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, 2007
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:
COMMON
STOCK, $0.0001 PAR VALUE PER SHARE
(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 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, 2007 were
$6,733,402.
Check whether the issues
is not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act
Yes o No x
INDEX
TO ANNUAL REPORT ON FORM 10-KSB
FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007
ITEMS
IN FORM 10-KSB
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PART
I
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PAGE
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Item
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PART
II
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Item
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35
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Item
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Item
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PART
III
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Item
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Item
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Item
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43
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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
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
– 72 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.
2
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 2007
seafood accounted for 14% of sales, meat and game accounted for 22% of sales,
specialty items accounted for 38% of sales, produce accounted for 6% of sales,
cheese accounted for 10% of sales, chocolate accounted for 5% 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
then 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
11, 2008, 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, 2007, and 2006, Next Day Gourmet
L.P. accounted for 95%, and 97% 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 $558 billion projected for 2008) and in share of the food dollar
spent in the United States (from 25% in 1955 to 48% projected for 2008),
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 gourmet food manufacturer or gourmet distributor. 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 72 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 11 full-time employees, including 4 chefs and 3 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
suffered a net loss of $661,799 for the year ended December 31, 2007. 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 2008 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. 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 July 17, 2008, our independent auditors stated that our financial
statements for the year ended December 31, 2007 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. initially contracted with our subsidiary to handle the distribution of over
3,000 perishable and specialty food products to USF’s customers.
Our current contract with USF expires in September 2008. Our sales
through USF’s sales force generated gross revenues for us of $6,519,721 in
the year ended December 31, 2007, and $ 6,915,550 in the year
ended December 31, 2006. Those amounts contributed 95% and
97%, respectively of our total sales in those periods. Our sales efforts
are for the most part dependent upon the efforts of the U.S.
Foodservice, Inc. Although we have generated revenues from additional customers
other than USF, if we do not renew our contract with USF in September 2008 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 could adversely affect 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.
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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:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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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.
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
In
September 2006 we commenced an action in New York Supreme Court, Nassau County,
against Pasta Italiana, Inc. 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, 2007 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.
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". 171,787,638 shares (post-reverse split) of common stock
were outstanding as of December 31, 2007. 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 two most recent fiscal years.
|
HIGH
|
LOW
|
|||||||
|
Fiscal
Year Ending December 31, 2007
|
||||||||
|
First
Quarter
|
$
|
0.005
|
$
|
0.002
|
||||
|
Second
Quarter
|
0.004
|
0.002
|
||||||
|
Third
Quarter
|
0.005
|
0.002
|
||||||
|
Fourth
Quarter
|
0.008
|
0.002
|
||||||
|
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
|
||||||
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, 2007, 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
immediately before the reverse split, and 157,037 shares issued and outstanding
immediately after the reverse split.
During
the twelve months ended December 31, 2007, the Company also had the following
transactions:
The
Company cancelled 5,573,158 shares (post reverse-split) of common stock for
which were issued but not outstanding.
The
Company recorded a discount to the convertible notes payable for the accrued
interest in the amount of $128,079 during the twelve months ended December 31,
2007.
The
Company issued 3,250,000 shares (post-reverse split) of common stock for an
employee bonuses. The fair value of these shares in the amount of
$8,125 was charged to operations during the three months ended June 30,
2007.
The
Company issued 800,000 shares (post-reverse split) of common stock for the
conversion of $4,000 of accrued interest on a note payable.
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 $966,000 with and accrued interest of $378,465
which if converted to common stock, will result in our issuance
of approximately 254,222,520 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, 2007 The Company has also committed to issue, pursuant
to a penalty calculation regarding the registration of shares of our common
stock, an additional 110,280,000 shares (post-reverse split) of
common stock. The Company also has outstanding at December 31,
2007 options to purchase 15,500,000 shares (post-reverse split) of common stock.
The total number of additional shares of common stock issuable at December 31,
2007 is 569,002,520. 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.
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 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 client or 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, 2007 and 2006, 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, 2007 Compared to Year Ended December 31, 2006
Revenue
Revenue
decreased by $340,686, or approximately 5%, to $6,733,402 for the year ended
December 31, 2007 from $7,074,088 in the prior year. A substantial portion
of the decrease was attributable to a decrease of $50,331 in cheese products, a
decrease of $18,912 in chocolates, a decrease of $78,426 in discontinued
products, a decrease of $181,916 in meat and game products, a decrease of
$83,368 in poultry product, a decrease of $49,599 in produce, a decrease of
$107,071 in seafood products. Our expansion of specialty product line
offerings was responsible for an additional $228,938 in sales. 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, 2007 was
$5,051,629, a decrease of $320,720 or approximately 6% compared to cost of sales
of $5,372,349 for the year ended December 31, 2006. The primary reason for
the increase in the cost of sales was an associated decrease in sales volumne
compared to 2006.
Selling,
general, and administrative expenses
Selling,
general, and administrative expenses decreased by $356,485 or
approximately 17%, to $1,732,105 during the year ended December 31, 2007 from
$2,088,590 for the year ended December 31, 2006. The
decrease was attributable primarily to corporate overhead, with such cost
decreases including professional fees incurred, primarily with respect to
addressing matters relating to our past compliance with corporate and securities
laws and regulations, and other non-allocable
SG&A.
Penalty
for Late Registration of Shares
During
the twelve months ended December 31, 2007, the Company accrued a liability for
the issuance of 22,760,000 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 $64,984, during the twelve months ended December 31, 2007,
representing the fair value of the Penalty Shares. This was $1,603,808 less than
the $1,668,792 charged in 2006. The Company accrued the issuance of
an additional 22,760,000 Penalty Shares during prior periods for a total of
110,280,000 Penalty Shares issuable. During the
year ended December 31, 2007, the Company revalued the
110,280,000 Penalty Shares using the Black-Scholes valuation method,
and at December 31, 2007 the Company had a total liability for the issuance of
Penalty Shares in the amount of $330,840. This revaluation resulted
in a loss of $3,296 which the Company recorded in operations during the year
ended December 31, 2007.
Change
in Fair Value of Warrant and Option Liability
At
December 31, 2007, the Company has outstanding warrants and options to purchase
an aggregate 204,500,000 shares of the Company’s common stock. The
Company valued this warrant liability at December 31, 2007 at
$580,648. This revaluation resulted in a loss of $59,042 which the
Company included in operations for the year ended December 31,
2007. This is a decrease of $5,638,583 or approximately 101% compared
to a gain of $5,579,541 from the revaluation of the warrant and option liability
which the Company recorded during the twelve months ended December 31,
2006.
