or cash flows
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS 159 applies to reporting periods beginning after November 15, 2007. The
adoption of SFAS 159 is not expected to have a material impact on the Company’s
financial condition or results of operations.
Transactions
With Major Customers
The
Company’s largest customer, US Foodservice, Inc. and its affiliates,
accounted for approximately 97%, 94%, and 94% of total sales in the
years ended December 31, 2006, 2005, and 2004,
respectively. A contract with Next Day Gourmet, LP, a subsidiary of
U.S. Foodservice, expires September 11, 2008. Negotiations are underway to
extend the existing contract or to sign a new contract , and the company has
continued to have US Foodservice, Inc. as a customer. Of our remaining
approximately 24 active customers in the year ended December 31, 2006, no other
single customer contributed 1% or more to our net revenue.
We
continue to conduct business with U.S. Food Services.
Critical
Accounting Policy and Accounting Estimate Discussion
Use
of Estimates in the Preparation of Financial Statements
The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. These estimates include certain assumptions related to
doubtful accounts receivable, stock-based services, valuation of financial
instruments, and income taxes. On an on-going basis, we evaluate
these estimates, including those related to revenue recognition and
concentration of credit risk. We base our estimates on historical experience and
on various other assumptions that is believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We believe our estimates have not been
materially inaccurate in past years, and our assumptions are not likely to
change in the foreseeable future.
Stock-Based
Compensation
In December 2002, the
FASB issued SFAS No. 148
- - Accounting for Stock-Based Compensation - Transition and
Disclosure. This statement amends SFAS No. 123 - Accounting for Stock-Based
Compensation, providing alternative methods of voluntarily transitioning to the
fair market value based method of accounting for stock based
employee compensation. SFAS 148 also requires disclosure
of the method used to account for
stock-based employee compensation and the effect of the
method in both the annual and interim
financial statements. The provisions of this
statement related to transition methods are effective for
fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for
interim periods beginning after December 31, 2003.
We
elected to continue to account
for stock-based compensation plans using the
intrinsic value-based method of accounting prescribed by
APB No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Under the provisions of APB No.
25, compensation expense is measured at the grant date for the difference
between the fair value of the stock and the exercise price.
From
its inception, the
Company has incurred significant costs
in connection with the issuance of equity-
based compensation, which is comprised
primarily of our common stock
and warrants to acquire our
common stock, to non-employees. The Company
anticipates continuing to incur such costs in order
to conserve its limited financial resources. The determination of the
volatility, expected term and other assumptions used to determine the fair value
of equity based compensation issued
to non-employees under SFAS 123 involves subjective
judgment and the consideration of a variety of factors, including our
historical stock price, option exercise activity to
date and the review of assumptions used by comparable enterprises.
We
account for equity based compensation, issued
to non-employees in exchange for goods or services, in
accordance with the provisions of SFAS No.123 and EITF No.
96-18, "Accounting for Equity Instruments That
are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or
Services".
ITEM 7. Financial Statements
The
financial statements required by this item are included in this report after
Part III Item 14, beginning after page 21.
ITEM 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
ITEM 8A. Controls and Procedures
Evaluation
of disclosure controls and procedures.
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 under the Exchange Act 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,
without limitation, 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.
As of the
end of the period covered by this Annual Report, we conducted an evaluation,
under the supervision and with the participation of our Chief Executive Officer
and Principal Accounting Officer, of our disclosure controls and procedures (as
defined in Rules 13a-15(e) of the Exchange Act). Based on that evaluation, our
Chief Executive Officer and Principal Accounting Officer concluded that our
disclosure controls and procedures were not effective in enabling the Company to
record, process, summarize and report information required to be included in the
Company's periodic SEC filings within the required time
period. We are currently completing a review of our personnel,
systems, and procedures, and have hired an accounting consultant to help us
improve our controls. We have also hired a Principal Accounting Officer /
Chief Information Officer with significant experience in
accounting systems. We expect to have these deficiencies resolved for
the filing of our Form 10-KSB for the period ended December 31,
2007.
ITEM 8B. Other Information
Information
regarding the sale of equity and debt securities during the fourth quarter of
2004 is disclosed in the “Table of Securities Issued during 2004”, in Part II,
Item 5.
PART
III
ITEM 9. Directors, Executive Officers, Promoters and control Persons;
Compliance with Section 16(a) of the Exchange Act
Set forth
below are the directors and executive officers of our Company, their respective
names and ages, positions with our Company, principal occupations and business
experiences during at least the past five years.
|
Name
|
Age
|
Position
|
||
|
Sam
Klepfish
|
36
|
Interim
President
|
||
|
Z.
Zackary Ziakas
|
46
|
Chief
Operating Officer
|
||
|
Michael
Ferrone
|
60
|
Director
|
||
|
Joel
Gold
|
66
|
Director
|
||
Directors
Sam
Klepfish
Since
March 2006 Mr. Klepfish was the interim president of the Company and
it’s subsidiary. Since February 2005 Mr. Klepfish was also
a Managing Partner at ISG Capital, a merchant bank. From May
2004 through February 2005 Mr. Klepfish served as a Managing
Director of Technoprises, Ltd. From January 2001 to May 2004 he was a
corporate finance analyst and consultant at Phillips Nizer, a New York law
firm. Since January 2001 Mr. Klepfish has been a member of the steering
committee of Tri-State Ventures, a New York investment group. From 1998 to
December 2000, Mr. Klepfish was an asset manager for several investors in
small-cap entities
Joel
Gold, Director
Joel Gold
is currently head of investment banking of Andrew Garrett, Inc., an
investment-banking firm located in New York City, a position he has held since
October 2004. From January 2000 until September 2004, he served as
Executive Vice President of Investment Banking of Berry Shino Securities, Inc.,
an investment banking firm also located in New York City. From January 1999
until December 1999, he was an Executive Vice President of Solid Capital
Markets, an investment-banking firm also located in New York City. From
September 1997 to January 1999, he served as a Senior Managing Director of
Interbank Capital Group, LLC, an investment banking firm also located in New
York City. From April 1996 to September 1997, Mr. Gold was an Executive
Vice President of LT Lawrence & Co., and from March 1995 to April 1996, a
Managing Director of Fechtor Detwiler & Co., Inc., a representative of the
underwriters for the Company’s initial public offering. Mr. Gold was a
Managing Director of Furman Selz Incorporated from January 1992 until March
1995. From April 1990 until January 1992, Mr. Gold was a Managing Director
of Bear Stearns and Co., Inc. (“Bear Stearns”). For approximately 20 years
before he became affiliated with Bear Stearns, he held various positions with
Drexel Burnham Lambert, Inc. He is currently a director, and serves on the
Audit and Compensation Committees, of Geneva Financial Corp., a publicly held
specialty, consumer finance company.
Michael
Ferrone, Director
Michael
Ferrone was Executive Producer and Producer, Bob Vila TV Productions, Inc from
its founding in 1989 to 2000. Michael co-created and developed the T.V. show,
"Bob Vila's Home Again". As Executive Producer, Michael managed all aspects of
creation, production, and distribution of the Show. By integrating brand
extension and sponsor relations, Michael managed the interrelationships between
Bob Vila and business partners including senior executives at Sears, NBC, CBS,
A&E, HGTV, General Motors, and Hearst Publications. In 2002 he co-founded
Building Media, Inc., (BMI) a multimedia education, marketing and
production company committed to promoting best building practices through better
understanding of building science principles. As of 2005, BMI operates as an
independently managed, wholly owned subsidiary of DuPont™.
Executive
Officers
Sam
Klepfish
Z.
Zackary Ziakas, COO
Mr.Ziakas
is the Chief Operating Officer of Innovative Food Holdings and our subsidiary,
Food Innovations, Inc. and has held that position since September 2004. From
November 2001 through September 2004 Mr.
Ziakas was the V.P. of Logistics of our subsidiary Food
Innovations. Prior to that Mr. Ziakas was a manager at Mail Boxes
Etc.
THE
COMMITTEES
The Board
of Directors does not currently have an Audit Committee, a Compensation
Committee, a Nominating Committee or a Governance Committee. The usual functions
of such committees are performed by the entire Board of Directors. We
are currently having difficulties attracting additional qualified directors,
specifically to act as the audit committee financial expert, inasmuch as we are
not current in our public filings and have only limited resources to purchase D
& O insurance. However, we believe that at least a majority of
our directors are familiar with the contents of financial
statements.
Attendance
at Meetings
From
February, 2004 through December 31, 2004, during
2005 and during 2006, the Board of Directors met or acted without a
meeting pursuant to unanimous written consent fourteen times, five times,
and seven times, respectively. No director attended less than 75% of all
scheduled meetings.
We are
not currently subject to the requirements of any stock exchange with respect to
having a majority of “independent directors” although we believe that we meet
that standard inasmuch as Messrs. Gold and Ferrone are “independent” and only
Mr. Klepfish, by virtue of being our Interim President, is not
independent.
Code
of Ethics
We have
adopted a Code of Ethics that applies to each of our employees, including our
principal executive officer and our principal financial officer, as well as
members of our Board of Directors. We have filed a copy of such Code as an
exhibit to this annual report.
Section 16(a) Beneficial Ownership Reporting Compliance
From
February 17, 2004, the date when current management obtained control of the
Company through the fiscal year end at December 31, 2004, none of our officers
and directors filed any Forms 3 or 4. This is due to the fact that they were
unaware of their filing obligations having not been so advised by their then
retained corporate counsel. The SEC's public records reflect that on October 15,
2004, acting under direction of previous counsel, a Form 15 was filed by the
Company indicating that the Company was no longer subject to the filing
requirements of the Exchange Act. We have recently determined that this filing
was in error as we have had, for at least the last three years, more than 45,000
shareholders of record. The Form 15 was withdrawn on June 6,
2006. Each of the persons subject to the reporting requirements of
Section 16(a) have now been advised of their filing obligations and they have
indicated their intention to file the necessary reports. To our knowledge, based
upon responses to questions we directed to such filing persons, none of said
filing persons have made any “short-swing” sales under the provisions of Section
16(b) of the Exchange Act.
ITEM 10. Executive Compensation
The
following table sets forth information concerning the compensation for services
in all capacities rendered to us for the year ended December 31, 2006, of our
Chief Executive Officer and our other executive officers whose annual
compensation exceeded $100,000 in the fiscal year ended December 31, 2006, if
any. We refer to the Chief Executive Officer and these other officers as the
named executive officers. In 2005 and 2004, we had only one named
executive officer, Joe DiMaggio Jr., our CEO. During those years he
received $128,400 and $120,000 in salary, respectively, and in 2004 he also
received 41,800 shares of restricted stock.
SUMMARY
COMPENSATION TABLE
|
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||||||
|
Sam
Klepfish
Interim
President
|
2006
|
(a)
|
$ | 115,697 |
(b)
|
-- | $ | 17,500 |
(c)
|
22,500 |
(d)
|
-- | -- | -- | $ | 155,697 | ||||||||||||||||||||||
|
Joe
DiMaggio, Jr.
|
2006
|
(e)
|
$ | 0 | ||||||||||||||||||||||||||||||||||
(a) Mr.
Klepfish became an executive officer in March 2006 and was the principal
executive officer since August 14, 2006.
(b)
Consists of $115,697 of salary. $9,000 of this amount has been accrued, and is
convertible into shares of common stock at the election of Mr. Klepfish at a
rate of $0.005 per share (post-reverse split).
(c)
Consists of 350,000 shares (post-reverse split) of common stock.
(d)
Consists of options to purchase 5,000,000 shares (post-reverse split) of the
Company’s common stock at a price of $0.005 per share (post-reverse
split).
(e) Mr.
DiMaggio was CEO until August 14, 2006.
Outstanding
Equity Awards at Fiscal Year-End as of December 31, 2006
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||
|
Name
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
(#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
($)
|
|||||||||
|
Sam
Klepfish
|
5,000,000
|
--
|
--
|
$0.005
|
11/20/2011
|
--
|
--
|
--
|
--
|
|||||||||
Director
Compensation
|
Name
|
Fees
Earned
or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
(a)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
|
Sam
Klepfish
|
-- | -- | $ | 22,500 | -- | -- | -- | $ | 22,500 | |||||||||||||||||||
|
Michael
Ferrone
|
-- | -- | $ | 22,500 | -- | -- | -- | $ | 22,500 | |||||||||||||||||||
|
Joel
Gold
|
-- | -- | $ | 22,500 | -- | -- | -- | $ | 22,500 | |||||||||||||||||||
(a)
consists of options to purchase 5,000,000 shares (post-reverse split) of the
Company’s common stock at an exercise price of $0.005 per share.
Employment
Agreements
Food Innovations,
Inc. has employment agreements with certain officers and
certain employees. The employment agreements provide for
salaries and benefits, including stock grants and extend up to five
years. In addition to salary and benefit provisions, the agreements
include defined commitments should the employer terminate the employee with or
without cause.
SAM
KLEPFISH
The
Company and its Chief Executive Officer Sam Klepfish are parties to an oral
which provides, among other things:
· Mr.
Klepfish is to receive a cash monthly salary in the amount of $10,028
· Mr.
Klepfish’s receives an additional monthly salary of $4500 which is
not paid in cash, but is recorded on a monthly basis as a convertible note
payable. These notes payable are convertible into common stock of the Company at
a rate of $0.005 per share.
Food
Innovations, Inc. and Joe DiMaggio, Jr. were parties to an employment agreement
that was terminated by mutual agreement on August 14, 2006 which, among other
things:
· That Joe
DiMaggio will serve as the company’s CEO
· For a
term of five (5) years, commencing July 15, 2002, subject to earlier
termination by either party in accordance with the Employment
Agreement,
· The Mr.
DiMaggios salary shall be $100,000 per annum, payable by the Company
in regular installments in accordance with the Company’s general payroll
practices,
· Salary
will increase if the Company has weekly revenues of more than
$250,000
Z.
ZACKARY ZIAKAS
Food
Innovations, Inc. and Z. Zackary Ziakas are parties to an employment agreement
which provides, among other things:
· That Mr.
Ziakas will serve as the Company’s Chief Operating Officer,
· For a
term of five (5) years, commencing May 17, 2004, subject to earlier termination
by either party in accordance with the Employment Agreement,
· The Mr.
Ziakas’ salary shall be $95,00 per annum, payable by the Company in regular
installments in accordance with the Company’s general payroll practices,
· Salary
will automatically increase by 10% on a yearly basis.
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Unless
otherwise stated, each person listed below uses the Company’s
address. Pursuant to SEC rules, includes shares that the person has
the right to receive within 60 days.
|
Name
and Address of
|
Number
of Shares
|
Percent
of
|
||||||
|
Beneficial
Owners
|
Beneficially
Owned
|
Class
|
||||||
|
Sam
Klepfish
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
20,650,000 | (1 | ) | 11.7 | % | |||
|
Michael
Ferrone
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
62,424,778 | (2 | ) | 34.5 | % | |||
|
Joel
Gold
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
28,886,141 | (3 | ) | 14.4 | % | |||
|
Z
Ziakas
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
4,100,000 | (4 | ) | 2.4 | % | |||
|
Joseph
DiMaggio Jr.
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
14,800,000 | 8.6 | % | |||||
|
Christopher
Brown
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
15,000,000 | 8.7 | % | |||||
|
Wally
Giakas
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
20,262,501 | (5 | ) | 10.6 | % | |||
|
All
officers and directors as
|
||||||||
|
a
whole (4 persons)
|
116,060,919 | 48.8 | % | |||||
|
(1)
|
Includes
350,000 shares (post-reverse
split) of common stock held by Mr. Klepfish. Also includes options
to purchase 5,000,000 shares (post reverse-split) of the Company’s common
stock,
and 15,300,000 shares issuable upon conversion of convertible notes
payable.
|
|
(2)
|
Includes
43,600,000 shares (post-reverse
split) of common stock held by Mr. Ferrone, and an aggregate of
420,000 shares (post reverse-split) held by
relatives of Mr. Ferrone. Also includes 4,000,000 shares (post-reverse
split) issuable upon conversion of notes held by children of Mr.