Change
in Fair Value of Conversion Option Liability
At
December 31, 2007, the Company had outstanding a liability to issue an aggregate
of 254,222,520 shares of the Company’s common stock pursuant to convertible
notes payable. The Company revalued this liability at December 31,
2007 at $612,429. This revaluation resulted in a loss of $175,222
which the Company included in operations for the year ended December 31,
2007. This is an decrease of $6,841,290 or approximately 103%
compared to a gain of $6,666,068 from the revaluation of the conversion option
liability which the Company recorded during the twelve months ended December 31,
2006.
Interest
(income) expense
Interest
(income) expense decreased by $76,582 or approximately 20% to
$308,923 during the twelve months ended December 31, 2007, compared to $385,505
during the twelve months ended December 31, 2006 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 loss for the period ended December 31, 2007
of $661,799, an decrease of $12,799,212 or approximately1064%
to compared net income of $12,137,413 during the twelve months ended
December 31, 2006. We noted that these "profits" are a result of the application
of various accounting rules as they apply to the Company and that these
"profits" have no impact on our cashflows.
Liquidity
and Capital Resources at December 31, 2007
As of
December 31, 2007, the Company had current assets of $616,935, consisting of
cash of $74,610, loans receivable of $ 285,000, interest receivable of $7,147,
other current assets of $7,030, and trade accounts receivable of
$243,148. Also, at December 31, 2007, the Company had current
liabilities of $3,954,080, consisting of accounts payable and accrued
liabilities of $765,614, accrued interest of $316,058; accrued interest –
related parties of $142,621; current portion of notes payable of $927,870;
current portion of notes payable – related parties of $278,000; warrant
liability of $580,648; conversion option liability of $612,429; and penalty for
late registration of shares of $330,840. This resulted in a working
capital deficit of $3,337,145.
During
the twelve months ended December 31, 2007, the Company had cash provided by
operating activities of $3,392. The Company charged to operations $8,125 for
stock issued to employees as a bonus, and $49,415 for depreciation and
amortization. The Company used net cash from financing activities of
$6,690. The Company used cash of $40,610 in investing activities,
which consisted of purchase of property and equipment of $40,610.
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, 2007 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.
Transactions
With Major Customers
The
Company’s largest customer, US Foodservice, Inc. and its affiliates,
accounted for approximately and 95% and 97% of total sales in the years ended
December 31, 2007, and 2006, 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 19 active customers in the year ended
December 31, 2007, 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".
13
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, 2007 and 2006 and the related
statements of operations, stockholders' deficiency, and cash flows for the 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, 2007
and 2006 and the results of its operations and its cash flows for the 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
16, 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 16. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Bernstein & Pinchuk
LLP
New York,
New York
July 17,
2008
|
Innovative
Food Holdings, Inc. and subsidiary
|
||||||||
|
Condensed
Consolidated Balance Sheets
|
||||||||
|
December
31,
|
December
31,
|
|||||||
|
2007
|
2006
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 74,610 | $ | 118,518 | ||||
|
Accounts
receivable net of allowance of $10,000 (note 2)
|
243,148 | 315,699 | ||||||
|
Interest
receivable (note 4)
|
7,147 | 7,147 | ||||||
|
Loan
receivable, net of allowance of $75,000 (note 4)
|
285,000 | 285,000 | ||||||
|
Prepaid
expenses and other current assets (note 3)
|
7,030 | 15,509 | ||||||
|
Total
current assets
|
616,935 | 741,873 | ||||||
|
Property
and equipment, net of accumulated depreciation (note
5)
|
83,823 | 92,628 | ||||||
| $ | 700,758 | $ | 834,501 | |||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable and accrued liabilities (note 6)
|
$ | 765,614 | $ | 886,145 | ||||
|
Accrued
interest, net of discount of 421,387 in 2006 (note 7)
|
316,058 | 172,950 | ||||||
|
Accrued
interest - related parties, (note 7)
|
142,621 | 105,194 | ||||||
|
Amount
due under bank credit line (note 8)
|
- | 24,272 | ||||||
|
Notes
payable, current portion (note 8)
|
927,870 | 927,421 | ||||||
|
Notes
payable - related parties, current portion (note 8)
|
278,000 | 384,000 | ||||||
|
Warrant
liability
|
580,648 | 521,606 | ||||||
|
Conversion
option liability
|
612,429 | 437,207 | ||||||
|
Penalty
for late registration of shares (note 10)
|
330,840 | 262,560 | ||||||
|
Total
current liabilities
|
3,954,080 | 3,721,355 | ||||||
|
Note
payable
|
16,083 | 20,956 | ||||||
| 3,970,163 | 3,742,311 | |||||||
|
Stockholder's
deficiency
|
||||||||
|
Common
stock, $0.0001 par value; 500,000,000 shares authorized
|
||||||||
|
181,787,638
and 151,310,796 shares issued and 171,787,638 and
151,310,796
|
18,179 | 15,131 | ||||||
|
outstanding
at December 31, 2007 and 2006, respectively
|
||||||||
|
Additional
paid-in capital
|
737,462 | 440,306 | ||||||
|
Accumulated
deficit
|
(4,025,046 | ) | (3,363,247 | ) | ||||
|
Total
(deficiency in) stockholder's deficiency
|
(3,269,405 | ) | (2,907,810 | ) | ||||
|
Total
liabilities and (deficiency) in stockholders' equity
|
$ | 700,758 | $ | 834,501 | ||||
See notes to condensed
consolidated
financial statements.
|
Innovative
Food Holdings, Inc. and subsidiary
|
||||||||
|
Condensed
Consolidated Statements of Operations
|
||||||||
|
For
the Year
|
For
the Year
|
|||||||
|
Ended
|
Ended
|
|||||||
|
December
31
|
December
31
|
|||||||
|
2007
|
2006
|
|||||||
|
Revenue
|
$ | 6,733,402 | $ | 7,074,088 | ||||
|
Cost
of goods sold
|
5,051,629 | 5,372,349 | ||||||
|
Gross
margin
|
1,681,773 | 1,701,739 | ||||||
|
Selling,
General and administrative expenses
|
1,732,105 | 2,088,590 | ||||||
|
Total
operating expenses
|
1,732,105 | 2,088,590 | ||||||
|
Operating
loss
|
(50,332 | ) | (386,851 | ) | ||||
|
Other
(income) expense:
|
||||||||
|
Interest
(income) expense
|
308,923 | 385,505 | ||||||
|
Cost
of penalty for late registration of shares
|
64,984 | 1,668,792 | ||||||
|
Change
in fair value of warrant liability
|
59,042 | (5,579,541 | ) | |||||
|
Change
in fair value of conversion option liability
|
175,222 | (6,666,068 | ) | |||||
|
Revaluation
of penalty for late registration of shares
|
3,296 | (2,332,952 | ) | |||||
| 611,467 | (12,524,264 | ) | ||||||
|
(Loss)
income before income taxes
|
(661,799 | ) | 12,137,413 | |||||
|
Income
tax expense
|
- | - | ||||||
|
Net
(loss) income
|
$ | (661,799 | ) | $ | 12,137,413 | |||
|
Net
(loss) income per share - basic (post reverse-splits)
|
$ | (0.00 | ) | $ | 0.09 | |||
|
Net
(loss) income per share - diluted (post reverse-splits)
|
$ | (0.00 | ) | $ | 0.02 | |||
|
Weighted
average shares outstanding - basic (post reverse-splits)
|
154,106,110 | 128,144,848 | ||||||
|
Weighted
average shares outstanding - diluted (post reverse-splits)
|
154,106,110 | 506,197,505 | ||||||
See notes to condensed
consolidated
financial statements.