Ferrone; Also includes 8,521,002 shares (post-reverse
split) issuable upon conversion of accrued interest on notes
payable held by Mr. Ferrone, and 883,776 shares (post-reverse
split) issuable upon conversion of accrued interest on notes held
by children of Mr. Ferrone. Also includes options to
purchase 5,000,000 shares (post-reverse
split) of the Company's common stock held by Mr.
Ferrone.
|
|
(3)
|
Includes
1,000,000 shares (post-reverse
split) of common stock held by Mr. Gold, and options to purchase
5,000,000 shares (post-reverse
split) of common stock.
|
|
Also
includes 6,000,000 shares (post-reverse
split) issuable upon conversion of notes held by Mr. Gold, and
3,301,503 shares(post-reverse
split) issuable upon conversion of accrued interest on notes held
by Mr. Gold. Also includes 10,000,000 shares (post-reverse
split) issuable upon conversion of notes held by Mr.
Gold 2,664,638 shares (post-reverse
split) issuable upon conversion of accrued interest on notes held
by Mr. Gold. Also includes 920,000 shares (post-reverse
split) of common stock held by Mr. Gold's spouse.
|
|
|
(4)
|
Includes
3,800,000 shares (post-reverse
split) of common stock held by Mr. Ziakas, and options to purchase
500,000 shares (post-reverse
split) of common stock.
|
|
(5)
|
Includes
125,000,000 shares (post-reverse
split) issuable upon conversion of notes payable, and 32,622,529
shares (post-reverse
split) issuable upon conversion of accrued interest on notes
payable. Also includes 92,000,000 shares (post-reverse
split) issuable as a penalty for late registration of shares of
common stock underlying convertible notes payable, and warrants
to purchase an additional 148,200,000 shares (post-reverse
split) of common stock. Also includes 100,000 shares (post-reverse
split) of common stock held by the children of Mr.
Giakas.
|
ITEM 12. Certain Relationships and Related Transactions
At
various times in 2004, 2005, and 2006, we entered into note payable agreements
with certain related parties. The information concerning those notes is set
forth below:
|
Note
Holder
|
Relationship
|
Consideration
|
Interest
Rate
|
Conversion
Price
|
Principal
Balance December 31, 2004
|
Principal
Balance December 31, 2005
|
Principal
Balance December 31, 2006
|
||||||||||||||||
|
Michael
Ferrone
|
Director
|
Cash
|
8 | % | $ | 0.005 | $ | 160,000 | $ | 160,000 | $ | 160,000 | |||||||||||
|
Michael
Ferrone
|
Director
|
Cash
|
8 | % |
(a)
|
$ | 0.005 | 75,000 | 75,000 | 75,000 | |||||||||||||
|
Joel
Gold
|
Director
|
Cash
|
8 | % | $ | 0.005 | 50,000 | 50,000 | 50,000 | ||||||||||||||
|
Joel
Gold
|
Director
|
Cash
|
8 | % | $ | 0.005 | 100,000 | 100,000 | 25,000 | ||||||||||||||
|
Joel
Gold
|
Director
|
Cash
|
8 | % | $ | 0.005 | 25,000 | 25,000 | |||||||||||||||
|
Lauren
M. Ferrone (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
8 | % |
(a)
|
$ | 0.005 | 10,000 | 10,000 | 10,000 | |||||||||||||
|
Richard
D. (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
8 | % |
(a)
|
$ | 0.005 | 10,000 | 10,000 | 10,000 | |||||||||||||
|
Christian
D. (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
8 | % |
(a)
|
$ | 0.005 | 10,000 | 10,000 | 10,000 | |||||||||||||
|
Andrew
I. Ferrone (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
8 | % |
(a)
|
$ | 0.005 | 10,000 | 10,000 | 10,000 | |||||||||||||
|
Sam
Klepfish
|
Director
and Interim President
|
Services
|
8 | % | $ | 0.005 | - | - | 9,000 | ||||||||||||||
(a) In
default at December 31, 2004, 2005, and 2006.
During
the year ended December 31, 2004, the Company had the following transactions
with related parties:
The
Company received loans in the amount of $160,000 and $75,000 from
Michael Ferrone, and in the amount of $10,000 from each of four children of Mr.
Ferrone.
The
Company received loans in the amount of $50,000 and $100,000 from Joel
Gold.
During
the year ended December 31, 2005, the Company had the following transactions
with related parties:
The
Company received a loan in the amount of $25,000 from Joel Gold.
During
the year ended December 31, 2006, the Company had the following transactions
with related parties:
In June
2006, the Company converted $75,000 of the note payable to Joel Gold to
15,000,000 shares (post-reverse split) of common stock.
In May
2006, the Company issued 450,000 shares (post-reverse split) of common stock
with a fair value of $16,200 to each of its Chief Operating Officer and acting
Chief Financial Officer.
In May
2006, the Company issued 350,000 shares (post-reverse split) of commons stock
with a fair value of $17,500 to its Chief Executive Officer.
In
November 2006, the Company issued options to purchase 5,000,000 shares of common
stock at a price of $0.005 per share to each of its board members: Joel Gold,
Michael Ferrone, and Sam Klepfish.
ITEM 13. Exhibits
|
3.1
|
Articles
of Incorporation (incorporated by reference to exhibit 3.1 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
3.2
|
Bylaws
of the Company
|
|
4.1
|
Form
of Convertible Note (incorporated by reference to exhibit 4.1 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
4.2
|
Form
of Convertible Note (incorporated by reference to exhibit 4.2 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
4.3
|
Form
of Warrant - Class A (incorporated by reference to exhibit 4.3 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
4.4
|
Form
of Warrant - Class B (incorporated by reference to exhibit 4.4 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
4.5
|
Form
of Warrant - Class C (incorporated by reference to exhibit 4.5 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
10.1
|
Lease
of the Company's offices at Naples, Florida (incorporated by reference to
exhibit 10.1 of the Company’s annual report on Form 10-KSB for the year
ended December 31, 2004 filed with the Securities and Exchange Commission
on September 28, 2005).
|
|
10.2
|
Security
and Pledge Agreement – IVFH (incorporated by reference to exhibit 10.2 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
10.3
|
Security
and Pledge Agreement – FII (incorporated by reference to exhibit 10.3 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
10.4
|
Supply
Agreement with Next Day Gourmet, L.P. (incorporated by
reference to exhibit 10.4 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28, 2005).
|
|
10.5
|
Subscription
Agreement (incorporated by reference to exhibit 10.5 of the Company’s
annual report on Form 10-KSB for the year ended December 31, 2004 filed
with the Securities and Exchange Commission on September 28,
2005).
|
|
10.6
|
Management
contract between the Company and Joseph DiMaggio,
Jr. (incorporated by reference to exhibit 10.2 of the Company’s
annual report on Form 10-KSB for the year ended December 31, 2005 filed
with the Securities and Exchange Commission on April 17,
2006).
|
|
10.7
|
Management
contract between the Company and Z. Zackary Ziakas (incorporated by
reference to exhibit 10.3 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2005 filed with the Securities and
Exchange Commission on April 17, 2006).
|
|
10.8
|
Agreement
and Plan of Reorganization between IVFH and FII. (incorporated by
reference to exhibit 10.6 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28, 2005).
|
|
14
|
Code
of Ethics
|
|
21
|
Subsidiaries
of the Company
|
|
31.1
|
Rule
13a-14(a) Certification of President
|
|
31.2
|
Rule
13a-14(a) Certification of Principal Financial Officer
|
|
32.1
|
Rule
1350 Certification of President
|
|
32.2
|
Rule
1350 Certification of Principal Financial
Officer
|
ITEM 14. Principal Accountant Fees and Services
Audit
Fees
The
aggregate fees billed for each of the last three fiscal years for professional
services rendered by Bernstein & Pinchuk LLP (“Accountant”) for
the audit of our annual financial statements, and review of financial statements
included in our Form 10-QSB's: 2006:
$75,000; 2005: $75,000 and 2004: $65,000
Audit-Related
Fees
The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by Accountant that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported under Audit Fees above: $0
Tax Fees
The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by Accountant: $0.
All Other
Fees
The
aggregate fees billed in each of the last two fiscal years for products and
services provided by Bernstein & Pinchuck, other than the
services reported above: $0.
Report of Independent
Registered Public Accounting Firm
To the
Board of Directors and Shareholders of
Innovative
Food Holdings, Inc.
Naples,
Florida
We have
audited the accompanying balance sheets of Innovative Food Holdings, Inc and
subsidiary (“the Company”) as of December 31, 2006, 2005 and 2004 and the
related statements of operations, stockholders' deficiency, and cash flows for
each of the three years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have nor were we engaged to perform, an audit of its Internal
Control over financial reporting. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2006, 2005 and 2004 and the results of its operations and its cash flows for
each of the three years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1,
the Company has incurred significant losses from operations since its inception
and has a working capital deficiency. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note
1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As more
fully described in Note 17, subsequent to the issuance of the Company’s 2004
financial statements and our report thereon dated April 27, 2005 and the
Company’s 2005 financial statements and our report dated March 03, 2006, except
for Note 7, for which the date is April 10, 2006, the Company restated those
financial statements, expanded certain disclosures and added new ones. In our
original reports we expressed unqualified opinions on the 2004 and 2005
financial statements, and our opinion on the revised financial statements, as
expressed herein, remains unqualified.
/s/
Bernstein & Pinchuk LLP
New York,
New York
August
24, 2007
28
Innovative
Food Holdings, Inc.
Consolidated
Balance Sheet
|
December
31,
|
December
31,
|
December
31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||||
|
ASSETS
|
(Restated)
|
(Restated)
|
||||||||||
|
Current
assets
|
||||||||||||
|
Cash
and cash equivalents
|
$ | 118,518 | $ | 10,203 | $ | 28,011 | ||||||
|
Accounts
receivable, net of allowance
|
315,699 | 439,110 | 325,498 | |||||||||
|
Interest
receivable
|
7,147 | 7,147 | - | |||||||||
|
Loan
receivable, net of allowance
|
285,000 | 95,000 | - | |||||||||
|
Other
current assets
|
15,509 | 1,507 | - | |||||||||
|
Total
current assets
|
741,873 | 552,967 | 353,509 | |||||||||
|
Property
and equipment, net of accumulated depreciation
|
92,628 | 94,694 | 103,821 | |||||||||
|
Total
assets
|
$ | 834,501 | $ | 647,661 | $ | 457,330 | ||||||
|
LIABILITIES
AND (DEFICIENCY IN) STOCKHOLDERS' EQUITY
|
||||||||||||
|
Current
liabilities
|
||||||||||||
|
Accounts
payable and accrued liabilities
|
886,145 | 654,331 | 618,915 | |||||||||
|
Accrued
interest, net of discount
|
172,950 | 28,260 | 1,743 | |||||||||
|
Accrued
interest - related parties, net of discount
|
105,194 | 41,937 | 7,622 | |||||||||
|
Amount
due under bank credit line
|
24,272 | 24,247 | 24,520 | |||||||||
|
Notes
payable, current portion
|
927,421 | 784,000 | - | |||||||||
|
Notes
payable - related parties, current portion
|
384,000 | 425,000 | 115,000 | |||||||||
|
Warrant
liability
|
521,606 | 6,016,252 | - | |||||||||
|
Conversion
option liability
|
437,207 | 7,103,275 | - | |||||||||
|
Penalty
for late registration of shares
|
262,560 | 926,720 | - | |||||||||
|
Total
current liabilities
|
3,721,355 | 16,004,022 | 767,800 | |||||||||
|
Notes
payable
|
20,956 | 25,000 | 198,000 | |||||||||
|
Notes
payable - related parties
|
- | 25,000 | 390,000 | |||||||||
|
Total
liabilities
|
3,742,311 | 16,054,022 | 1,355,800 | |||||||||
|
(Deficiency
in) stockholder's equity
|
||||||||||||
|
Common
stock, $0.0001 par value; 500,000,000 shares authorized;
151,310,796,
|
||||||||||||
|
104,742,037,
and 72,992,037 shares issued and outstanding at December 31,
2006,
|
||||||||||||
|
2005,
and 2004, respectively
|
15,131 | 10,474 | 7,299 | |||||||||
|
Common
stock subscribed
|
- | 36,000 | - | |||||||||
|
Additional
paid-in capital
|
440,306 | 47,825 | 4,857,979 | |||||||||
|
Accumulated
deficit
|
(3,363,247 | ) | (15,500,660 | ) | (5,763,748 | ) | ||||||
|
Total
(deficiency in) stockholder's equity
|
(2,907,810 | ) | (15,406,361 | ) | (898,470 | ) | ||||||
|
Total
liabilities and (deficiency in) stockholders' equity
|
$ | 834,501 | $ | 647,661 | $ | 457,330 | ||||||
The
accompanying notes are an integral part of these consolidated
financial statements.
Innovative
Food Holdings, Inc.
Consolidated
Statements of Operations
|
For
the Year
|
For
the Year
|
For
the Year
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
December
31,
|
December
31,
|
December
31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||||
|
(Restated)
|
(Restated)
|
|||||||||||
|
Revenue
|
$ | 7,074,088 | $ | 5,552,765 | $ | 4,669,233 | ||||||
|
Cost
of goods sold
|
5,372,349 | 4,317,996 | 3,869,795 | |||||||||
| 1,701,739 | 1,234,769 | 799,438 | ||||||||||
|
Selling,
General and administrative expenses
|
2,088,590 | 1,847,027 | 4,637,998 | |||||||||
|
Total
operating expenses
|
2,088,590 | 1,847,027 | 4,637,998 | |||||||||
|
Operating
loss
|
(386,851 | ) | (612,258 | ) | (3,838,560 | ) | ||||||
|
Other
(income) expense:
|
||||||||||||
|
Interest
(income) expense
|
385,505 | 751,783 | 690,801 | |||||||||
|
Cost
of penalty for late registration of shares
|
1,668,792 | 2,162,560 | - | |||||||||
|
Change
in fair value of warrant liability
|
(5,579,541 | ) | (4,346,713 | ) | - | |||||||
|
Change
in fair value of conversion option liability
|
(6,666,068 | ) | (5,361,958 | ) | - | |||||||
|
(gain)
loss from marking to market - registration penalty
|
(2,332,952 | ) | (1,235,840 | ) | - | |||||||
|
Total
other (income) expense
|
(12,524,264 | ) | (8,030,168 | ) | 690,801 | |||||||
|
Loss
before income taxes
|
12,137,413 | 7,417,910 | (4,529,361 | ) | ||||||||
|
Income
tax expense
|
- | - | - | |||||||||
|
Net
income (loss)
|
$ | 12,137,413 | $ | 7,417,910 | $ | (4,529,361 | ) | |||||
|
Net
loss per share - basic (post reverse-splits)
|
$ | 0.09 | $ | 0.08 | $ | (0.10 | ) | |||||
|
Weighted
average shares outstanding - basic (post reverse-splits)
|
128,144,848 | 88,244,366 | 46,391,846 | |||||||||
|
Weighted
average shares outstanding - diluted (post reverse-splits)
|
230,873,419 | 88,244,366 | 46,391,846 | |||||||||
The
accompanying notes are an integral part of these consolidated
financial statements.
Innovative
Food Holdings, Inc.
Consolidated
Statements of Cash Flows
|
For
the
|
For
the
|
For
the
|
||||||||||
|
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||||
|
December
31,
|
December
31,
|
December
31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||||
|
(Restated)
|
(Restated)
|
|||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income (loss)
|
12,137,413 | $ | 7,417,910 | $ | (4,529,361 | ) | ||||||
|
Adjustments
to reconcile net loss to to net
|
||||||||||||
|
cash
used in operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
54,298 | 54,183 | 52,049 | |||||||||
|
Value
of warrants and options issued
|
84,895 | - | - | |||||||||
|
Stock
issued to employees for services performed
|
49,901 | 36,000 | 68,500 | |||||||||
|
Stock
issued to board members for services performed
|
- | - | 136,000 | |||||||||
|
Stock
issued to consultants for services performed
|
- | 45,400 | 2,420,000 | |||||||||
|
Note
payable issued to officer for salary
|
9,000 | - | - | |||||||||
|
Options
issued to officer
|
- | - | 135,673 | |||||||||
|
Reserve
for bad debt
|
- | 75,000 | - | |||||||||
|
Amortization
of discount on notes payable and interest on notes payable
|
9,000 | 605,000 | 703,000 | |||||||||
|
Cost
of penalty due to late registration of shares
|
1,668,792 | 2,162,560 | - | |||||||||
|
Change
in fair value of warrant liability
|
(5,579,541 | ) | (4,358,284 | ) | - | |||||||
|
Change
in fair value of conversion option liability
|
(6,666,068 | ) | (5,350,387 | ) | - | |||||||
|
Change
in fair value of penalty for late registration of shares
|
(2,332,952 | ) | (1,235,840 | ) | - | |||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Accounts
receivable, net
|
123,411 | (113,612 | ) | (60,482 | ) | |||||||
|
Interest
receivable
|
- | (7,147 | ) | - | ||||||||
|
Prepaids
|
(14,002 | ) | (1,507 | ) | - | |||||||
|
Accounts
payable and accrued expenses
|
634,628 | 196,245 | 100,617 | |||||||||
|
Other
current liabilities
|
- | - | - | |||||||||
|
Net
cash provided by (used in) operating activities
|
178,775 | (474,479 | ) | (974,004 | ) | |||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Loan
to Pasta Italiano
|
(190,000 | ) | (170,000 | ) | 0 | |||||||
|
Acquisiton
of property and equipment
|
(26,445 | ) | (45,056 | ) | (78,644 | ) | ||||||
|
Net
cash (used in) investing activities
|
(216,445 | ) | (215,056 | ) | (78,644 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from issuance of debt
|
160,000 | 605,000 | 715,920 | |||||||||
|
Proceedds
from (payments on) bank credit line
|
25 | (273 | ) | 382 | ||||||||
|
Principal
payments on debt
|
(14,040 | ) | - | - | ||||||||
|
Proceeds
from sale of common stock
|
- | 67,000 | 320,225 | |||||||||
|
Net
cash provided by financing activities
|
145,985 | 671,727 | 1,036,527 | |||||||||
|
Increase
(decrease) in cash and cash equivalents
|
108,315 | (17,808 | ) | (16,121 | ) | |||||||
|
Cash
and cash equivalents at beginning of period
|
10,203 | 28,011 | 44,132 | |||||||||
|
Cash
and cash equivalents at end of period
|
118,518 | $ | 10,203 | $ | 28,011 | |||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||||
|
Cash
paid during the period for:
|
||||||||||||
|
Interest
|
$ | - | $ | - | $ | - | ||||||
|
Taxes
|
$ | - | $ | - | $ | - | ||||||
The
accompanying notes are an integral part of these consolidated
financial statements.
Innovative
Food Holdings, Inc.
Consolidated
Statements of Cash Flows
(continued)
|
For
the
|
For
the
|
For
the
|
||||||||||
|
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||||
|
December
31,
|
December
31,
|
December
31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||||
|
(Restated)
|
(Restated)
|
|||||||||||
|
Common
stock issued to consultants for services
|
$ | - | $ | 45,667 | $ | 2,420,000 | ||||||
|
Notes
payable issued for acquisition of computer equipment
|
$ | 25,385 | $ | - | $ | - | ||||||
|
Value
of warrants issued
|
$ | 28,143 | $ | - | $ | - | ||||||
|
Commmon
stock issued for conversion of notes payable and accrued
interest
|
$ | 70,255 | $ | 49,000 | $ | 788,176 | ||||||
|
Conversion
of current liabilities to common stock
|
$ | - | $ | - | $ | 339,750 | ||||||
|
Common
stock issued to employees as bonuses
|
$ | 49,901 | $ | - | $ | 68,500 | ||||||
|
Common
stock issued to board members as compensation
|
$ | - | $ | - | $ | 136,000 | ||||||
|
Charge
to equity for change to liability method for value
|
||||||||||||
|
of
beneficial conversion feature of notes payable
|
$ | - | $ | 12,528,662 | ||||||||
|
Charge
to equity for change to liability method of warrant
valuation
|
$ | 10,374,536 | ||||||||||
|
Value
of warrants and options issued as compensation
|
$ | 67,500 | $ | - | $ | - | ||||||
|
Revaluation
of conversion option liability
|
$ | (6,666,068 | ) | $ | (5,361,958 | ) | $ | - | ||||
|
Revaluation
of warrant liability
|
$ | (5,579,541 | ) | $ | (4,346,713 | ) | $ | - | ||||
|
Cost
of penalty for late registration of shares
|
$ | 1,668,792 | $ | 2,162,560 | $ | - | ||||||
|
Revaluation
of penalty for late registration of shares
|
$ | (2,332,952 | ) | $ | (1,235,840 | ) | $ | - | ||||
The
accompanying notes are an integral part of these consolidated
financial statements.
Innovative
Food Holdings, Inc. and subsidiary
Consolidated
Statements of Stockholders' Deficiency
For
the three years ended December 31, 2006
|
Common
Stock
|
Common
Stock
|
Accum
|
||||||||||||||||||||||
|
Amount
|
Value
|
APIC
|
Subscribed
|
Deficit
|
Total
|
|||||||||||||||||||
|
Balance
at December 31, 2003
|
25,000,000 | $ | 2,500 | $ | (2,500 | ) | $ | - | $ | (1,234,387 | ) | $ | (1,234,387 | ) | ||||||||||
|
Shares
outstanding at time of merger
|
157,037 | 16 | (16 | ) | - | - | (0 | ) | ||||||||||||||||
|
Common
stock issued for services performed
|
18,700,000 | 1,870 | 2,418,130 | - | - | 2,420,000 | ||||||||||||||||||
|
Common
stock sold for cash
|
15,000,000 | 1,500 | 318,725 | - | - | 320,225 | ||||||||||||||||||
|
Common
stock issued for conversion of note payable and current
liab
|
4,910,000 | 491 | 787,685 | - | - | 788,176 | ||||||||||||||||||
|
Common
stock issued for conversion of current liabilities
|
1,300,000 | 130 | 339,620 | - | - | 339,750 | ||||||||||||||||||
|
Common
stock to employee and
boardmembers for services performed |
7,925,000 | 792 | 203,708 | - | - | 204,500 | ||||||||||||||||||
|
Value
of options issued to officer
|
- | - | 135,673 | - | - | 135,673 | ||||||||||||||||||
|
Beneficial
conversion feature of accrued interest
|
- | - | 28,954 | - | - | 28,954 | ||||||||||||||||||
|
Beneficial
conversion feature of notes payable
|
- | - | 628,000 | - | - | 628,000 | ||||||||||||||||||
|
Loss
for the year ended December 31, 2004
|
- | - | - | - | (4,529,361 | ) | (4,529,361 | ) | ||||||||||||||||
|
Balance
at December 31, 2004
|
72,992,037 | $ | 7,299 | $ | 4,857,979 | $ | - | $ | (5,763,748 | ) | $ | (898,470 | ) | |||||||||||
|
Common
stock issued for conversion of note payale
|
5,000,000 | 500 | (500 | ) | - | - | - | |||||||||||||||||
|
Common
stock issued to employees for services performed
|
750,000 | 75 | 8,925 | - | - | 9,000 | ||||||||||||||||||
|
Common
stock issued to consultants for services performed
|
100,000 | 10 | 1,290 | - | - | 1,300 | ||||||||||||||||||
|
Common
stock issued to consultants for services performed
|
100,000 | 10 | 1,290 | - | - | 1,300 | ||||||||||||||||||
|
Common
stock issued to consultants for services performed
|
100,000 | 10 | 1,290 | - | - | 1,300 | ||||||||||||||||||
|
Common
stock issued to board members for services performed
|
2,500,000 | 250 | 32,250 | - | - | 32,500 | ||||||||||||||||||
|
Common
stock sold for cash
|
13,400,000 | 1,340 | 65,660 | - | - | 67,000 | ||||||||||||||||||
|
Common
stock issued for conversion of note payable
|
8,800,000 | 880 | 43,120 | - | - | 44,000 | ||||||||||||||||||
|
Common
stock issued for conversion of note payable
|
1,000,000 | 100 | 4,900 | - | - | 5,000 | ||||||||||||||||||
The
accompanying notes are an integral part of these consolidated
financial statements.
Innovative
Food Holdings, Inc. and subsidiary
Consolidated
Statements of Stockholders' Deficiency
For
the Three Years Ended December 31, 2006
(continued)
|
Common
Stock
|
Common
Stock
|
Accum
|
||||||||||||||||||||||
|
Amount
|
Value
|
APIC
|
Subscribed
|
Deficit
|
Total
|
|||||||||||||||||||
|
Common
stock subscribed for employee bonus
|
- | - | - | 36,000 | - | 36,000 | ||||||||||||||||||
|
Beneficial
conversion feature of notes payable
|
- | - | 195,795 | - | - | 195,795 | ||||||||||||||||||
|
Beneficial
converson feature of accrued interest
|
- | - | 91,911 | - | - | 91,911 | ||||||||||||||||||
|
Fair
value of warrants
|
- | - | 409,205 | - | - | 409,205 | ||||||||||||||||||
|
Change
in method of accounting for warrant liability
|
- | - | - | - | (10,374,536 | ) | (10,374,536 | ) | ||||||||||||||||
|
Change
in method of accounting for conversion option
liability
|
- | (5,665,290 | ) | (6,780,286 | ) | (12,445,576 | ) | |||||||||||||||||
|
Loss
for the year ended December 31, 2005
|
- | - | - | - | 7,417,910 | 7,417,910 | ||||||||||||||||||
|
Balance
at December 31, 2005
|
104,742,037 | $ | 10,474 | $ | 47,825 | $ | 36,000 | $ | (15,500,660 | ) | $ | (15,406,361 | ) | |||||||||||
|
Issuance
of shares previously subscribed
|
600,000 | 60 | 35,940 | (36,000 | ) | - | - | |||||||||||||||||
|
Common
shares issued for conversion of note payable
|
34,718,759 | 3,472 | 142,256 | 145,728 | ||||||||||||||||||||
|
Discount
due to BCF of interest accrued on convertible notes
payable
|
156,510 | 156,510 | ||||||||||||||||||||||
|
Common
shares issued for acquisition, to be cancelled
|
10,000,000 | 1,000 | (1,000 | ) | - | |||||||||||||||||||
|
Common
shares issued to employee as bonus
|
900,000 | 90 | 32,310 | 32,400 | ||||||||||||||||||||
|
Common
shares issued to officer as bonus
|
350,000 | 35 | 17,465 | 17,500 | ||||||||||||||||||||
|
Discount
due to BCF of convertible note payable
|
9,000 | 9,000 | ||||||||||||||||||||||
|
Income
for the year ended December 31, 2006
|
12,137,413 | 12,137,413 | ||||||||||||||||||||||
|
Balance
at December 31, 2006
|
151,310,796 | $ | 15,131 | $ | 440,306 | $ | - | $ | (3,363,247 | ) | $ | (2,907,810 | ) | |||||||||||
The
accompanying notes are an integral part of these consolidated
financial statements.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 Technology, Ltd. (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.
The
Company had a 1-for-200 reverse split of its common stock effective March 8,
2004. There were a total of 30,011,706 shares issued and outstanding
immeditately before the reverse split, and 157,037 shares issued and outstanding
immediately after the reverse split.
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.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 reported periods. Actual results could materially differ from those
estimates.
Principles of
Consolidation
The
accompanying consolidates financial statements include the accounts of the
Company and its wholly owned subsidiary, Food Innovations,
Inc. All material intercompany transactions have been eliminated upon
consolidation of these entities.
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 policy to comply with the provisions
of EITF No. 00-21.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
Cash and Cash
Equivalents
Cash
equivalents include all highly liquid debt instruments with original maturities
of three months or less which are not securing any corporate
obligations.
Accounts
Receivable
The
Company provides an allowance for doubtful accounts equal to the estimated
uncollectible amounts. The Company’s estimate is based on historical
collection experience and a review of the current status of trade accounts
receivable. It is reasonably possible that the Company’s estimate of
the allowance for doubtful accounts will change. Accounts receivable
are presented net of an allowance for doubtful accounts of $10,000, $18,399, and
$65,000 at December 31, 2006, 2005, and 2004, respectively.
Property and
Equipment
Property
and equipment are valued at cost. Depreciation is provided over the
estimated useful lives up to five years using the straight-line
method. Leasehold improvements are depreciated on a straight-line
basis over the term of the lease.
The
estimated service lives of property and equipment are as follows:
Computer
Equipment
3 years
Office
Furniture and Fixtures 5 years
Inventories
The
Company does not currently maintain any material amount of
inventory.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. Deferred tax assets, including tax loss and credit
carryforwards, and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Deferred
income tax expense represents the change during the period in the deferred tax
assets and deferred tax liabilities. The components of the deferred tax assets
and liabilities are individually classified as
current and non-current based on their characteristics. Realization
of the deferred tax asset is dependent on generating sufficient taxable income
in future years. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Fair Value of Financial
Instruments
The
carrying amount of the Company’s cash and cash equivalents, accounts receivable,
notes payable, line of credit, accounts payable and accrued expenses, none of
which is held for trading, approximates their estimated fair values due to the
short-term maturities of those financial instruments.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
Long-Lived
Assets
The
Company reviews its fixed assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The test for impairment is
required to be performed by management at least annually. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to the future undiscounted operating cash flow expected to be generated
by the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less costs to
sell.
As of
December 31, 2006, 2005, and 2004, the Company’s management believes
there is no impairment of its long-lived assets. There can be no
assurance, however, that market conditions will not change which could result in
impairment of long-lived assets in the future.
Comprehensive
Income
Statement
of Financial Accounting Standards No. 130 (“SFAS 130”), “Reporting Comprehensive
Income,” establishes standards for reporting and displaying of comprehensive
income, its components and accumulated balances. Comprehensive income
is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are required to be recognized
under current accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company does not have any items of
comprehensive income in any of the periods presented.
Basic and Diluted Loss Per
Share
In
accordance with SFAS No. 128, "Earnings Per Share," the basic loss per common
share is computed by dividing net loss available to common stockholders less
preferred dividends by the weighted average number of common shares outstanding.
Diluted loss per common share is computed similarly to basic loss per common
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were not
anti-dilutive. The Company has excluded all out standing warrants,
options, and shares issuable upon conversion of preferred stock to common stock
from the calculation of diluted net loss per share because these securities are
anti-dilutive.
Liquidity
As
reflected in the accompanying consolidated financial statements, the Company had
net income (loss) of $12,137,413, $7,417,910, and $(4,529,361) for the years
ended December 31, 2006, 2005 and 2004, respectively, but this variance was
principally due to changes in fair values of warrant, conversion option and
registration penalty liabilities rather than improved operations. The
Company has an accumulated deficit of $3,363,247, $15,500,660, and
$5,763,748 at December 31, 2006, 2005, and 2004,
respectively. In addition, the Company’s current liabilities exceeded
its current assets by $2,983,928, $15,451,055, and $414,291as of December 31,
2006, 2005, and 2004, respectively. Consequently, its operations are
subject to all risks inherent in the establishment of a new business
enterprise.