|
Innovative
Food Holdings, Inc.
|
|||
|
Condensed
Consolidated Statements of Cash Flows and subsidiary
|
|||
|
For
the
|
For
the
|
||
|
Year
Ended
|
Year
Ended
|
||
|
December
31
|
December
31
|
||
|
2007
|
2006
|
||
|
Cash
flows from operating activities:
|
||||||||
|
Net
(loss) income
|
$ | (661,799 | ) | $ | 12,137,413 | |||
|
Adjustments
to reconcile net (loss) income to net
|
||||||||
|
cash
provided by operating activities:
|
||||||||
|
Depreciation
and amortization
|
49,415 | 54,298 | ||||||
|
Value
of warrants and options issued
|
- | 84,895 | ||||||
|
Stock
issued to employees for services performed
|
8,125 | 49,901 | ||||||
|
Note
payable issued for officer salary
|
- | 9,000 | ||||||
|
Amortization
of discount on notes payable and interest on notes payable
|
54,000 | 9,000 | ||||||
|
Cost
of penalty due to late registration of shares
|
64,984 | 1,668,792 | ||||||
|
Change
in fair value of warrant liability
|
59,042 | (5,579,541 | ) | |||||
|
Change
in fair value of conversion option liability
|
175,222 | (6,666,068 | ) | |||||
|
Revaluation
of penalty for late registration of shares
|
3,296 | (2,332,952 | ) | |||||
|
Changes
in assets and liabilities:
|
||||||||
|
Accounts
receivable, net
|
72,551 | 123,411 | ||||||
|
Prepaid
expenses
|
8,479 | (14,002 | ) | |||||
|
Accounts
payable and accrued expenses
|
170,077 | 634,628 | ||||||
|
Net
cash provided by operating activities
|
3,392 | 178,775 | ||||||
|
Cash
flows from investing activities:
|
||||||||
|
Loan to
Pasta Italiana
|
- | (190,000 | ) | |||||
|
Acquisition
of property and equipment
|
(40,610 | ) | (26,445 | ) | ||||
|
Net
cash used in investing activities
|
(40,610 | ) | (216,445 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from issuance of debt
|
- | 160,000 | ||||||
|
Principal
payments on debt
|
(6,690 | ) | (14,065 | ) | ||||
|
Net
cash (used in) provided by financing activities
|
(6,690 | ) | 145,935 | |||||
|
Increase
(decrease) in cash and cash equivalents
|
(43,908 | ) | 108,265 | |||||
|
Cash
and cash equivalents at beginning of year
|
118,518 | 10,203 | ||||||
|
Cash
and cash equivalents at end of year
|
$ | 74,610 | $ | 118,468 | ||||
|
Supplemental
disclosure of cash flow information:
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$ | - | $ | - | ||||
|
Taxes
|
$ | - | $ | - | ||||
|
Notes
payable issued for acquisition of computer equipment
|
$ | - | $ | 25,787 | ||||
|
Value
of warrants issued
|
$ | - | $ | 28,143 | ||||
|
Common
stock issued for conversion of notes payable and accrued
interest
|
$ | 164,000 | $ | 70,255 | ||||
|
Common
stock issued to employees as bonuses
|
$ | 8,125 | $ | 49,901 | ||||
|
Value
of warrants and options issued as compensation
|
$ | - | $ | 67,500 | ||||
|
Revaluation
of conversion option liability
|
$ | 175,222 | $ | (6,666,068 | ) | |||
|
Revaluation
of warrant liability
|
$ | 59,042 | $ | (5,579,541 | ) | |||
|
Cost
of penalty for late registration of shares
|
$ | 64,984 | $ | 1,668,792 | ||||
|
Revaluation
of penalty for late registration of shares
|
$ | 3,296 | $ | (2,332,952 | ) | |||
|
Cancellation
of shares of common stock
|
$ | 557 | $ | - | ||||
|
Innovative
Food Holdings, Inc. and subsidiary
|
||||||||||||||||||||||||
|
Condensed
Consolidated Statements of Changes in Stockholders'
Deficiency
|
||||||||||||||||||||||||
|
For
the two years ended December 31, 2007
|
||||||||||||||||||||||||
|
Common
Stock
|
Common
Stock
|
Accumulated
|
||||||||||||||||||||||
|
Amount
|
Value
|
APIC
|
Subscribed
|
Deficit
|
Total
|
|||||||||||||||||||
|
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 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 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 | ) | |||||||||||
|
Common
shares cancelled
|
(5,573,158 | ) | (557 | ) | 557 | - | - | - | ||||||||||||||||
|
Common
shares issued for employee bonuses
|
3,250,000 | 325 | 7,800 | - | - | 8,125 | ||||||||||||||||||
|
Common
shares issued for conversion of accrued interest
|
800,000 | 80 | 3,920 | - | - | 4,000 | ||||||||||||||||||
|
Common
stock issued for conversion of note payable
|
32,000,000 | 3,200 | 156,800 | - | - | 160,000 | ||||||||||||||||||
|
Discount
due to convertible note payable
|
- | - | 128,079 | - | - | 128,079 | ||||||||||||||||||
|
Loss
for the year ended December 31, 2007
|
- | - | - | - | (661,799 | ) | (661,799 | ) | ||||||||||||||||
|
Balance
at December 31, 2007
|
181,787,638 | $ | 18,179 | $ | 737,462 | $ | - | $ | (4,025,046 | ) | $ | (3,269,405 | ) |
INNOVATIVE
FOOD HOLDINGS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
immediately 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 - 72 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., a subsidiary of US Foodservice, Inc. (“USF”), a $20 Billion
broadline distributor.