Concentrations of Credit
Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash in
investments with credit quality institutions. At times, such
investments may be in excess of applicable government mandated insurance
limit. Concentrations of credit risk with respect to trade
receivables are limited to the large number of customers comprising the
Company’s customer base.
Reclassification
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
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" ("APB 25") 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 December 31, 2006 was
$0. Pro forma stock based compensation was $0 for the three months ended
December 31, 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 (post-reverse
split) under the Plan as of December 31, 2006, and changes
during the period then ended are presented below:
|
Options
|
Weighted-
Average Exercise Price
|
|||||||
|
Outstanding
December 31, 2004
|
500,000 | $ | 0.50 | |||||
|
Issued
|
||||||||
|
Exercised
|
||||||||
|
Forfeited
or expired
|
||||||||
|
Outstanding
December 31, 2005
|
500,000 | $ | 0.50 | |||||
|
Issued
|
15,000,000 | 0.01 | ||||||
|
Exercised
|
- | - | ||||||
|
Forfeited
or expired
|
- | - | ||||||
|
Outstanding
at December 31, 2006
|
15,500,000 | $ | 0.02 | |||||
|
Non-vested
at December 31, 2006
|
200,000 | $ | 0.01 | |||||
|
Exercisable
at December 31, 2006
|
15,300,000 | $ | 0.02 | |||||
Aggregate
intrinsic value of options outstanding and options exercisable at December 31,
2006 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 (post-reverse
split) as of December 31, 2006, and the
exercise price multiplied by the
number of options outstanding. As of December
31, 2006, total unrecognized stock-based
compensation expense related to non-vested stock options was $0. The total fair
value of options vested was $67,500 for the three-month periods ended December
31, 2006.
Significant Recent
Accounting Pronouncements
In April
2003, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (SFAS) No. 149, Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends SFAS No. 133 to
provide clarification on the financial accounting and reporting of derivative
instruments and hedging activities and requires that contracts with similar
characteristics be accounted for on a comparable basis. The provisions of SFAS
149 are effective for contracts entered into or modified after June 30, 2003,
and for hedging relationships designated after June 30, 2003. The adoption of
SFAS 149 did not have a material impact on the Company's results of operations
or financial position.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
In May
2003, the FASB issued SFAS
No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both liabilities and
Equity. SFAS 150 establishes standards on
the classification and measurement of
certain financial instruments with characteristics of both
liabilities and equity. The provisions of SFAS 150 are effective for
financial instruments entered into or
modified after May 31, 2003 and to all
other instruments that exist as of the beginning of the
first interim financial reporting period beginning after
June 15, 2003. The adoption of SFAS
150 did not have
a material impact on the Company's results of
operations or financial position.
In December 2003, the FASB issued a revision of
SFAS No. 132, "Employers' Disclosures About Pensions And
Other Postretirement Benefits." This pronouncement, SFAS
No.
132-R, expands employers' disclosures about
pension plans and other post-retirement benefits, but does not change the
measurement or recognition of such plans required by SFAS No. 87, No. 88, and
No. 106. SFAS No. 132-R retains the existing disclosure requirements of SFAS No.
132, and requires
certain additional disclosures about defined
benefit post-retirement plans. Except as described in the
following sentence, SFAS No. 132-R is effective for
foreign plans for fiscal years ending after June 15,
2004; after the effective date, restatement for some of the new
disclosures is required for earlier annual periods. Some of the interim-period
disclosures mandated by SFAS No. 132-R (such as the components of net periodic
benefit cost, and certain key assumptions) are effective for
foreign plans for
quarters beginning after December 15, 2003;
other interim-period disclosures will not be required for the Company
until the first quarter of 2005. Since
the Company does not have
any defined benefit
post-retirement plans, the adoption of
this pronouncement did not have any impact on the
Company's results of operations or financial condition.
In
November 2004, the FASB issued SFAS
151, Inventory Costs-- an amendment of ARB No. 43, Chapter
4. This Statement amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and
wasted material (spoilage). Paragraph 5 of ARB 43, Chapter
4, previously stated that ". . . under
some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as
current period charges. . . ." This
Statement requires that those items be
recognized as current-period charges
regardless of whether they meet the criterion of
"so abnormal." In addition, this
Statement requires that allocation of
fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This Statement is effective for
inventory costs incurred during
fiscal years beginning after June 15,
2005. Management does not believe the
adoption of this Statement will have
any immediate material impact on the
Company. In December 2004, the FASB issued SFAS
No.152, "Accounting for RealEstate Time-Sharing
Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS 152)
The amendments made by Statement 152
This Statement amends FASB
Statement No. 66, Accounting for Sales
of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in
AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing Transactions. This Statement also amends
FASB Statement No. 67, Accounting for Costs and
Initial Rental Operations of Real Estate
Projects, to state that the guidance for (a)
incidental operations and (b) costs incurred to
sell real estate projects does not
apply to real estate time-sharing transactions. The accounting for
those operations and costs is subject to
the guidance in SOP
04-2. This Statement is effective for
financial statements for
fiscal years beginning after June
15, 2005. with
earlier application encouraged. The Company does not anticipate that
the implementation of this standard will have a
material impact on its financial position, results
of operations or cash flows.
On December 16, 2004, the
FASB published Statement of Financial Accounting Standards No. 123 (Revised
2004), Share-Based Payment ("SFAS 123R").SFAS
123R requires that compensation cost related to share-based
payment transactions be recognized in
the financial statements. Share-based
payment transactions within the scope of
SFAS 123R include stock options,
restricted stock plans, performance-based awards, stock appreciation rights, and
employee share purchase plans. The provisions of SFAS 123R
are effective as of the first interim period that
begins after June
15, 2005. Accordingly, the Company has
implemented the revised standard in the third quarter of
fiscal year 2005. Previously, the Company accounted
for its share-based payment transactions
under the provisions of
APB 25, which does not necessarily require the
recognition of compensation cost in the
financial statements.
On
December 16, 2004, FASB issued Statement of Financial Accounting Standards No.
153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No.
29, Accounting for Nonmonetary Transactions (" SFAS
153"). This statement amends APB Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Under SFAS
153, if a nonmonetary exchange of similar productive assets meets a
commercial-substance criterion and fair value is determinable, the
transaction must be accounted for at
fair value resulting in recognition of
any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods
that begin after June 15, 2005. The
Company does not anticipate that
the implementation of this standard will have
a material impact on
its financial position, results of operations
or cash flows.
In May
2005, the FASB issued FASB Statement No. 154, ("FAS 154"), "Accounting Changes
and Error Corrections." FAS 154 establishes retrospective application as the
required method for reporting a change in accounting principle in the absence of
explicit transition requirements specific to the newly adopted accounting
principle. FAS 154 also provides guidance for determining whether retrospective
application of a change in accounting principle is impracticable and for
reporting a change when retrospective application is impracticable. FAS 154
becomes effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005.
In
November 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3, "Transition
Election Related to Accounting for Tax Effects of Share-Based Payment Awards."
The alternative transition method includes simplified methods to establish the
beginning balance of the additional paid-in capital pool ("APIC pool") related
to the tax effects of employee share-based compensation, and to determine the
subsequent impact on the APIC pool and consolidated statements of cash flows of
the tax effects of employee share-based compensation awards that are outstanding
upon adoption of SFAS 123(R). An entity may make a one-time election to adopt
the transition methoddescribed in this guidance and may take up to one year from
the later of its initial adoption of SFAS 123(R) or the effective date of this
guidance, which was November 11, 2005. The company has elected not to adopt the
alternative transition method provided in FAS 123(R)-3 for calculating the tax
effects of share-based compensation pursuant to SFAS 123(R).
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
In
December 2004, the FASB issued FASB Statement No. 123(R), ("FAS 123(R)"),
"Share-Based Payment," which is a revision of FASB Statement No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation." FAS 123(R) supersedes APB
Opinion No. 25, (APB 25), "Accounting for Stock Issued to Employees," and amends
FASB Statement No. 95, "Statement of Cash Flows." FAS 123(R) requires all
share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their
fair values at the date of grant and to record that cost as compensation expense
over the period during which the employee is required to perform service in
exchange for the award (generally over the vesting period of the award). Excess
tax benefits, as defined by FAS 123(R), will be recognized as an addition to
common stock. In April 2005, the SEC adopted a new rule that amends the
compliance dates for FAS 123(R). In accordance with the new rule, we are
required to implement FAS 123(R) at the beginning of our interim period that
began January 1, 2006. The Commission's new rule does not change the accounting
required by FAS 123(R); it changes only the dates of compliance.
Our
calculation of share-based compensation expense in future periods will be
calculated using the Black-Scholes option valuation model and will include the
portion of share-based payment awards that is ultimately expected to vest during
the period and therefore will be adjusted to reflect estimated forfeitures. SFAS
123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. In our pro forma information required under SFAS 123 for the periods
prior to 2006, we accounted for forfeitures as they occurred. For share awards
granted after January 1, 2006, expenses will be amortized under the
straight-line attribution method. For share awards granted prior to 2006,
expenses are amortized under the straight-line single option method prescribed
by SFAS 123. We expect that our adoption of FAS 123(R) in 2006 will have a
material impact on our results of operations and net loss per
share.
In
February 2006, the FASB issued SFAS No. 155. “Accounting for certain Hybrid
Financial Instruments an amendment of FASB Statements No. 133 and 140,”
or SFAS No. 155. SFAS No. 155 permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of Statement No. 133, establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006. We do not expect the adoption of SFAS 155 to have a material
impact on our consolidated financial position, results of operations or cash
flows.
In March
2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
Financial Assets - an amendment to FASB Statement No. 140. Statement 156
requires that an entity recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into a
service contract under certain situations. The new standard is effective for
fiscal years beginning after September 15, 2006. The adoption of SFAS No.156 did
not have a material impact on the Company's financial position and results of
operations.
In July
2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting for uncertainty in Income
Taxes”. FIN 48 clarifies the accounting for Income Taxes by prescribing
the minimum recognition threshold a tax position is required to meet before
being recognized in the financial statements. It also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition and clearly scopes income taxes
out of SFAS 5, “Accounting for
Contingencies”. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company does not expect adoption of this standard will
have a material impact on its financial position, operations or cash
flows.
In
September 2006 the FASB issued its Statement of Financial Accounting Standards
157, Fair Value Measurements. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
However, for some entities, the application of this Statement will change
current practice. FAS 157 effective date is for fiscal years beginning after
November 15, 2007. The Company does not expect adoption of this standard will
have a material impact on its financial position, operations or cash
flows.
In
September 2006 the FASB issued its Statement of Financial Accounting Standards
158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans”. This Statement improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. This Statement also improves financial reporting by requiring an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. The effective date for
an employer with publicly traded equity securities is as of the end of the
fiscal year ending after December 15, 2006. The Company does not expect adoption
of this standard will have a material impact on its financial position,
operations or cash flows
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS 159 applies to reporting periods beginning after November 15, 2007. The
adoption of SFAS 159 is not expected to have a material impact on the Company’s
financial condition or results of operations.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
2.
ACCOUNTS RECEIVABLE
At
December 31, 2006, 2005, and 2004 accounts receivable consists
of:
|
2006
|
2005
|
2004
|
||||||||||
|
Accounts
receivable from customers
|
$ | 325,699 | $ | 457,509 | $ | 390,498 | ||||||
|
Allowance
for doubtful accounts
|
(10,000 | ) | (18,399 | ) | (65,000 | ) | ||||||
|
Accounts
receivable, net
|
$ | 315,699 | $ | 439,110 | $ | 325,498 | ||||||
3. OTHER
CURRENT ASSETS
At
December 31, 2006, 2005, and 2004, other current assets consist of
the following:
|
2006
|
2005
|
2004
|
||||||||||
|
Prepaid
expenses
|
$ | 13,734 | $ | 1,507 | $ | - | ||||||
|
Employee
receivable
|
1,775 | - | - | |||||||||
|
Total
|
$ | 15,509 | $ | 1,507 | $ | - | ||||||
4. LOAN
RECEIVABLE AND INTEREST RECEIVABLE
The
balance of loan receivable consisted of a loan to Pasta Italiana, Inc in the
amount of $360,000, $170,000, and $0 at December 31, 2006, 2005, and
2004, respectively. This note bears interest in the amount of 15% per
annum, and matured on August 24, 2006. At December 31,
2005, the Company has reserved $75,000 of the loan receivable and recognized
interest income from this loan in the amount of $7,147. During the year ended
December 31, 2006 the Company recognized no interest income on this
note
5.
PROPERTY AND EQUIPMENT
A summary
of property and equipment at December 31, 2006, 2005, and 2004 is as
follows:
|
2006
|
2005
|
2004
|
||||||||||
|
Computer
hardware and software
|
$ | 228,970 | $ | 178,088 | $ | 163,099 | ||||||
|
Furniture
and fixtures
|
82,213 | 80,863 | 50,795 | |||||||||
|
Less
accumulated depreciation and amortization
|
(218,555 | ) | (164,257 | ) | (110,073 | ) | ||||||
|
Total
|
$ | 92,628 | $ | 94,694 | $ | 103,821 | ||||||
Depreciation
and amortization expense for property and equipment amounted to $52,298,
$54,183, and $52,049 for the years ended December 31, 2006, 2005 and 2004,
respectively.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
6.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2006, 2005, and 2004
are as follows:
|
2006
|
2005
|
2004
|
||||||||||
|
Accounts
payable and accrued expenses
|
$ | 880,130 | $ | 650,543 | $ | 613,857 | ||||||
|
Accrued
commissions
|
6,015 | 3,788 | 5,058 | |||||||||
|
Total
|
$ | 886,145 | $ | 654,331 | $ | 618,915 | ||||||
7. ACCRUED
INTEREST
Accrued
interest on the Company’s convertible notes payable is convertible at the option
of the note holders into the Company’s common stock at price ranging from of
$0.005 to $0.10 per share (post reverse-split). There is a beneficial
conversion feature embedded in the convertible accrued interest. The
Company is amortizing this beneficial conversion feature over the life of the
related party notes payable. During the twelve months ended December
31, 2006, 2005, and 2004, the amounts of $130,200, $128,684, and $28,954,
respectively, were credited to additional paid-in capital as a discount on
accrued interest. Of this amount, a total of $176,053 was expensed to
interest during the twelve months ended December 31, 2006; $55,044 was expensed
to interest during the twelve months ended December 31, 2005; and $6,672 was
expensed to interest during the twelve months ended December 31,
2004.
At
December 31, 2006, the Company has the following accrued interest on its balance
sheet:
|
Gross
|
Discount
|
Net
|
||||||||||
|
Non-related
parties
|
$ | 194,337 | $ | 21,387 | $ | 172,950 | ||||||
|
Related
parties
|
105,194 | - | 105,194 | |||||||||
|
Total
|
$ | 299,531 | $ | 21,387 | $ | 278,144 | ||||||
At
December 31, 2005, the Company has the following accrued interest on its balance
sheet:
|
Gross
|
Discount
|
Net
|
||||||||||
|
Non-related
parties
|
$ | 70,970 | $ | 42,710 | $ | 28,260 | ||||||
|
Related
parties
|
65,985 | 24,048 | 41,937 | |||||||||
|
Total
|
$ | 136,955 | $ | 66,758 | $ | 70,197 | ||||||
At
December 31, 2004, the Company has the following accrued interest on its balance
sheet:
|
Gross
|
Discount
|
Net
|
||||||||||
|
Non-related
parties
|
$ | 7,721 | $ | 5,978 | $ | 1,743 | ||||||
|
Related
parties
|
23,715 | 16,093 | 7,622 | |||||||||
|
Total
|
$ | 31,436 | $ | 22,071 | $ | 9,365 | ||||||
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
8. 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 December 31, 2006, 2005, and
2004 was $24,272, 24,247, and 24,520, respectively.
At
December 31, 2006, 2005, and 2004, the Company has outstanding notes payable in
the aggregate amount of $1,332,377, $1,259,000, and $703,000,
respectively. Notes payable and notes payable to related parties at
December 31, 2006, 2005, and 2004, consisted 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 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 $51,883, $40,280, and $1,381 was accrued
on this note during the twelve months ended December 31,
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 December 31, 2006 and
2005.
|
$ | 345,000 | $ | 350,000 | $ | -- | ||||||
|
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 note 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 $12,799, $12,799, and
$10,344 was accrued on this note during the twelve
months ended December 31, 2006, 2005, and
2004, respectively.
|
$ | 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 $4,712, $7,999,
and $1,775 was accrued on this note during the twelve months ended
December 31, 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 | $ | 100,000 |
|
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 $3,269, $5,512, and $5,499 was accrued
on this note during the twelve months ended December 31, 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 twevle months ended December 31,
2006, the Company made a $3,000 cash payment on the principal amount of
the note.
|
$ | 38,000 | $ | 41,000 | $ | 85,000 |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
|
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 $6,403, $6,403, and
$5,175 was accrued on this note during the twelve months ended December
31, 2006, 2005, and 2004, recpectively.
|
$ | 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 $6,750 and $5,582 was accrued on this
note during the twelve months ended December 31, 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 December 31,
2006.
|
$ | 40,000 | $ | 50,000 | $ | -- |
|
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 $4,003, $4003, and $3,235
was accrued on this note during the twelve months ended
December 31, 2006, 2005, and 2004, respectively.
|
$ | 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 $1,671 and $1,552
was accrued on this note during the twelve months ended
December 31, 2006 and 2005, respectively. During the twelve months ended
December 31, 2006, the note holder converted $10,000 of principal into
common stock.
|
$ | 20,000 | $ | 30,000 | $ | -- |
|
Convertible
note payable in the original amount of $5,000 to Ke Du 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 $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 $211 was accrued on this note
during the twelve months ended December 31, 2005.
|
$ | -- | $ | -- | $ | -- |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
|
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 $1,999 and $1,862
was accrued on this note during the twelve months ended December 31, 2006
and 2005, respectively.
|
$ | 25,000 | $ | 25,000 | $ | -- |
|
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 $1,496 and $1,391 was accrued on this
note during the twelve months ended December 31, 2006 and 2005,
respectively.
|
$ | 25,000 | $ | 25,000 | $ | -- |
|
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 $801, $801, and $176 was accrued on this
note during the twelve months ended December 31, 2006, 2005, and 2004,
respectively. This note is in default at December 31,
2006.
|
$ | 10,000 | $ | 10,000 | $ | 10,000 |
|
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 $801, $801, and $176 was accrued on this
note during the twelve months ended December 31, 2006, 2005, and 2004,
respectively. This note is in default at December 31,
2006.
|
$ | 10,000 | $ | 10,000 | $ | 10,000 |
|
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 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 $801, $801, and $176 was accrued on this
note during the twelve months ended December 31, 2006, 2005, and 2004,
respectively. This note is in default at December 31,
2006.
|
$ | 10,000 | $ | 10,000 | $ | 10,000 |
|
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 $801, $801, and $176 was accrued on this
note during the twelve months ended December 31, 2006,
2005, and 2004, respectively. This note is in default at
December 31, 2006.
|
$ | 10,000 | $ | 10,000 | $ | 10,000 |
|
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 $639, $639, and $517 was accrued on this
note during the twelve months ended December 31, 2006, 2005,
and 2004, respectively.
|
$ | 8,000 | $ | 8,000 | $ | 8,000 |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
|
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 $401, $401, and $324 was accrued on this
note during the twelve months ended December 31, 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 $18,000 and $4,471 was accrued on this
note during the twelve months ended December 31, 2006 and 2005,
respectively. This note is in default at December 31,
2006.
|
$ | 120,000 | $ | 120,000 | $ | -- |
|
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
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 $4,499 and $1,117 was accrued on this
note during the twelve months ended December 31, 2006 and 2005,
respectively. This note is in default at December 31,
2006.
|
$ | 30,000 | $ | 30,000 | $ | -- |
|
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 $3,666 and $931 was accrued on this note
during the twelve months ended December 31, 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 December 31, 2006.
|
$ | 23,000 | $ | 25,000 | $ | -- |
|
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 $3,666 and $931 was accrued on this note
during the twelve months ended December 31, 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 December 31, 2006.
|
$ | 23,000 | $ | 25,000 | $ | -- |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
|
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 $1,332 and $372 was accrued on this note
during the twelve months ended December 31, 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
December 31, 2006.
|
$ | 6,000 | $ | 10,000 | $ | -- |
|
Convertible
note payable in the amount of $10,000 to Carol Houston, the
Company’s Controller and Principal Financial Officer until
November 2007, dated November 29, 2005. The note bears interest at the
rate of 8% per annum, and is due in full on November 29, 2006. The note is
convertible into common stock of the Company at a conversion of
$0.025 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 three 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 $201 and $70 was accrued on this note during the twelve
months ended December 31, 2006 and 2005, respectively. The
entire principal amount of $10,000 and accrued interest of $271 was paid
in cash in April, 2006.
|
$ | -- | $ | 10,000 | $ | -- | ||||||
|
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 $20,022
was accrued on this note during the twelve months ended December 31,
2006. This note is in default at December 31,
2006.
|
$ | 120,000 | $ | -- | $ | -- |
|
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 $5,006
was accrued on this note during the twelve months ended
December 31, 2006. This note is in default at December
31, 2006.
|
$ | 30,000 | $ | -- | $ | -- | ||||||
|
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 $6,000, $6,000, and
$2,482 was accrued on this note during the twelve months
ended December 31, 2006, 2005, and 2004,
respectively. This note is in default at December 31,
2006.
|
$ | 75,000 | $ | 75,000 | $ | 75,000 | ||||||
|
Two
convertible notes payable in the amount of $4,500 each to Sam Klepfish,
the Company’s Interim President and a related party,
dated November 1 and December 1, 2006. Pursuant to the
Company’s employment agreement with Mr. Klepfish, the amount of $4,500 in
salary is accrued each month to a note payable. These notes bear interest
at the rate of 8% per annum. These notes and accrued interest are
convertible into common stock of the Company at a rate of $0.005 per
share. Interest in the aggregate amount of $89 was accrued on
these notes during the twelve months ended December 31,
2006.
|
$ | 9,000 | $ | -- | $ | -- |
|
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 $1,137 was accrued on this
note during the twelve months ended December 31,
2006.
|
$ | 10,000 | $ | -- | $ | -- | ||||||
|
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 $630 was capitalized
to this note during the twelve months ended December 31,
2006. Principal and interest in the amounts of $1,040 and $632,
respectively, were paid on this note during the twelve months ended
December 31, 2006.
|
$ | 25,378 | $ | -- | $ | -- |
| Total | $ | 1,332,377 | $ | 1,259,000 | $ | 703,000 | ||||||
|
Less:
Current maturities
|
(1,311,421 | ) | (1,209,000 | ) | (115,000 | ) | ||||||
|
Long-term
portion
|
$ | 20,956 | $ | 50,000 | $ | 588,000 | ||||||
|
Total
Non-related parties
|
$ | 868,377 | $ | 729,000 | $ | 198,000 | ||||||
|
Total
related parties
|
464,000 | 530,000 | 505,000 | |||||||||
|
Total
|
$ | 1,332,377 | $ | 1,259,000 | $ | 703,000 |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
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 $12,445,536 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 December 31, 2006 and 2005, the conversion option
liability was valued at $437,207 and $7,103,275, respectively. The
revaluations resulted in gains during the years ended December 31, 2006 and 2005
of $6,666,068 and $5,361,958, respectively.
The
Company valued these embedded conversion options using the Black-Scholes option
pricing model with the following assumptions:
|
Risk
Free
|
Expected
|
Expected
|
||
|
Interest
|
Dividend
|
Option
|
||
|
Rate
|
Yield
|
Life
|
Volatility
|
|
|
December
31, 2006
|
4.75%
|
0
|
5
|
152.5%
|
|
December
31, 2005
|
4.75%
|
0
|
5
|
229.6%
|
|
December
31, 2004
|
4.75%
|
0
|
5
|
152.5%
|
9. RELATED
PARTY TRANSACTIONS
Twelve
months ended December 31, 2004:
The
Company received loans from and has convertible notes payable to Michael
Ferrone, a board member, in the amount of $160,000 and $75,000 (see
note 8). The Company also received loans from and has convertible notes payable
to four of the children of Michael Ferrone in the amount
of $10,000 each (a total of four notes in the aggregate amount of $40,000) (see
note 8).
The
Company received loans from and has convertible notes payable in the amount
of $50,000 and $100,000 to Joel Gold, a board member (see note
8).
The
Company issued options with a fair value of $135,673 to purchase 500,000 shares
of common stock to an officer.
Twelve
months ended December 31, 2005:
The
Company received loans from and has convertible notes payable in the amount of
$25,000 to Joel Gold, a board member (see note 8).
The
Company issued 2,500,000 shares of common stock with a fair value of $32,500 to
a board member for services.
Twelve
months ended December 31, 2006:
The
Company has two convertible notes payable in the aggregate amount of $9,000 to
its President and Chief Executive Officer for services performed.
The
Company issued 350,000 shares of common stock with a fair value of $17,465 to an
officer for services.
The
Company issued options to purchase 5,000,000 shares of common stock to each of
three board members (an aggregate of 15,000,000 options) with a total fair value
of $67,500.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
10.
PENALTY FOR LATE REGISTRATION OF SHARES
During
the twelve months ended December 31, 2006 and 2005, the Company accrued
liabilities for the issuance of 58,560,000 and 28,960,000 shares, respectively
(post-reverse
split) (the “Penalty Shares”) of the Company’s stock pursuant to a penalty
calculation with regard to the late registration of shares underlying
convertible notes payable. At December 31, 2006, there were a total
of 87,520,000 Penalty Shares issuable. The Company charged to
operations $1,668,792 and $2,162,560, during the twelve months ended December
31, 2006 and 2005, respectively, representing the fair values of the Penalty
Shares accrued. During the twelve months ended
December 31, 2006 and 2005, the Company revalued these
87,520,000 and 28,960,000 Penalty Shares (post-reverse
split). This resulted in gains of $2,332,952
and $1,235,840, respectively. The liability carried on the Company’s
balance sheets at December 31, 2006 and 2005 representing the value of the
Penalty Shares is $262,560 and $926,720, respectively.
11.
INCOME TAXES
The
Company has adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statement or tax returns. Under this
method, deferred tax liabilities and assets are determined based on
the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates
in effect for the year
in which the
differences are expected to reverse. Temporary
differences between taxable income reported for financial reporting purposes and
income tax purposes are insignificant.
For
income tax reporting purposes, the Company's aggregate unused net
operating losses approximate $2,500,000 which expire through 2027,
subject to limitations of Section 382 of the Internal Revenue Code, as
amended. The deferred tax asset related to
the carryforward is approximately $875,000. The Company has
provided a valuation reserve against the full amount of
the net operating loss benefit, because in the opinion of management
based upon the earning history of the Company, it is more likely than not that
the benefits will not be realized.
Components
of deferred tax assets as of December 31, 2006, 2005, and 2004 are as
follows:
|
2006
|
2005
|
2004
|
||||||||||
|
Non
Current:
|
||||||||||||
|
Net
operating loss carryforward
|
$ | 875,000 | $ | 595,000 | $ | 385,000 | ||||||
|
Valuation
allowance
|
(875,000 | ) | (595,000 | ) | (385,000 | ) | ||||||
|
Net
deferred tax asset
|
$ | -- | $ | - | $ | - | ||||||
12. COMMON
STOCK
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 Technology, Ltd. (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.
The
Company had a 1-for-200 reverse split of its common stock effective March 8,
2004. There were a total of 30,011,706 shares issued and outstanding
immeditately before the reverse split, and 157,037 shares issued and outstanding
immediately after the reverse split.
During
the twelve months ended December 31, 2004, the Company also had the following
transactions:
The
Company issued 18,700,000 shares of common stock (post
reverse-split) with a fair value of $2,420,000 to
consultants for services performed.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
The
Company sold 15,000,000 shares of common stock (post reverse-split) for cash
proceeds of $320,225.
The
Company converted notes payable with in the amount of $788,176 into
4,910,000 shares of common stock (post reverse-split).
The
Company converted current liabilities in the amount of $339,750 into 1,300,000
shares of common stock (post reverse-split).
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.
During
the twelve months ended December 31, 2005, the Company had the following
transactions:
The
Company issued 5,000,000 shares (post-reverse split) of common stock pursuant to
the conversion of a note payable.
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.
The
Company issued 300,000 shares (post-reverse split) of common stock with a fair
value of $3,900 to consultants for services performed.
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.
The
Company sold 13,400,000 shares (post-reverse split) of common stock for cash of
$67,000.
The
Company issued 8,800,000 shares (post-reverse split) of common
stock pursuant to the conversion of a note payable in the amount of
$44,000.
The
Company issued 1,000,000 shares (post-reverse split) of common stock pursuant to
the conversion of a note payable in the amount of $5,000
The
Company accrued the issuance of 1,500,000 shares (post-reverse split) of common
stock with a fair value of $36,000 as employee bonuses for services. The amount
of $36,000 was charged to common stock subscribed during the year ended December
31, 2006.
During
the twelve months ended December 31, 2006, the Company also had the following
transactions:
The
Company issued 600,000 shares (post-reverse split) of common stock to employees
as a bonus. The fair value of these shares of $36,000 was charged to operations
during the year ended December 31, 2005.
The
Company issued an aggregate of 34,718,759 shares (post-reverse split) of common
stock for the conversion of notes payable and accrued interest in the amount of
$145,728.
The
Company issued 10,000,000 shares (post-reverse split) of common stock pursuant
to an acquisition. This acquisition attempt was terminated, and the Company is
holding these shares for cancellation. These shares are carried at their par
value of $1,000 in additional paid-in capital at December 31, 2006.
The
Company issued 900,000 shares (post reverse-split) with a fair value of $32,400
to employees as a bonus.
The
Company issued 350,000 shares (post-reverse split) of common stock to its Chief
Executive Officer as a bonus. The fair value of $17,500 was charged to
operations during the year ended December 31, 2006.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
Warrants
The
following table summarizes the changes in warrants and outstanding and the
related prices of the Company’s common stock issued to non-employees of the
Company. These warrants were granted as part of a financing agreement
(amounts have been adjusted to reflect the reverse stock split):
|
Weighted
|
Weighted
|
||||||||||||||||||||||||
|
Weighted
|
average
|
average
|
|||||||||||||||||||||||
|
average
|
exercise
|
exercise
|
|||||||||||||||||||||||
|
Range
of
|
Number
of
|
remaining
|
price
of
|
Number
of
|
price
of
|
||||||||||||||||||||
|
exercise
|
shares
|
(days)
|
contractual
|
outstanding
|
shares
|
exercisable
|
|||||||||||||||||||
|
prices
|
outstanding
|
Weight
|
life
(years)
|
warrants
|
exercisable
|
options
|
|||||||||||||||||||
| $ | 0.0050 | 136,500,000 | 1,151 | 3.15 | $ | 0.0050 | 136,500,000 | $ | 0.0050 | ||||||||||||||||
| $ | 0.0110 | 10,500,000 | 1,323 | 3.62 | $ | 0.0110 | 10,500,000 | $ | 0.0110 | ||||||||||||||||
| $ | 0.0115 | 42,000,000 | 1,323 | 3.62 | $ | 0.0115 | 42,000,000 | $ | 0.0115 | ||||||||||||||||
| 189,000,000 | 3.28 | 189,000,000 | |||||||||||||||||||||||
During
the year ended December 31, 2005, pursuant to the convertible notes payable
agreement, the exercise price of 100,000,000 warrants (post-reverse
split) were adjusted to $0.005 per share.