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 to the
customer. 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. 104 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.
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 at December
31, 2007 and 2006.
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.
Long-Lived
Assets
The
Company reviews its property and equipment 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, 2007, 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 ($661,799), and $12,137,413 for the years ended December
31, 2007 and 2006, respectively, but this variance was principally due to
changes in fair values of warrant, conversion option and registration penalty
liabilities rather than improved operations in 2006. The Company has
an accumulated deficit of $4,025,046 at December 31,
2007. In addition, the Company’s current liabilities exceeded its
current assets by $3,337,145, as of December 31, 2007,
respectively. Consequently, its operations are subject to all risks
inherent in the establishment of a new business enterprise. (see note
16)
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.
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
reflect the impact of SFAS 123(R). Stock based compensation expense
recognized under SFAS 123 (R)
Stock-based compensation expense
to be recognized 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, 2007, and changes during the period then
ended are presented below:
|
Options
|
Weighted-
Average Exercise Price
|
|||||||
|
Outstanding
December 31, 2006
|
15,500,000
|
$
|
0.021
|
|||||
|
Issued
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Forfeited
or expired
|
||||||||
|
Outstanding
at December 31, 2007
|
15,500,000
|
$
|
0.021
|
|||||
|
Non-vested
at December 31, 2007
|
15,300,000
|
$
|
0.010
|
|||||
|
Exercisable
at December 31, 2007
|
200,000
|
$
|
0.500
|
Aggregate
intrinsic value of options outstanding and options exercisable at December 31,
2007 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 $0.003 (post-reverse split) as of December 31, 2007, and the
exercise price multiplied by the
number of options outstanding. As of December
31, 2007, total unrecognized stock-based
compensation expense related to non-vested stock options was $0. The total fair
value of options vested was $300 for the year ended December 31,
2007.
Significant
Recent Accounting Pronouncements
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.
2.
ACCOUNTS RECEIVABLE
At
December 31, 2007 and 2006, accounts receivable consists of:
|
December
31, 2007
|
December
31, 2006
|
|||||||
|
Accounts
receivable from customers
|
$ | 253,148 | $ | 325,699 | ||||
|
Allowance
for doubtful accounts
|
(10,000 | ) | (10,000 | ) | ||||
|
Accounts
receivable, net
|
$ | 243,148 | $ | 315,699 | ||||
3.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
At
December 31, 2007 and 2006, other prepaid expenses and current assets consist of
the following:
|
December
31, 2007
|
December
31, 2006
|
|||||||
|
Prepaid
expenses
|
$ | 7,030 | $ | 13,734 | ||||
|
Employee
receivable
|
- | 1,775 | ||||||
|
Total
|
$ | 7,030 | $ | 15,509 | ||||
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 at December 31, 2007 and 2006. These notes bear
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, 2007 the Company recognized no
interest income on this note
5.
PROPERTY AND EQUIPMENT
A summary
of property and equipment at December 31, 2007 and 2006, is as
follows:
|
December
31, 2007
|
December
31, 2006
|
|||||||
|
Computer
hardware and software
|
$ | 288,228 | $ | 228,970 | ||||
|
Furniture
and fixtures
|
63,565 | 82,213 | ||||||
| 351,793 | 311,183 | |||||||
|
Less
accumulated depreciation and amortization
|
(267,970 | ) | (218,555 | ) | ||||
|
Total
|
$ | 83,823 | $ | 92,628 | ||||
Depreciation
and amortization expense for property and equipment amounted to $49,415 and
$54,298 for the year ended December 31, 2007 and 2006,
respectively.
6.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2007 and 2006 is as
follows:
|
December
31, 2007
|
December
31, 2006
|
|||||||
|
Accounts
payable and accrued expenses
|
$ | 764,540 | $ | 880,130 | ||||
|
Accrued
commissions
|
1,074 | 6,015 | ||||||
|
Total
|
$ | 765,614 | $ | 886,145 | ||||
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, 2007 and 2006, the amounts of $128,079, and $156,510, respectively, were
credited to additional paid-in capital as a discount on accrued
interest. Of this amount, a total of $29,703 was expensed to interest
during the twelve months ended December 31, 2007; $35,999 was expensed to
interest during the twelve months ended December 31, 2006.
At
December 31, 2007, the Company has the following accrued interest on its balance
sheet:
|
Gross
|
Discount
|
Net
|
||||||||||
|
Non-related
parties
|
$
|
316,058
|
$
|
-
|
$
|
316,058
|
||||||
|
Related
parties
|
142,621
|
-
|
142,621
|
|||||||||
|
Total
|
$
|
458,679
|
$
|
-
|
$
|
458.679
|
||||||
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
|
||||||
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, 2007 and 2006 was
$0, and $24,272, respectively. As of December 31, 2007, the Company no longer
has a line of credit by Wachovia Bank.
At
December 31, 2007, and 2006, the Company has outstanding notes payable in the
aggregate amount of $1,221,953, and $1,332,377, respectively. Notes
payable and notes payable to related parties at December 31, 2007, and 2006,
consisted of the following:
|
December
31, 2007
|
December
31, 2006
|
|||||
|
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 was due in full on February 24, 2007. Upon
default, the note’s interest rate increased to 15% per annum, and the note
became immediately due. The note is convertible into common stock of the
Company at a conversion price of $0.005 per share (post-reverse split). A
beneficial conversion feature in the amount of $250,000 was recorded as a
discount to the note, and was amortized to interest expense during the
twelve months ended December 31, 2005. Accrued interest is convertible
into common stock of the Company at a conversion price of
$0.005 per share (post-reverse split). Interest in the amount of $13,043
was accrued on this note during the twelve months ended December 31,
2007, and 2006, 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, 2007 and
2006.
|
$
|
345,000
|
$
|
345,000
|
||
|
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 $1,262 and
$3,226 was accrued on this note during the twelve
months ended December 31, 2007, and 2006, respectively. During the
three months ended December 31, 2007, the note holder converted a total of
$160,000 of principal into 32,000,000 shares of common
stock.
|
-
|
160,000
|
|||
|
Convertible
note payable in the original amount of $100,000 to Joel Gold, a board
member and related party, dated October 12, 2004. The note bears interest
at the rate of 8% per annum, and was due in full on October 12, 2006. The
note is convertible by the holder into common stock of the Company at a
conversion price of $0.005 per share (post-reverse split). A
beneficial conversion feature in the amount of $100,000 was recorded as a
discount to the note, and was amortized to interest expense during the
twelve months ended December 31, 2004. Accrued interest is convertible by
the holder into common stock of the Company at maturity of the note at a
price of $0.005 per share (post-reverse split). Interest in the
amount of $504 was accrued on this note during the twelve months ended
December 31, 2007, and 2006, respectively. During the twelve
months ended December 31, 2006, $75,000 of the principal amount was
converted into common stock.