Transactions
involving warrants are summarized as follows:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
Warrants
exercisable at December 31, 2004
|
- | - | ||||||
|
Granted
|
188,700,000 | $ | 0.03 | |||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Warrants
exercisable at December 31, 2005
|
188,700,000 | $ | 0.03 | |||||
|
Granted
|
300,000 | $ | 0.01 | |||||
|
Exercised
|
- | |||||||
|
Cancelled
/ Expired
|
- | $ | - | |||||
|
Warrants
exercisable at December 31, 2006
|
189,000,000 | $ | 0.03 | |||||
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
The
weighted-average fair value of stock options granted to non-employees during the
twelve months ended December 30, 2006 and 2005 and the weighted average
significant assumptions used to determine those fair values, using a
Black-Scholes options pricing model are as follows:
|
2006
|
2005
|
|||||||
|
Risk-free
interest rate at grant date
|
4.75 | % | 4.75 | % | ||||
|
Expected
stock price volatility
|
155 | % | 278 | % | ||||
|
Expected
dividend payout
|
0 | 0 | ||||||
|
Expected
option life (in years)
|
5.0 | 5.0 | ||||||
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.
In
December 2006, the Company agreed to issued 5,000,000 options to purchase
additional shares (post-reverse
split) of common stock to each of the Company’s three directors, pursuant to a
board resolution for services performed in 2006. The options were
issued in April 2007.
The
following table summarizes the changes outstanding and the related prices for
the shares of the Company’s common stock issued to employees of the Company
(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)
|
options
|
exercisable
|
options
|
||||||||||||||||
| $ | 0.500 | 500,000 | 2.38 | $ | 0.500 | 200,000 | $ | 0.200 | |||||||||||||
| $ | 0.005 | 15,000,000 | 4.89 | $ | 0.005 | - | $ | - | |||||||||||||
| 15,500,000 | 4.81 | 200,000 | $ | 0.200 | |||||||||||||||||
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
Options
not vested are not exercisable.
Transactions
involving stock options issued to employees are summarized as
follows:
|
Weighted
|
|||||||
|
Average
|
|||||||
|
Number
of
|
Exercise
|
||||||
|
Shares
|
Price
|
||||||
|
Options
exercisable at December 31, 2003
|
- | - | |||||
|
Granted
|
500,000 | $ | 0.50 | ||||
|
Exercised
|
- | - | |||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Options
exercisable at December 31, 2004
|
500,000 | $ | 0.50 | ||||
|
Granted
|
- | -- | |||||
|
Exercised
|
- | - | |||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Options
exercisable at December 31, 2005
|
500,000 | $ | 0.50 | ||||
|
Granted
|
15,000,000 | $ | 0.01 | ||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | $ | - | ||||
|
Options
exercisable at December 31, 2006
|
15,500,000 | $ | 0.02 | ||||
|
Non-vested
at December 31, 2006
|
15,300,000 | $ | 0.02 | ||||
|
Vested
at December 31, 2006
|
200,000 | $ | 0.50 | ||||
The
weighted-average fair value of stock options granted to employees during the
twelve months ended December 30, 2006 and 2004 and the weighted average
significant assumptions used to determine those fair values, using a
Black-Scholes options pricing model are as follows:
|
2006
|
2004
|
|||||||
|
Risk-free
interest rate at grant date
|
4.75 | % | 4.75 | % | ||||
|
Expected
stock price volatility
|
476 | % | 207 | % | ||||
|
Expected
dividend payout
|
0 | 0 | ||||||
|
Expected
option life (in years)
|
5.0 | 5.0 | ||||||
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
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 twelve months ended December 31, 2006 and 2005,
the Company recognized gains of $5,579,541 and $4,346,713,
respectively, for the decrease in the fair value of the warrant
liability and recorded the gains in operations during the twelve months ended
December 31, 2006 and 2005. The fair value of these
instruments was estimated as December 31, 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%. The fair value of these
instruments was estimated as December 31, 2005, 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: 229.55%.
Insufficient Authorized but
Unissued Shares of Common Stock
The
Company has a potential obligation to issue 697,210,916, 565,193,757,
and 200,310,637 shares (post-reverse split) of common stock upon the conversion
of convertible notes and accrued interest, warrants and penalty shares issuable
at December 31, 2006, 2005, and 2004, respectively. The
Company had 151,310,796, 104,742,037, and 72,992,037
shares (post-reverse split) of common stock outstanding at December 31, 2006,
2005, and 2004, respectively, and 500,000,000 shares (post-reverse
split) of common stock authorized at December 31, 2006 and
2005. The Company has exceeded its shares authorized by
197,210,916 and 65,193,757 shares (post-reverse split) at
December 31, 2006 and 2005, respectively.
13.
EMPLOYMENT AGREEMENTS
Z.
ZACKARY ZIAKAS
Food
Innovations, Inc. and Z. Zackary Ziakas are parties to an employment agreement
which, among other things:
|
·
|
That
Mr. Ziakas will serve as the Company’s Chief Operating
Officer,
|
|
·
|
For
a term of five (5) years, commencing May 17, 2004, subject to earlier
termination by either party in accordance with the Employment
Agreement,
|
|
·
|
That
Mr. Ziakas’ salary shall be $95,000 per annum, payable by the Company in
regular installments in accordance with the Company’s general payroll
practices.
|
|
·
|
Salary
will automatically increase by 10% on a yearly
basis.
|
SAM
KLEPFISH
The
Company and its Chief Executive Officer Sam Klepfish are parties to an oral
agreement which provides, among other things::
|
·
|
Mr.
Klepfish is to receive a monthly salary in the amount of $10,028
|
|
·
|
Mr.
Klepfish received an additional monthly salary of $4,500
which is not paid in cash, but is recorded on a monthly basis as a
convertible note payable. These notes payable are convertible into common
stock of the Company at a rate of $0.005 per
share.
|
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
14.
COMMITMENTS AND CONTINGENCIES
The
Company has two rented 2,800 square feet of office space in Naples, Florida, the
location of the Company’s operations. The lease expires on September 30, 2007.
The aggregate rent for the two rented offices is currently $51,084 per
annum.
At
December 31, 2006, commitments for minimum rental payments were a total of
$34,758.
15. MAJOR
CUSTOMER
The
Company’s largest customer, US Foodservice, Inc. and its affiliates,
accounted for approximately 97%, 94%, and 94% of total sales in the
years ended December 31, 2006, 2005, and 2004,
respectively. A contract with Next Day Gourmet, LP, a subsidiary of
U.S. Foodservice, expires September 11, 2008. Negotiations are underway to
extend the existing contract or to sign a new contract , and the company has
continued to have US Foodservice, Inc. as a customer.
16. 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. Although the Company has reported a profit
of $12,137,413 for the year ended December 31, 2006, it had an
accumulated deficit of $3,363,247 as of December 31, 2006. The
Company’s net profit of $12,137,413 was generated primarily by non-cash
transaction, including non-cash gains of $5,579,541 on the change in fair value
of warrant liabilities; $6,666,068 on the change in fair value of
conversion option liabilities; and $2,332,952 on the change in fair value of
registration penalties shares issuable. The Company cannot be certain that
anticipated revenues from operations will be sufficient to satisfy its ongoing
capital requirements. Management believes the Company will generate
sufficient capital from operations and from debt and equity financing in order
to satisfy current liabilities in the succeeding twelve
months. Management’s belief is based on the Company’s operating
plane, 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
expansion, 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.
17. AMENDMENTS
TO FINANCIAL STATEMENTS
By letter
dated January 19, 2006, the Company received comments to the its Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2004. As such,
the Company has amended its financial statements for the twelve months
ended December 31, 2004 and December 31,
2005. The table below indicates the areas in
which material changes to the previously reported financials were
made:
In the
table below are the areas of major changes in tabular format for the year ended
December 31, 2005:
|
Previously
Reported
|
Adjustment
|
Restated
Amount
|
|||||||||
|
Current
assets
|
$ | 665,937 | $ | (112,970 | ) | $ | 552,967 | ||||
|
Total
assets
|
753,305 | (105,644 | ) | 647,661 | |||||||
|
Current
liabilities
|
1,358,817 | 14,645,205 | 16,004,022 | ||||||||
|
Total
liabilities
|
1,471,575 | 14,582,447 | 16,054,022 | ||||||||
|
Additional
paid-in capital
|
2,522,387 | (2,474,562 | ) | 47,825 | |||||||
|
Total
stockholders' deficit
|
(718,270 | ) | (14,782,390 | ) | (15,500,660 | ||||||
|
Total
revenue
|
5,561,614 | (8,849 | ) | 5,552,765 | |||||||
|
Cost
of good sold
|
4,512,833 | (194,837 | ) | 4,317,996 | |||||||
|
Selling,
general, and
|
|||||||||||
|
administrative
expenses
|
1,461,885 | 385,142 | 1,847,027 | ||||||||
|
Net
income (loss)
|
(563,821 | ) | 7,981,731 | 7,417,910 | |||||||
|
Net
income (loss) per share
|
$ | (0.01 | ) | $ | 0.09 | $ | 0.08 | ||||
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
In the
table below are the areas of major changes in tabular format for the year ended
December 31, 2004:
|
Previously
Reported
|
Adjustment
|
Restated
Amount
|
||||||||||
|
Current
assets
|
$ | 358,173 | $ | (4,664 | ) | $ | 353,509 | |||||
|
Total
assets
|
477,879 | (20,549 | ) | 457,330 | ||||||||
|
Current
liabilities
|
1,195,312 | (427,512 | ) | 767,800 | ||||||||
|
Total
liabilities
|
1,327,312 | 28,488 | 1,355,800 | |||||||||
|
Additional
paid-in capital
|
1,830,578 | 3,027,401 | 4,857,979 | |||||||||
|
Total
stockholders' deficit
|
(849,433 | ) | (4,914,315 | ) | (5,763,748 | ) | ||||||
|
Total
revenue
|
4,669,267 | (34 | ) | 4,669,233 | ||||||||
|
Cost
of good sold
|
3,865,131 | 4,664 | 3,869,795 | |||||||||
|
Selling,
general, and
|
||||||||||||
|
administrative
expenses
|
2,262,757 | 2,375,241 | 4,637,998 | |||||||||
|
Net
income (loss)
|
(1,512,225 | ) | (3,017,136 | ) | (4,529,361 | ) | ||||||
|
Net
income (loss) per share
|
$ | (0.04 | ) | $ | (0.06 | ) | $ | (0.10 | ) | |||
The
following changes were made to the footnote disclosure of our financial
statements:
Accounting
Policies:
We have
expanded our disclosures in our accounting policies footnote.
Beneficial Conversion
Feature of Notes Payable:
We have
calculated the value of the beneficial conversion features of our convertible
notes payable and amortized the related discount on the notes payable to
interest expense. The beneficial conversion feature was calculated using the
intrinsic value method through June 30, 2005. During the three months
ended September 30, 2005, the number of shares of common stock issuable exceeded
the number of shares authorized, and the conversion feature of the convertible
notes payable was classified as a derivative security. Accordingly,
during the three months ended September 30, 2005, the Company began calculating
the value of the beneficial conversion feature of the convertible notes payable
via the Black-Scholes valuation method, and revaluing this amount at every
period end. The change in value of the beneneficial conversion
features from the date of inception of the notes through the date of
recalculation was charged to equity. Changes in the valuation of the
beneficial converson features subsequent to the change to the liability method
were charged to operations.
The
interest associated with the convertible notes payable is also convertible at a
price lower then market price, which results in a beneficial conversion
feature. The beneficial conversion feature that is associated with
the accrued interest in amortized over the term of the convertible notes
payable.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND
2004
Valuation of Common Stock Shares Issued
The
Company revalued the issuances of common stock, utilizing the closing market
price for the fair value on the contract date.
Reverse Stock
Splits
We have
expanded the disclosure regarding the retroactive restatement of our financial
statements for the effects of the reverse stock splits.
Dilutive
Securities
We have
added a disclosure regarding the total number of dilutive securities issuable in
the equity footnotes.
Statement of Cash
Flows
We have
revised the disclosure in the statement of cash flows to present any changes in
the amount of principal owed on notes payable to be classified in the Financing
Activities section. We have also revised our disclosure in the statement of cash
flows regarding the shares issued for the merger transaction.
Insufficient Authorized but
Unissued Shares of Common Stock
The
Company has a potential obligation to issue shares of common stock, which exceed
the number of shares that the Company currently has authorized. The
resulting affect is a liability to the Company, which is revalued at the end of
each reporting period. The gain or loss, resulting from the
revaluation each quarter is expensed.
Penalty for Late
Registration of Shares
The
Company recorded a penalty associated with the late registration of shares
pursuant to the terms in the underlying convertible notes
payable. The Company will continue to accrue the penalty until the
shares are registered, and the shares are revalued at the end of each reporting
period. Any additional expense that is incurred is expensed in the
period in which the expense is incurred.
EXHIBIT
NUMBER
|
3.1
|
Articles
of Incorporation (incorporated
by reference to exhibit 3.1 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28, 2005).
|
|
3.2
|
Bylaws
of the Company
|
|
4.1
|
Form of Convertible
Note (incorporated
by reference to exhibit 4.1 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28,
2005).
|
|
4.2
|
Form of Convertible
Note (incorporated
by reference to exhibit 4.2 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28,
2005).
|
|
4.3
|
Form of Warrant -
Class A (incorporated
by reference to exhibit 4.3 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28,
2005).
|
|
4.4
|
Form of Warrant -
Class B (incorporated
by reference to exhibit 4.4 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28,
2005).
|
|
4.5
|
Form of Warrant -
Class C (incorporated
by reference to exhibit 4.5 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28,
2005).
|
|
10.1
|
Lease
of the Company's offices at Naples,
Florida (incorporated
by reference to exhibit 10.1 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28,
2005).
|
|
10.2
|
Security and Pledge
Agreement –
IVFH (incorporated
by reference to exhibit 10.2 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28,
2005).
|
|
10.3
|
Security
and Pledge Agreement – FII (incorporated
by reference to exhibit 10.3 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28, 2005).
|
|
10.4
|
Supply Agreement
with Next Day Gourmet, L.P. with
Next Day Gourmet, L.P. (incorporated by reference to exhibit 10.4 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
10.5
|
Subscription
Agreement (incorporated
by reference to exhibit 10.5 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28,
2005).
|
|
10.6
|
Management
contract between the Company and Joseph DiMaggio,
Jr. (incorporated
by reference to exhibit 10.2 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2005 filed
with the Securities and Exchange Commission on April
17,
2006).
|
| 10.7 |
Management
contract between the Company and Z. Zackary Ziakas (incorporated
by reference to exhibit 10.3 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2005 filed
with the Securities and Exchange Commission on April
17,
2006).
|
| 10.8 |
Agreement
and Plan of Reorganization between IVFH and FII. (incorporated by
reference to exhibit 10.6 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
14
|
Code of
Ethics
|
|
21
|
Subsidiaries
of the Company
|
|
31.1
|
Rule
13a-14(a) Certification of President
|
|
31.2
|
Rule
13a-14(a) Certification of Principal Financial Officer
|
|
32.1
|
Rule
1350 Certification of President
|
|
32.2
|
Rule
1350 Certification of Principal Financial
Officer
|
Pursuant
to the requirements of Section 13 or 15(d) 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.
INNOVATIVE
FOOD HOLDINGS, INC.
By: /s/
Sam
Klepfish
Sam Klepfish, President
Dated: April
18, 2008
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
Name
|
Title
|
Date
|
||
|
/s/
Sam Klepfish
|
CEO and
Director
|
April
18 , 2008
|
||
| Sam Klepfish |
(Principal
Executive Officer)
|
|||
|
/s/ John
McDonald
|
Principal
Accounting Officer
|
April
18, 2008
|
||
|
John
McDonald
|
(Principal
Financial Officer)
|
|||
|
/s/ Joel
Gold
|
Director
|
April
18, 2007
|
||
|
Joel
Gold
|
||||
|
/s/ Michael
Ferrone
|
Director
|
April
18, 2008
|
||
|
Michael
Ferrone
|
Exhibit
3.2
BYLAWS
OF INNOVATIVE FOOD HOLDINGS, INC.
Offices
1.
Business
Offices. The corporation may have one or more offices at such
place or places within or without the State of Florida as the Board of Directors
may from time to time determine or as
the business of the corporation may require.
2.
Registered
Office. The registered office of the corporation shall be as set
forth in the Articles of Incorporation, unless changed as provided by Florida
statute.
Article
II
Shareholder's
Meetings
1.
Annual
Meetings. The annual meetings of shareholders for the election of
directors and for the transaction of such other business as may come before the
meeting shall be held on the First Friday of September at 2:00 p.m. If the day
so fixed for such annual meeting shall be a legal holiday at the place of the
meeting, then such meeting shall be held on the next succeeding business day at
the same how.
2.
Special
Meetings. Special meetings of shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the Articles
of Incorporation, may be called at any time by the President upon the request
(which shall state the purpose or purposes therefore) of the Board of Directors
or of the holders of not less than fifty percent (50%) of the number of shares
of outstanding stock of the corporation entitled to vote at the meeting.
Business transacted at any special meeting of shareholders shall be limited to
the purpose or purposes stated in the notice.
3.
Place
of Meeting. Meetings of the shareholders shall be held at such
place or places, within or without the State of Florida, as
may be designated from time to time by the Board of Directors and stated
in the notice of the meeting.
4.
Notice
of Meetings. Except as otherwise provided by statute, notice of
each meeting of shareholders, whether annual or special, shall be given not less
than ten (10) nor more than fifty (50) days prior thereto to each shareholder
entitled to vote thereat by delivering written or printed notice thereof to such
shareholder personally or by depositing the same in the United States mail,
postage prepaid, directed to the shareholder at his address as it appears on the
stock transfer books of the corporation. The notice of all meetings shall state
the place, day and hour thereof. The notice of a special meeting shall, in
addition, state the purposes thereof.
5.
Voting
List. At least ten (10) days before every meeting of shareholders,
a complete list of shareholders entitled to vote thereat or any adjournment
thereof; arranged in alphabetical order, showing the address of each shareholder
and the number of shares registered in the name of each, shall be prepared by
the officer or agent of the corporation who has charge of the stock transfer
books of the corporation. Such list shall be open at
the principal office of the corporation to the inspection of any shareholder
during usual business hours for a period of at least ten (10) days prior to such
meeting. Such list shall also be produced and kept at the time and place of the
meeting during the whole time thereof and may be inspected by any shareholder
who may be present.
6.
Organization.
The President shall call meetings of shareholders to order and act as chairman
of such meetings. In the absence of said officer, any shareholder entitled to
vote thereat, or any proxy of any such shareholder, may call the meeting to
order and a chairman shall be elected by a majority of the shareholders entitled
to vote thereat In the absence of the Secretary and Assistant Secretary of the
corporation, any person appointed by the chairman shall act as secretary of such
meetings.
7.
Agenda
and Procedure. The Board of Directors shall have the
responsibility of establishing an agenda for each meeting of shareholders,
subject to the rights of shareholders to raise matters for consideration which
may otherwise properly be brought before the meeting although not included
within the agenda. The chairman of the meeting (i.e., the President) shall be
charged with the orderly conduct of all meetings of shareholders; provided,
however, that in the event of any difference in opinion with respect to the
proper course of action which cannot be resolved by reference to statute, the
Articles of Incorporation or these By-Laws, Robert's Rules of Order (as last
revised) shall govern the disposition of the matter. The ruling of the chairman
on matters of procedure, made in good faith, shall be final.
8.
Quorum.
The holders of a majority of the outstanding shares of the corporation entitled
to vote, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders. In the absence of a quorum at any such meeting, a
majority of the shareholders present in person or represented by proxy and
entitled to vote thereat may adjourn the meeting from time to time without
further notice (except as provided in paragraph 9 of this Article II) until a
quorum shall be present or represented.
9.
Adjournment.
When a meeting is for any reason adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken and such
adjournment is for less than thirty days. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to
vote at the meeting. At the adjourned meeting, any business may be
transacted which might have been transacted at the original, special or annual
meeting.
10.
Inspectors.
The chairman of the meeting may at any time appoint two (2) or more inspectors
to
serve at a meeting of the shareholders. Such inspectors shall
decide upon the qualifications of voters, includingthe validity of proxies,
accept and count the votes for and against the questions presented, report the
results of such votes, and subscribe and deliver to the secretary of the meeting
a certificate stating the number of shares of stock issued and outstanding and
entitled to vote thereon and the number of shares voted for and against the
questions presented. The inspectors need not be shareholders of the corporation,
and any director or officer
of the corporation may be an inspector on any question other than a vote
for or on any other question, in which he may be directly
interested.
11.
Voting.
(a) Each shareholder shall at every meeting of shareholders, on all actions,
including election of directors, or with respect to corporate action which may
be taken without a meeting, be entitled to one vote for each share of stock
having voting power held of record by such shareholder on the record date
designated therefore pursuant to Section 3 of Article XI of these By-Laws (or
the record date established pursuant to state law in the absence of such
designation).
(b) Each
shareholder so entitled to vote at a meeting of shareholders, or to express
consent or dissent to corporate action in writing without a meeting, may vote or
express such consent or dissent in person or may authorize another person or
persons to vote or act for him by voting trust or proxy executed in writing by
such shareholder (or by his duly authorized attorney in fact) and delivered to
the secretary of the meeting (or if there is no meeting, to the Secretary of the
corporation); provided that no such voting trust or proxy shall be voted or
acted upon after three (3) years from the date of its execution, unless such
voting trust or proxy expressly provides for a longer
period.
(c) When a
quorum is present at any meeting of shareholders, the vote of the holders of a
majority of the shares of stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of a statute, or the
Articles of Incorporation or these By-Laws, a different vote is required, in
which case such express provision shall govern and control the decision on such
question.
(d) Any
action required to be taken at any annual or special meeting of shareholders of
the corporation, or any action which may be taken at any annual or special
meeting of such shareholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those shareholders who
have not consented in
writing.
Article
III
Board
of Directors
1.
Authority.
The business and affairs of the corporation shall be managed by a Board of
Directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not
by statute or by the Articles of Incorporation or by these By-Laws
directed or required to be exercised or done by the
shareholders.
2.
Election
and Tenure. No fewer than one nor more than five directors (as determined
by the shareholders at their annual meeting to elect directors) shall be elected
at the annual meetings of the shareholders.
Each director shall be elected to serve and to hold office until the next
succeeding annual meeting and until his successor shall be elected and shall
qualify, or until his earlier death, resignation or removal.
3.
Organizational
Meeting. The
first meeting of each newly elected Board of Directors shall be held at such
time and place as shall be fixed by the vote of the shareholders at the annual
meeting and no notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a quorum shall be
present. In the event of the failure of the shareholders to fix the time or
place of such first meeting of the newly elected Board of Directors, or in the
event such meeting is not held at the time and place so feted by the
shareholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
4.
Regular
Meetings. Regular meetings of the Board of Directors shall be held
at such time or times as may be determined by the Board of Directors and
specified in the notice of such meeting.
5.
Special
Meetings. Special meetings of the Board of Directors may be called
by the Chairman of the Board and shall be called by the Chairman of the Board on
the written request of any director.
6. Place
of Meeting. Any meeting of the Board of Directors
may be held at such place or places either within or without the State of
Florida as shall from time to time be determined by the Board of Directors and
as shall be designated in the notice of the meeting.
7.
Notice
of Meetings. Notice
of each meeting of directors, whether organizational, regular
or special, shall be given to each director. If such notice is given
either (a) by delivering written or printed notice to a director personally or
(b) by telephone personally to such director, it shall be so given at least
two (2) days prior to the meeting. If such notice is given either (a) by
depositing a written or printed notice in
the United States mail, postage prepaid, or (b) by transmitting a cable
or telegram, in all cases directed to such director at this residence or place
of business, it shall be so given at least four (4) days prior to the meeting.
The notice of all meetings shall state the place, date, and hour
thereof.
8.
Quorum.
A majority of the number of directors fixed by paragraph 2 of this Article III
shall constitute a quorum at all meetings of the Board of Directors, and except
as set out in paragraph 16 of this Article III, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. In the event of a tie vote, the Chairman of the Board
casts the deciding vote. In the absence of a quorum at any such meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice, other than announcement at the meeting, until a quorum
shall be present
9.
Organization,
Agenda
and Procedures.
The Chairman of the Board, or in his absence any director chosen by a
majority of the directors present, shall act as chairman of the meetings of the
Board of Directors. In the absence of the Secretary and Assistant Secretary, any
person appointed by the chairman shall act as secretary
of such meetings. The agenda of, and procedure for, such meetings shall be
determined by the Board of Directors.
10.
Resignation.
Any director of the corporation may resign at any time by giving written notice
of his
resignation to the Board of Directors. Such resignation shall take effect
at the date of receipt of such notice or at any later time specified therein
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
11.
Removal.
Except as otherwise provided in the Articles of Incorporation or in these
By-Laws, any director may be removed, either with or without cause, at any time,
by the affirmative vote of the holders of the percentage of stock required for
his election. The vacancy in the Board of Directors caused by any such removal
may be filled by such shareholders at such meeting, or, if the shareholders at
such meeting shall fail to fill such vacancy, by the Board of Directors as
provided in paragraph 12 of this Article.
12.
Vacancies.
Except as provided in paragraph 11 of this Article III, any vacancy occurring
for any reason in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by the affirmative vote of a majority of the directors then in office, though
less than a quorum of the board of Directors. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in
office and shall hold office until the expiration of such term and until his
successor shall be elected and shall qualify or until his earlier death,
resignation or removal. A director chosen to fill a position resulting from an
increase in the number of directors shall hold office until the next annual
meeting of shareholders and until his successor shall be elected and shall
qualify, or until his earlier death, resignation or removal.
13.
Executive
and Other Committees. The Board of Directors, by resolution
adopted by a majority of the number of directors fixed by paragraph 2 of this
Article III, may designate two (2) or more directors to serve as an executive
committee and one or more other committees, each of which, to the extent
provided in such resolution, shall have and may exercise all the authority of
the Board of Directors, but no such committee shall have the authority of the
Board of Directors in reference to amending the Articles of Incorporation,
adopting a plan of merger or consolidation, recommending to the shareholders the
sale, lease, exchange, or other disposition of all or substantially all the
property and assets of the corporation otherwise than the usual regular course
of its business, recommending to the shareholders a voluntary dissolution of the
corporation, or a revocation thereof, or amending these By-Laws of the
corporation. Unless a Board of Directors resolution or the Articles of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required.
14.
Compensation
of Directors. Each director may be allowed such amount per annum
or such fixed sum for attendance at each meeting of the Board of Directors or
any meeting of an executive or other committee, or any combination thereof, as
may be from time to time fixed by resolution of the Board of Directors, together
with reimbursement for the reasonable and necessary expenses incurred by such
director in connection with the performance of his duties. Nothing herein
contained shall be construed to preclude any director from serving the
corporation or any of its subsidiaries in any other capacity and receiving
proper compensation therefore.
15.
Manifestation
of Dissent. A director of the corporation who is present at a
meeting of the Board of Directors at which action on any corporation matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent
by registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who acted in favor of such action.
Article
IV
Notice
Waiver and Action by Consent
1. Notice.
Whenever, under the provisions of the statutes or of the Articles of
Incorporation or of these By-Laws, notice is required to be given to any
director or shareholder, it shall not be construed to mean personal notice, but
such notice may be given in writing, by mail, addressed to such director or
shareholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
2. Waiver
of Notice. Whenever any notice whatever is required to be given
under the provisions of a statute or the Articles of Incorporation, or by these
By-Laws, a waiver thereof either in writing signed by the person entitled to
said notice (or such person's agent or attorney in fact thereunto authorized)
or
by telegraph, cable or any other available method, whether before, at or
after the time stated therein, or the appearance of such person or persons at
such meeting in person or by proxy (except for the sole purpose of challenging
the propriety of the meeting), shall be deemed equivalent to such
notice.
3.
Action
Without a Meeting. Any action required or which may be
taken at a meeting of the directors, shareholders or members of any executive
committee of the corporation, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by a simple majority
of the directors, shareholders, or members of the executive committee, as the
case may be, entitled to vote with respect to the subject matter thereof and the
writing or writings are filed with minutes of the proceedings of the board,
shareholders or committee.
Article
V
Officers
1.
Election,
Qualifications and Tenure. The Board of Directors annually, or at such
lesser frequencies up to five year intervals as may be mandated by employment
contracts entered into by and between any corporate officer and the Board of
Directors, shall elect a Chairman of the Board, President, one or more Vice
Presidents as may be determined from time to time by the Board of Directors, a
Secretary and a Treasurer. The Board of Directors may also elect or appoint such
other officers and assistant officers as may be determined by it. The Board of
Directors may delegate to any such officer the power to appoint or remove
subordinate officers, agents or employees. Any two or more offices may be held
by the same person except that the same person may not occupy the Presidency and
act as Secretary of the corporation at the same time. Each officer so elected or
appointed shall continue in office until his successor shall be elected or
appointed and shall qualify, or until his earlier death, resignation or removal.
Officers need not be directors of the corporation.
2.
Resignation,
Removal and Vacancies. Any officer may resign at any time by
giving written notice thereof to the Board of Directors or to the President.
Such resignation shall take effect on the date specified therein and no
acceptance of the same shall be necessary to render the same effective. Any
officer may at any time be removed by the affirmative vote of a majority of the
number of directors specified in section 2 of Article III of these By-Laws, or
by an executive committee thereunto duly authorized, such removal to be subject
to the terms of any employment contract with such officer. If any office becomes
vacant for any reason, the vacancy may be filled by the Board of Directors. An
officer appointed to fill a vacancy shall continue in office until the earliest
of his death, resignation or removal.
3.
Chairman
of the Board. The Chairman of the Board of Directors shall preside
over and assist the Board of Directors in the formulation of policies to be
pursued by the executive management of the corporation. He shall study and make
reports and recommendations with respect to major problems, policies, and
activities of the corporation, and it shall be his responsibility to see that
the policy established by the Board of Directors is carried into effect by the
executive officers.
4.
President.
The President shall be the chief executive and administrative officer of the
corporation. He shall preside at all meetings of the shareholders. He shall see
that all orders and resolutions of the Board of Directors are carried into
effect and in general shall perform all duties as may from time to time be
assigned to him by the Board of Directors and shall have general charge of the
business of the corporation. He shall from time to time obtain information
concerning the affairs and business of the corporation and shall promptly lay
such information before the Board of Directors, or he shall communicate to the
Board of Directors all matters presented by an officer of the corporation for
its consideration and shall from time to time communicate to the officers such
action of the Board of Directors as may in his judgment affect the performance
of their official duties. He may sign, alone if authorized or with the Secretary
or any other proper officer of the corporation authorized by the Board of
Directors, and deliver on behalf of the corporation any deeds, mortgages, notes,
bonds, contracts, powers of attorney, or other instruments, including
certificates for shares of capital stock of the corporation, which the Board of
Directors has authorized to be executed. He may employ all agents and employees
of the corporation and may discharge any such agent or employee and shall
perform all other duties as may from time to time be delegated to him by the
Chairman of the Board of Directors.