|
25,000
|
25,000
|
|||
|
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
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
$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 $766, and $812 was accrued on this note during the twelve months ended
December 31, 2007and 2006, respectively. During the twelve months ended
December 31, 2005, the note holder converted $44,000 of the note payable
into common stock. During the twelve months ended
December 31, 2006, the Company made a $3,000 cash payment on the principal
amount of the note.
|
38,000
|
38,000
|
|
Convertible
note payable in the amount of $80,000 to Brown Door, Inc., dated March 11,
2004. The note bears interest at the rate of 8% per annum, and was due in
full on March 11, 2006. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $80,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004. Accrued interest is
convertible by the holder into common stock of the Company at maturity of
the note at a price of $0.005 per share (post-reverse
split) Interest in the amount of $1,614 was accrued on
this note during the twelve months ended December 31, 2007, and
2006.
|
80,000
|
80,000
|
|||
|
Convertible
note payable in the amount of $50,000 to Whalehaven Capital Fund, Ltd.
(“Whalehaven Capital”) dated February 25, 2005. We did not meet certain of
our obligations under the loan documents relating to this
issuance. These lapses include not reserving the requisites
numbers of treasury shares, selling subsequent securities without offering
a right of first refusal, not complying with reporting obligations, not
having our common shares quoted on the OTC:BB and not timely registering
certain securities. This note is in technical default as of May
16, 2005. The note originally carried interest at
the rate of 8% per annum, and was due in full on February 24, 2007. Upon
default, the note’s interest rate increased to 15% per annum, and the note
became due immediately. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of
$50,000 was recorded as a discount to the note, and was amortized to
interest expense during the three months ended March 31, 2005. Accrued
interest is convertible into common stock of the Company at a price of
$0.005 per share (post-reverse split). Interest in the amount of $1,513
was accrued on this note during the twelve months ended December 31, 2007
and 2006, 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, 2007 and 2006.
|
40,000
|
40,000
|
|||
|
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 $1,009
was accrued on this note during the twelve months ended
December 31, 2007, and 2006.
|
50,000
|
50,000
|
|||
|
Convertible
note payable in the original amount of $30,000 to Huo Hua dated May 9,
2005. The note bears interest at the rate of 8% per annum, and was due in
full on October 12, 2006. The note is convertible into common
stock of the Company at a conversion of $0.005 per share
(post-reverse split). A beneficial conversion feature in the amount of
$30,000 was recorded as a discount to the note, and was amortized to
interest expense during the twelve months ended December 31, 2005. Accrued
interest is convertible into common stock of the Company at a price of
$0.005 per share(post-reverse split) Interest in the amount of
$404 was accrued on this note during the twelve months ended
December 31, 2007 and 2006, respectively. During the twelve months ended
December 31, 2006, the note holder converted $10,000 of principal into
common stock.
|
20,000
|
20,000
|
|
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 was due in full on January 25, 2007. The
note is convertible into common stock of the Company at a
conversion of $0.025 per share. A beneficial conversion feature in the
amount of $25,000 was recorded as a discount to the note, and was
amortized to interest expense during the twelve months ended December 31,
2005. Accrued interest is convertible into common stock of the Company at
a price of $0.025 per share. Interest in the amount of $504 was accrued on
this note during the twelve months ended December 31, 2007 and 2006,
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 was 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 $377was accrued on
this note during the twelve months ended December 31, 2007 and
2006.
|
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 $202 was accrued on this
note during the twelve months ended December 31, 2007, and
2006. This note is in default at December 31,
2006.
|
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 $202 was accrued on this
note during the twelve months ended December 31, 2007, and
2006. This note is in default at December 31,
2006.
|
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 ended December 31, 2004. Accrued
interest is convertible into common stock of the Company at a price of
$0.01 per share (post-reverse split). Interest in the amount of
$202 was accrued on this note during the twelve months ended December 31,
2007, and 2006. This note is in default..
|
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 $202 was
accrued on this note during the twelve months ended December 31, 2007, and
2006. This note is in default.
|
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 $161 was accrued on
this note during the twelve months ended December 31, 2007, and 2006,
respectively.
|
8,000
|
8,000
|
|||
|
Convertible
note payable in the amount of $5,000 to Matthias Mueller dated March 11,
2004. The note bears interest at the rate of 8% per annum, and was due in
full on October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $5,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse split). Interest in the amount of $101 was
accrued on this note during the twelve months ended December 31, 2007, and
2006.
|
5,000
|
5,000
|
|
Convertible
note payable in the amount of $120,000 to Alpha Capital dated August 25,
2005. We did not meet certain of our obligations under the loan documents
relating to this issuance. These lapses include not reserving
the requisite number of treasury shares, selling subsequent securities
without offering a right of first refusal, not complying with reporting
obligations, not having our common shares quoted on the OTC:BB and not
timely registering certain securities. This note is in
technical default as of November 13, 2005. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due. The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse split). A beneficial conversion feature in
the amount of $120,000 was recorded as a discount to the note, and was
amortized to interest expense during the twelve months ended December 31,
2005. Accrued interest is convertible into common stock of the Company at
a price of $0.005 per share (post-reverse split). Interest in the amount
of $4,537 was accrued on this note during the twelve months ended December
31, 2007 and 2006, 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
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 $41,132 was accrued on this note during the twelve months ended
December 31, 2007 and 2006, 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
$870 was accrued on this note during the twelve months ended December 31,
2007 and 2006, 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.
|
23,000
|
23,000
|
|
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 $870 was accrued on this note during the twelve months ended December
31, 2007 and 2006, 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
|
23,000
|
|||
|
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 $226 was accrued on this note during the twelve months ended
December 31, 2007 and 2006, 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
|
6,000
|
|||
|
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. During the three months ended September 30,
2007, the Company extended the due date of the notes one year, to October
31, 2007; at the same time, the Company added a convertibility feature,
allowing the noteholders to convert the notes and accrued interest into
common stock of the Company at a rate of $0.005 per share. .Interest
in the amount of $6,049 was accrued on this note during the twelve months
ended December 31, 2007 and 2006. This note is in default
at December 31, 2007.
|
120,000
|
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. . During the three months ended
September 30, 2007, the Company extended the due date of the notes one
year, to October 31, 2007; at the same time, the Company added a
convertibility feature, allowing the noteholders to convert the notes and
accrued interest into common stock of the Company at a rate of $0.005 per
share. Interest in the amount of $1,134 was accrued on this
note during the twelve months ended December 31, 2007 and
2006. This note is in default at December 31,
2007
|
30,000
|
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 $1,513 was accrued on this
note during the twelve months ended December 31,
2007, and 2006, respectively. This note is in
default at December 31, 2006.
|
75,000
|
75,000
|
|||||
|
Fourteen
convertible notes payable in the amount of $4,500 each to Sam Klepfish,
the
Company’s CEO and a related party, dated the first of the month beginning
on November 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 $1,144 and $89 was accrued on these notes during the
twelve months ended December 31, 2007 and 2006.
|
63,000
|
9,000
|
|||||
|
Note
payable in the amount of $10,000 to Alpha Capital, dated May 19, 2006.