5.
Vice
Presidents. The Vice Presidents shall perform such duties and
possess such powers as from time to time may be assigned to them by the
President. In the absence of the President or in the event of his inability or
refusal to act, the Executive Vice President shall perform the duties of the
President and, when so performing, shall have all the powers of and be subject
to all the restrictions upon the President
6. Secretary.
The Secretary shall perform such duties and shall have such powers as may from
time to time be assigned to him by the President. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
Secretary, including without limitation the duty and power to give notice of all
meetings of shareholders and the Board of Directors, to attend all such meeting
and keep a record of the proceedings, and to attest to the same on documents,
the execution of which on behalf of the corporation is authorized by these
By-Laws or by the action of the Board of Directors.
7.
Treasurer.
The Treasurer shall perform such duties and shall have such powers as may from
time to time be assigned to him by the President. In addition, the Treasurer
shall perform such duties and have such powers as are incident to the office of
Treasurer, including without limitation the duty and power to have custody of
all funds and securities of the corporation, to keep full and accurate accounts
of receipts and disbursements in books belonging to the corporation, to deposit
funds of the corporation in depositories selected in accordance with these
By-Laws, disburse such funds as ordered by the Board of Directors, making proper
accounts thereof, and shall render as required by the Board of Directors
statements of all such transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the
corporation.
8.
Salaries. Officers
of the corporation shall be entitled to such salaries, perquisites, compensation
or reimbursement as shall be fixed or allowed from time to time by the Board of
Directors.
9.
Transfer
of Authority. Notwithstanding the provisions of these By-Laws
relating to the authority of specific officers, or of the provisions of any
resolution of the Board of Directors granting such specific authority. In case
of the absence or disability of any officer or any other reason, the Board of
Directors may transfer the authority or duties of any officer to any other
officer, or to any director or other agent or employee of the corporation, by
vote of a majority of the full number of directors authorized to hold
office.
Indemnification
1.
Third
Party Action. The corporation shall indenmify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative (other than action by or in the right
of the corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not op posed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendre or its
equivalent, shall not of itself create a presumption that the person did not act
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
2.
Derivative
Actions. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue, or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability and in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
3.
Extent
of Indemnification. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in sections 1
and 2 of this Article VI, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorney's fees) actually
and reasonably incurred by him in connection therewith.
4.
Determination.
Any indemnification under sections 1 and 2 of this Article VI (unless ordered by
a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the officer, director and
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in sections 1 and 2 of this Article VI,
even if he has not been successful on the merits or in defense of such action.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (c) by the affirmative vote of the holders of a
majority of the shares of the stock entitled to vote and represented at a
meeting called for such purpose.
5.
Payment
in Advance. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors as provided in section 4 of this Article VI upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this Article VL
6.
Insurance.
The Board of Directors may exercise the corporation's power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability hereunder or otherwise.
7.
Other
Coverage. The indemnification provided in this Article VI
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under the Articles of Incorporation, these
By-Laws, agreement, vote of shareholders or disinterested directors, Florida
statute, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
8.
Severability.
The rights of indemnification herein provided for shall be severable, shall
continue as to a person who has ceased to be an indemnified person and shall
inure to the benefit of the heirs, executors, administrator and other legal
representatives of such a person.
9.
Contract.
The provisions of this by-law shall be deemed to be a contract between the
corporation and each director or officer who serves in such capacity of any time
while such by-law is in effect.
Execution
of Instruments; Loans; Checks and
Endorsements;
Deposits; Proxies
1.
Execution
of Instruments. The President or the Executive Vice President
shall have power to execute and deliver on behalf and in the name of the
corporation any instrument requiring the signature of an officer of the
corporation, except as otherwise provided in these By-Laws or where the
execution and delivery thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation. Unless authorized
to do so by these By-Laws or by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the corporation in any way,
to pledge its credit or to render it liable peculiarly for any purpose or in any
amount
2.
Plans.
No loan shall be contracted on behalf of the corporation, and no evidence
of indebtedness shall be issued, endorsed or accepted in its name, unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances. When so authorized, the officer or officers thereunto
authorized may effect loans at any time for the corporation from any bank or
other entity and for such loans may execute and deliver promissory notes or
other evidences of indebtedness of the corporation, and when authorized as
aforesaid, as security for the payment of any and all loans (and any obligations
incident thereto) of the corporation, may mortgage, pledge, or otherwise
encumber any real or personal property, or any interest therein, at any time
owned or held by the corporation, and to that end may execute and deliver such
instruments as may be necessary or proper in the premises.
3.
Cheeks
and Endorsements. All checks, drafts or other orders for the
payment of money, obligations, notes or other evidences of indebtedness, bills
of lading, warehouse receipts, trade acceptances, and other such instruments
shall be signed or endorsed by such officers or agents of the corporation as
shall from time to time be determined by resolution of the Board of Directors,
which resolutions may provide for the use of facsimile signatures.
4.
Deposits.
All funds of the corporation not otherwise employed shall be deposited from time
to time to the corporation's credit in such banks or other depositories as shall
from time to time be determined by resolution of the Board of Directors, which
resolution may specify the officers or agents of the corporation who shall have
the power, and the manner in which such power shall be exercised, to make such
deposits and to endorse, assign and deliver for collection and deposit checks,
drafts and other orders for the payment of money payable to the corporation or
its order.
5.
Proxies.
Unless otherwise provided by resolution adopted by the Board of Directors, the
President or any Vice President may from time to time appoint one or more agents
or attorneys in fact of the corporation, in the name and on behalf of the
corporation, to cast the votes which the corporation may be entitled to cast as
the holder of stock or other securities in any other corporation, association or
other entity, any of whose stock or other securities may be held by the
corporation, at meetings of the holders of the stock or other securities of such
other corporation, association or other entity; or to consent in writing, in the
name of the corporation as such holder, to any action by such other corporation,
association or other entity, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and may execute
or cause to be executed in the name and on behalf of the corporation and under
its corporate seal, or otherwise, all such written proxies or other instruments
as he may deem necessary or proper.
Article
VIII
Shares
of Stock
1.
Certificates
of Stock. (a) Every holder of stock of the corporation shall be
entitled to have a certificate certifying the certificate number, the date of
issuance, the name of the record holder of the shares represented thereby, the
number of shares and a designation of the class of stock represented thereby,
and any restriction or transfer on voting powers to which such shares are
subject, which certificate shall otherwise be in such form as is required by law
and the Board of Directors shall prescribe.
(b) Each certificate
shall be conspicuously marked on both sides thereof with a legend as appropriate
under law indicating any and all restrictions and/or restraints or alienation
including but not limited to restraints regarding pertinent securities laws,
preemptive or other rights vesting in the corporation or shareholders of record
and S corporation elections by the shareholders.
(c) Each such
certificate shall be signed by the President and the Secretary or an assistant
Secretary of the corporation; provided, however, that where such certificate is
countersigned by a transfer agent or registered by a registrar (other than the
corporation's or any employee of the corporation) the signatures of such
officers of the corporation may be in facsimile form. In case any officer who
has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate shall
have been issued by the corporation, such certificate may nevertheless be issued
by the corporation with the same effect as if the person who signed such
certificate, or whose facsimile signature shall have been placed thereon, had
not ceased to be such officer of the corporation.
2.
Record.
A record shall be kept of the name of each person or other entity holding the
stock represented by each certificate for shares of the corporation issued, the
number of shares represented by each such certificate, and the date thereof,
and, in the case of cancellation, the date of cancellation. The person or other
entity in whose name shares of stock stand on the books of the corporation shall
be deemed the owner thereof, and thus a holder of record of such shares of
stock, for all purposes as regards the corporation.
3.
Transfer
of Stock. (a) Transfer of shares of the stock of the corporation
shall be made on the books of the corporation upon notice only by the registered
holder thereof, or by his attorney thereunto authorized, and on the surrender of
the certificate or certificates for such shares properly endorsed. Upon
surrender to the corporation or the transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books. The Secretary
shall notify all parties concerned if a proposed transfer would violate this
By-Law and the transfer shall be null and void ab initio.
4.
Registered
Shareholders. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends and, in the case of persons acting as trustees, to vote as
such owner, and to hold liable for calls and assessments a person registered on
its books as the owner of shares; and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Florida.
5. Transfer
Agents and Registrars; Regulations. The Board of Directors may
appoint one or more transfer agents or registrars with respect to shares of
stock of the corporation. The Board of Directors may make such rules and
regulations as it may deem expedient, not inconsistent with these By-Laws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the corporation.
6.
Lost,
Destroyed or Mutilated Certificate. In case of the alleged loss,
destruction or mutilation of a certificate representing stock of the
corporation, a new certificate may be issued in place thereof, in such manner
and upon such terms and conditions as the Board of Directors may prescribe, and
shall be issued in such situations a required by law.
Article
IX
Corporate
Seal
The corporate seal shall
be in such form as shall be approved by resolution of the Board of Directors.
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or in any other manner reproduced. The impression of the seal may be
made and attested by either the Secretary or an Assistant Secretary for the
authentication of contracts or other papers requiring the seal.
Article
X
Fiscal
Year
The
fiscal year of the corporation shall be such year as shall be established by the
Board of Directors.
Article
XI
Corporate
Books and Records
1.
Corporate
Books. The books and records of the corporation may be kept within
or without the State of Florida at such place or places as may be from time to
time designated by the Board of Directors.
2.
Addresses
of Shareholders. Each shareholder shall furnish to the Secretary
of the corporation or the corporation's transfer agent an address to which
notices from the corporation, including notices of meetings, may be directed and
if any shareholder shall fail so to designate such an address, it shall be
sufficient for any such notice to be directed to such shareholder at his address
last known to the Secretary or transfer agent.
3.
Closing
of Transfer Books and Fixing Record Date. The Board of Directors
may close the stock transfer books for a period not exceeding fifty (50) days
and not less than ten (10) days immediately preceding any meeting of
shareholders or payment of any dividend or other distribution, for the purpose
of determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution. In lieu of closing the stock transfer books for
such purposes, the Board of Directors may fix in advance a date as a record date
for the determination of shareholders for any such purpose. Such record date
shall not be more than fifty (50) nor less than ten (10) days before the date of
any such meeting, nor more than fifty (50) days prior to any other action to
which the same relates. Only such shareholders as shall be shareholders of
record on the date so fixed, or fixed pursuant to these By-Laws, shall be so
entitled with respect to the matter to which the same relates.
4.
Failure
to Fix Record Date. If the stock transfer books are not
closed and no record date is fixed for the determination of shareholders
entitled to notice of, or to vote at, a meeting of shareholders, or of
shareholders entitled to receive payment of a dividend, the date that notice of
the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof except where the determination has been made through the closing of the
stock transfer books and the stated period of closing has expired.
5.
Audit
of Books and Accounts. The corporation's books and accounts shall
be audited at such times and by such auditors as shall be specified and
designated by resolution of the Board of Directors.
6.
Annual
Statement. The Board of Directors shall represent at each annual
meeting, and at any special meeting of the shareholders when called for by vote
of the shareholders, a full and clear statement of the business and condition of
the corporation.
Article
XII
Amendments
All
By-Laws of the corporation shall be subject to alteration, amendment or repeal,
and new By-Laws may be added, by the affirmative vote of a majority of a quorum
of the members of the Board of Directors present in person at any
regular or special meeting.
Article
XIII
Dividends
1.
Declaration.
Dividends upon the capital stock of the corporation, subject to the provisions
of the Articles of Incorporation, if any, may be declared by the Board of
Directors at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Articles of Incorporation.
2.
Reserves.
Before payment of any dividend, there may be set aside out of any funds
of the corporation available for dividends such sum or sums as the directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interest of the corporation, and the
directors may modify or abolish any such reserves in the manner in which it was
created.
Article
IV
ADOPTION
The
foregoing By-laws were duly adopted by the Directors of this Corporation on
January 26, 2004 by the unanimous vote
of the Directors.
/S/
RICHARD MULLER
Richard
Muller, Secretary
Exhibit
14
Code of Ethics
This Code
of Ethics (the “Code”) has been adopted by the Board of Directors (the “Board”)
of Innovative Food holdings, Inc. (the “Company”) in accordance with the
requirements of Rule 406 of Regulation S-B promulgated under the Securities Act
of 1933, as amended, and summarizes the standards applicable to the Company’s
employees, including its executive officers, and the members of the Board (the
“Covered Parties”).
As a
public company, it is of critical importance that filings with the Securities
and Exchange Commission and others be accurate and timely. The Covered Parties
bear a special responsibility for promoting integrity throughout the Company,
with responsibilities to stakeholders both inside and outside of the Company.
The Covered Parties have a special role both to adhere to these principles
themselves, and also to ensure that a culture exists throughout the Company as a
whole that ensures the fair, timely and accurate reporting of the Company’s
financial results and condition.
Because
of this special role, the Covered Parties are bound by this Code
to:
● act with honesty
and integrity, practice and promote ethical conduct, and disclose to the Board
(or any member thereof) or any committee (or member thereof) established by the
Company for the purpose of receiving such disclosures (the “Committee”), any
material transaction or relationship that reasonably could be expected to give
rise to actual or apparent conflicts of interest between any Covered Party’s
personal and professional relationships;
● provide
information in the Covered Party’s possession that is complete, objective,
relevant, and otherwise necessary to ensure the Company provides full, fair,
accurate, timely and understandable disclosure in the reports and documents that
the Company files with, or submits, to, the Securities and Exchange Commission
or others, and in other public communications made by the Company;
● comply with
applicable laws, rules, standards, best practices and regulations of federal,
state, provincial and local governments, and other appropriate private and
public regulatory, listing and standard-setting agencies; and
● avoid any breach
of fiduciary duty, any self-interested transactions with the Company without
full disclosure to the Board or Committee, and promptly report to the Board or
the Committee (or any members thereof) any conduct that he or she believes is or
may be in violation of law, regulations, business ethics or of any provision of
this Code, including any transaction or relationship that reasonably could be
expected to give rise to such a violation.
Any
waiver of or amendment to this Code may only be made by the Board and will be
promptly disclosed in accordance with applicable laws, rules and regulations.
Requests for waivers of any provision of this Code must be made in writing to
the Board.
If a
Covered Party is faced with a difficult ethical decision or has doubts as to the
appropriate course of action in a particular situation, he or she should consult
with a member of the Board or the Committee. Each Covered Party will be held
accountable for adherence to this Code. Violations of this Code, including
failures to report actual or potential violations by others, will be viewed by
the Company as a severe disciplinary matter that may result in a personnel
action, up to and including termination of employment. If a Covered Party
believes that a violation of this Code has occurred, he or she is required to
promptly inform a member of the Board or the Committee, other than the member so
implicated.
Exhibit
21
INNOVATIVE
FOOD HOLDINGS, INC.
SCHEDULE
OF SUBSIDIARIES
1. Food
Innovations, Inc.
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 annual report on Form 10-KSB 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 annual report on Form 10-KSB 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 Annual Report of Innovative
Food Holdings, Inc. (the "Company") on Form 10-KSB for the year ended
December 31, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Sam
Klepfish, Chief Executive Officer and Direcor 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 Annual Report of Innovative
Food Holdings, Inc. (the "Company") on Form 10-KSB for the year ended
December 31, 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