During the three months ended September 30, 2007, the Company extended the
due date of the notes one year, to October 31, 2007; at the same time, the
Company added a convertibility feature, allowing the noteholders to
convert the notes and accrued interest into common stock of the Company at
a rate of $0.005 per share. 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
$504 was accrued on this note during the twelve months ended
December 31, 2007 and 2006. This note is in default at December 31,
2007.
|
10,000
|
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
$2,269 and $1,263 was capitalized to this note
during the twelve months ended December 31, 2007 and 2006,
respectively. Principal and interest in the amounts of $4,421
and $1,040, respectively, were paid on this note during the twelve months
ended December 31, 2007 and 2006, respectively..
|
20,953
|
25,377
|
|||||
|
Total
|
$ | 1,221,953 | 1,332,377 | |||||
|
Less:
Current maturities
|
(1,205,870 | ) | (1,311,421 | ) | ||||
|
Long-term
portion
|
$ | 16,083 | 20,956 | |||||
|
Total
Non-related parties
|
$ | 943,953 | 948,377 | |||||
|
Total
related parties
|
278,000 | 384,000 | ||||||
|
Total
|
$ | 1,221,953 | 1,332,377 |
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, 2007 and 2006, the conversion option
liability was valued at $612,429 and $437,207, respectively. The
revaluations resulted in (gain) loss during the year ended December 31, 2007 and
2006 of $175,222 and $(6,666,068).
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, 2007
|
4.25 | % | - |
10
years
|
194.46 | % | |||||||
9. RELATED
PARTY TRANSACTIONS
Twelve
months ended December 31, 2007:
The
Company issued twelve convertible notes payable in the amount of $4,500 each for
additional salary due to the Company’s Chief Executive Officer.
Twelve
months ended December 31, 2006:
The
Company has two convertible notes payable in the aggregate amount of $9,000 to
its Chief Executive Officer for additional salary.
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.
10.
PENALTY FOR LATE REGISTRATION OF SHARES
During
the twelve months ended December 31, 2007 and 2006, the Company accrued
liabilities for the issuance of 22,760,000 and 58,560,000 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, 2007, there were a total
of 110,280,000 Penalty Shares issuable. The Company charged to
operations $64,984 and $1,668,792, during the twelve months ended December 31,
2007 and 2006, respectively, representing the fair values of the Penalty Shares
accrued. During the twelve months ended
December 31, 2007 and 2006, the Company revalued these
22,760,000 and 58,560,000 Penalty Shares (post-reverse split). This
resulted in (gain) loss of $3,296 and $(2,332,952),
respectively. The liability carried on the Company’s balance sheets
at December 31, 2007 and 2006 representing the value of the Penalty Shares is
$330,840 and $262,500, 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 $800,000 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 $280,000. 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, 2007, and 2006 are as
follows:
|
December
31, 2007
|
December
31, 2006
|
|||||||
|
Non
Current:
|
||||||||
|
Net
operating loss carryforward
|
$ | 280,000 | $ | 875,000 | ||||
|
Valuation
allowance
|
(280,000 | ) | (875,000 | ) | ||||
|
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
immediately before the reverse split, and 157,037 shares issued and outstanding
immediately after the reverse split.
During
the twelve months ended December 31, 2007, the Company also had the following
transactions:
The
Company cancelled 5,573,158 shares (post reverse-split) of common stock for
which were issued but not outstanding.
The
Company recorded a discount to the convertible notes payable for the accrued
interest in the amount of $128,079 during the twelve months ended December 31,
2007.
The
Company issued 3,250,000 shares (post-reverse split) of common stock for an
employee bonuses. The fair value of these shares in the amount of
$8,125 was charged to operations 2007.
The
Company issued 800,000 shares (post-reverse split) of common stock for the
conversion of $4,000 of accrued interest on a note payable.
The
Company issued 32,000,000 shares (post-reverse split) of common stock for the
conversion of $160,000 of principal of a note payable.
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
|
contractual
|
outstanding
|
shares
|
exercisable
|
||||||||||||||||
|
prices
|
outstanding
|
life
(years)
|
warrants
|
exercisable
|
options
|
||||||||||||||||
|
$
|
0.0050
|
136,500,000
|
2.17
|
$
|
0.0050
|
136,500,000
|
$
|
0.0050
|
|||||||||||||
|
$
|
0.0110
|
10,500,000
|
2.64
|
$
|
0.0110
|
10,500,000
|
$
|
0.0110
|
|||||||||||||
|
$
|
0.0115
|
42,000,000
|
2.64
|
$
|
0.0115
|
42,000,000
|
$
|
0.0115
|
|||||||||||||
|
189,000,000
|
2.30
|
189,000,000
|
|||||||||||||||||||
Transactions
involving warrants are summarized as follows:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
Warrants
exercisable at December 31, 2006
|
189,000,000
|
$
|
0.03
|
|||||
|
Granted
|
-
|
-
|
||||||
|
Exercised
|
-
|
|||||||
|
Cancelled
/ Expired
|
-
|
-
|
||||||
|
Warrants
exercisable at December 31, 2007
|
189,000,000
|
$
|
0.03
|
|||||
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
|
3.89
|
$
|
0.500
|
15,000,000
|
$
|
0.005
|
|||||||||||||
|
0.005
|
15,000,000
|
1.38
|
0.005
|
300,000
|
0.500
|
||||||||||||||||
|
15,500,000
|
3.81
|
15,300,000
|
$
|
0.015
|
|||||||||||||||||
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, 2006
|
15,500,000
|
$
|
0.021
|
||||
|
Granted
|
-
|
-
|
|||||
|
Exercised
|
-
|
||||||
|
Cancelled
/ Expired
|
-
|
-
|
|||||
|
Options
exercisable at December 31, 2007
|
15,500,000
|
$
|
0.02
|
||||
|
Non-vested
at December 31, 2007
|
15,300,000
|
$
|
0.01
|
||||
|
Vested
at December 31, 2007
|
200,000
|
$
|
0.50
|
||||
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, 2007 and 2006,
the Company recognized (gain) loss of $59,042 and $(5,579,541),
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, 2007 and 2006. The fair value of these
instruments was estimated as December 31, 2007, using the
Black-Scholes option pricing model with the following assumptions: risk free
interest rate: 4.25%; expected dividend yield: 0%; expected option life: 5
years; and volatility: 194,46%. 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%.
Insufficient
Authorized but Unissued Shares of Common Stock
The
Company has a potential obligation to issue 612,334,320 and 697,210,916 shares
(post-reverse split) of common stock upon the conversion of convertible notes
and accrued interest, warrants and penalty shares issuable at December 31, 2007,
and 2006, respectively. The Company had
171,787,638 and 151,310,796 shares (post-reverse split) of common
stock outstanding at December 31, 2007, and 2006, respectively,
and 500,000,000 shares (post-reverse split) of common stock
authorized at December 31, 2007 and 2006. The Company has
exceeded its shares authorized by
284,121,958 and 197,210,916 shares (post-reverse split) at
December 31, 2007 and 2006, 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.
|
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, 2008.
The aggregate rent for the two rented offices is currently $51,084 per
annum. 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.
At
December 31, 2007, commitments for minimum rental payments were a total of
$38,320 all due in 2008.
15. MAJOR
CUSTOMER
The
Company’s largest customer, US Foodservice, Inc. and its affiliates,
accounted for approximately 95% and 97% of total sales in the years ended
December 31, 2007 and 2006, 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.
34
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 loss
of $661,799 for the year ended December 31, 2007, it had an
accumulated deficit of $4,025,046as of December 31, 2007. The
Company’s net loss of $661,799 was generated primarily by non-cash transaction,
including non-cash losses of $ 64,984 on the change in fair value
of warrant liabilities; $175,222 on the change in fair value of
conversion option liabilities; and $308,923 of interest accruals. 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. The Company has not made the financial statements which would be
necessary should the Company not be able to continue as a going
concern.
17.
SUBSEQUENT EVENTS
On March
12, 2008, we executed amendments to restructure an aggregate of $150,000 of
senior secured notes which were due February 7, 2007. The amendments extended
the due date of the notes to March 4, 2009 and were in consideration of our
issuance of an aggregate of: 30 million Class A warrants exercisable at $0.0115
per share, 7.5 million Class B warrants exercisable at $0.011 per share, and 3
million Class C warrants exercisable at $0.005 per share. All of
these warrants have essentially similar terms to the warrants we issued to such
investors on February 24, 2005, except that the underlying common stock does not
have registration rights.
On March
12, 2008, we also extended, to March 4, 2009, the due date of an additional
$10,000 note that was due November 19, 2006 in consideration of adding a
convertibility feature, at a conversion price of $0.005 per share, to the note
and the issuance of 2 million Class A warrants exercisable at $0.0115 per share,
500,000 Class B warrants exercisable at $0.011 per share, and 200,000 Class C
warrants exercisable at $0.005 per share. All of these warrants have
essentially similar terms to the warrants we issued to such investors on
February 24, 2005, except that the underlying common stock does not have
registration rights.
On
January 22, 2008, we extended, to December 31, 2009, the due date of a $75,000
note previously extended to March 31, 2008 in consideration of adding a
convertibility feature, at a conversion price of $0.005 per share, to the
note.
Effective
July 31, 2008, Mr. Ziakas resigned his position as our Chief Operating Officer
and assumed the non-executive officer position of Vice President of
Procurement. Mr. Ziakas’ existing employment agreement has been
terminated and he will continue working for us as an employee-at–will with an
annual salary of $105,000.
Effective
on July 31, 2008, Mr. Justin Wiernasz, age 42, was promoted to the position of
President of Innovative Food Holdings, Inc. Mr. Wiernasz was the
Executive Vice President of Marketing and Sales and Chief Marketing Officer of
our operating subsidiary, Food Innovations, Inc. since May 2007 and the
President of Food Innovations and our Chief Marketing Officer since December
2007. Prior thereto, he was at U.S. Foodservice, our largest customer
for 13 years. From 2005 to 2007 he was the Vice President of Sales &
Marketing, U.S. Foodservice, Boston, and prior thereto, from 2003 to 2005 he was
a National Sales Trainer at U.S. Foodservice, Charleston SC, from 1996 to 2003
he was the District Sales Manager at U.S. Foodservice, Western Massachusetts and
from 1993 to 1996 he was Territory Manager, U.S. Foodservice, Northampton,
Easthampton & Amherst, MA. Prior to that from 1989 to 1993 he was the owner
and operator J.J.’s food and spirit, a 110 seat restaurant.
Mr. Wiernasz signed an employment agreement dated May 18, 2007 that
expires on September 13, 2008 pursuant to which he is currently compensated at
an annual rate of $120,000. The agreement also provides for the earning of a
bonus of 10% of his salary, up to 50%, for each $100,000 of incremental profits
we make over the previous year. On January 22, 2008, our Board approved the
grant of an aggregate of 3 restricted million shares and 5 million in options
exercisable for five years at an exercise price of $0.007 per share to Mr.
Wiernasz, upon his appointment as President of Innovative Food Holdings, all of
which vest on December 31, 2008, provided Mr. Wiernasz is then still an
employee.
None.
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 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.
This
annual report does not include an attestation report of the Company’s
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s reports in this annual report.
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
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
|
37
|
Chief
Executive Officer
|
|
|
Z.
Zackary Ziakas
|
47
|
Chief
Operating Officer
|
|
|
Michael
Ferrone
|
61
|
Director
|
|
|
Joel
Gold
|
67
|
Director
|
Directors
Sam
Klepfish
From
November 2007 to present Mr. Klepfish is the CEO of Innovative Food Holdings and
it’s subsidiary Food Innovations. 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™.
Key
Employees
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.
Effective
July 31, 2008, Mr. Ziakas resigned his position as our Chief Operating Officer
and assumed the non-executive officer position of Vice President of
Procurement. Mr. Ziakas’ existing employment agreement has been
terminated and he will continue working for us as an employee-at–will with an
annual salary of $105,000.
New
Executive Officer in 2008
Effective
on July 31, 2008, Mr. Justin Wiernasz, age 42, was promoted to the position of
President of Innovative Food Holdings, Inc. Mr. Wiernasz was the
Executive Vice President of Marketing and Sales and Chief Marketing Officer of
our operating subsidiary, Food Innovations, Inc. since May 2007 and the
President of Food Innovations and our Chief Marketing Officer since December
2007. Prior thereto, he was at U.S. Foodservice, our largest customer
for 13 years. From 2005 to 2007 he was the Vice President of Sales &
Marketing, U.S. Foodservice, Boston, and prior thereto, from 2003 to 2005 he was
a National Sales Trainer at U.S. Foodservice, Charleston SC, from 1996 to 2003
he was the District Sales Manager at U.S. Foodservice, Western Massachusetts and
from 1993 to 1996 he was Territory Manager, U.S. Foodservice, Northampton,
Easthampton & Amherst, MA. Prior to that from 1989 to 1993 he was the owner
and operator J.J.’s food and spirit, a 110 seat restaurant. Mr. Wiernasz signed an
employment agreement dated May 18, 2007 that expires on September 13, 2008
pursuant to which he is currently compensated at an annual rate of $120,000. The
agreement also provides for the earning of a bonus of 10% of his salary, up to
50%, for each $100,000 of incremental profits we make over the previous year. On
January 22, 2008, our Board approved the grant of an aggregate of 3 restricted
million shares and 5 million in options exercisable for five years at an
exercise price of $0.007 per share to Mr. Wiernasz, upon his appointment as
President of Innovative Food Holdings, all of which vest on December 31, 2008,
provided Mr. Wiernasz is then still an employee.
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 during 2006 and during
2007, 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 Chief Executive Officer, 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.
The
following table sets forth information concerning the compensation for services
in all capacities rendered to us for the year ended December 31, 2007, of our
Chief Executive Officer and our other executive officers whose annual
compensation exceeded $100,000 in the fiscal year ended December 31, 2007, if
any. We refer to the Chief Executive Officer and these other officers as the
named executive officers.
SUMMARY
COMPENSATION TABLE
|
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
||||||||||||||||||||||
|
Sam
Klepfish - Chief
Executive Officer
|
2007
2006
|
(a)
|
$
|
172,577
115,697
|
(b)
|
--
--
|
$
|
--17,500
|
(c)
|
--22,500
|
(d)
|
--
--
|
--
--
|
--
--
|
$
|
190,176
|
|||||||||||||||
|
Joe
DiMaggio, Jr.
|
2006
|
(e)
|
$
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||
(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 $0.005 per share (post-reverse
split).
(e) Mr.
DiMaggio was CEO until August 14, 2006.
Outstanding
Equity Awards at Fiscal Year-End as of December 31, 2007
|
Option
Awards
|
Stock
Awards
|
|
Name
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Option
Exercise Price
($)
|
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
($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
(#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
($)
|
|||||||||
|
None
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
Director
Compensation
|
Name
|
Fees
Earned
or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
|
None
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||||||
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 monthly salary in the amount of
$10,028
·Mr.
Klepfish’s receives 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.
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. |
As described above, Mr. Ziakas' employment arrangements have since changed
and Mr. Justin Wiernasz
has become an executive officer with an employment agreement.
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
|
20,650,000
|
(1
|
)
|
11.7
|
%
|
|||
|
Michael
Ferrone
|
62,424,778
|
(2
|
)
|
34.5
|
%
|
|||
|
Joel
Gold
|
28,886,141
|
(3
|
)
|
14.4
|
%
|
|||
|
Z
Ziakas
|
4,100,000
|
(4
|
)
|
2.4
|
%
|
|||
|
Joseph
DiMaggio Jr.
|
14,800,000
|
8.6
|
%
|
|||||
|
Christopher
Brown
|
15,000,000
|
8.7
|
%
|
|||||
|
Wally
Giakas
|
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.
|
At
various times in 2004, 2005, 2006 and 2007 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, 2007
|
Principal
Balance
December
31, 2006
|
Principal
Balance December 31, 2005 |
Principal
Balance December 31, 2004 |
||||||||||||||||||||
|
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 | 75,000 | |||||||||||||||||
|
Joel
Gold
|
Director
|
Cash
|
8 | % | $ | 0.005 | 50,000 | 50,000 | 50,000 | 50,000 | ||||||||||||||||||
|
Joel
Gold
|
Director
|
Cash
|
8 | % | $ | 0.005 | 25,000 | 25,000 | 100,000 | 100,000 | ||||||||||||||||||
|
Joel
Gold
|
Director
|
Cash
|
8 | % | $ | 0.005 | 25,000 | 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 | 10,000 | |||||||||||||||||
|
Richard
D. (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
8 | % |
(a)
|
$ | 0.005 | 10,000 | 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 | 10,000 | |||||||||||||||||
|
Andrew
I. Ferrone (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
8 | % |
(a)
|
$ | 0.005 | 10,000 | 10,000 | 10,000 | 10,000 | |||||||||||||||||
|
Sam
Klepfish
|
Director
and Interim President
|
Services
|
8 | % | $ | 0.005 | 63,000 | 9,000 | - | - | ||||||||||||||||||
(a) In
default at December 31, 2007, and 2006.
During
the year ended December 31, 2007, the Company had the following transactions
with related parties:
The
Company issued 32,000,000 shares of common stock for the conversion of the
$160,000 convertible note from Michael Ferrone.
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, 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.
|
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 (incorporated by reference to exhibit 3.2 of the Company’s
annual report on Form 10-KSB for the year ended December 31, 2006 filed
with the Securities and Exchange Commission on April 18,
2008).
|
|
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
|
||
|
31.2
|
||
|
32.1
|
||
|
32.2
|
||
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: 2007: $30,000; and
2006: $75,000
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.
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, Chief Executive Officer and Director
Dated: July
31, 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
|
July
31, 2008
|
||
|
Sam
Klepfish
|
(Principal
Executive Officer)
|
|||
|
/s/
John
McDonald
|
Principal
Accounting
Officer
|
July
31, 2008
|
||
|
John
McDonald
|
(Principal
Financial Officer)
|
|||
|
/s/
Joel
Gold
|
Director
|
July
31, 2008
|
||
|
Joel
Gold
|
||||
|
/s/
Michael Ferrone
|
Director
|
July
31, 2008
|
||
|
Michael
Ferrone
|
43
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:
July 31, 2008
|
/s/
Sam
Klepfish
|
|
Sam
Klepfish, Chief Executive Officer and
Director
|
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:
July 31, 2008
|
/s/
John
McDonald
|
|
John
McDonald
Principal
Financial Officer
|
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, 2007 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
July 31,
2008
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, 2007 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
July 31,
2008