UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
D. C. 20549
FORM
10-Q
x Quarterly
report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
1934.
For
the quarterly period ended September 30,
2009
r Transition
report pursuant to Section 13 or 15(d) of the Exchange
Act
for the transition period from _________ to _________.
Commission
File Number: 0-9376
INNOVATIVE
FOOD HOLDINGS, INC.
(Exact
Name of Registrant as Specified in its Charter)
|
Florida
(State
of or Other Jurisdiction of Incorporation or Organization)
|
20-1167761
(IRS
Employer I.D. No.)
|
3845
Beck Blvd., Suite 805
Naples,
Florida 34114
(Address
of Principal Executive Offices)
(239)
596-0204
(Registrant's
Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant : (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 þ NO r
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). YES r NO r
Indicate
by check mark whether the registrant is a shell company (as defined in
Regulation 12b-2 of the Exchange Act): YES r NO þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
(Check
One):
|
Large
Accelerated filer r
|
Accelerated
filer r
|
|
Non-accelerated
filer r
(Do
not check if a smaller reporting company)
|
Smaller
reporting company þ
|
State the
number of shares outstanding of each of the issuer's classes of Common equity,
as of the latest practicable date: 194,638,638 Common Shares
outstanding at October 26, 2009.
INNOVATIVE FOOD HOLDINGS, INC.
INDEX
TO FORM 10-Q
|
Page
|
||
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
Item
1.
|
3
|
|
|
3
|
||
|
4
|
||
|
5
|
||
|
6
|
||
|
Item
2.
|
34
|
|
|
Item
4T.
|
42
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
Item
1.
|
43
|
|
|
Item
2.
|
43
|
|
|
Item
3.
|
43
|
|
|
Item
4.
|
43
|
|
|
Item
5.
|
43
|
|
|
Item
6.
|
43
|
|
|
44
|
|
Innovative Food Holdings, Inc. and
Subsidiaries
|
||||||||
|
Consolidated
Balance Sheets
|
||||||||
|
September
30,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
(UNAUDITED)
|
(AUDITED)
|
||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$
|
143,973
|
$
|
160,545
|
||||
|
Accounts
receivable, net
|
269,046
|
239,566
|
||||||
|
Loan
receivable, current portion net
|
96,550
|
60,000
|
||||||
|
Inventory
|
47,795
|
-
|
||||||
|
Other
current assets
|
7,420
|
9,000
|
||||||
|
Total
current assets
|
564,784
|
469,111
|
||||||
|
Loan
receivable, net
|
52,500
|
93,000
|
||||||
|
Property
and equipment, net
|
35,528
|
52,620
|
||||||
|
$
|
652,812
|
$
|
614,731
|
|||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable and accrued expenses
|
$
|
729,055
|
$
|
832,613
|
||||
|
Accrued
liabilities- related parties
|
134,085
|
126,671
|
||||||
|
Accrued
interest, net of discount
|
551,270
|
437,269
|
||||||
|
Accrued
interest - related parties
|
163,178
|
173,471
|
||||||
|
Notes
payable, current portion
|
918,766
|
938,364
|
||||||
|
Notes
payable - related parties, current portion, net of
discount
|
307,658
|
261,002
|
||||||
|
Warrant
liability
|
864,975
|
1,388,287
|
||||||
|
Option
liability
|
125,424
|
174,692
|
||||||
|
Conversion
option liability
|
1,252,256
|
1,150,000
|
||||||
|
Penalty
for late registration of shares
|
-
|
551,400
|
||||||
|
Total
current liabilities
|
5,046,668
|
6,033,769
|
||||||
|
Notes payable net of
discount
|
19,188
|
10,723
|
||||||
|
5,065,856
|
6,044,492
|
|||||||
|
Stockholders'
deficiency
|
||||||||
|
Common
stock, $0.0001 par value; 500,000,000 shares authorized;
|
||||||||
|
194,638,638
and 183,577,038 shares issued,
184,638,638 and
|
||||||||
|
173,577,038
shares outstanding at September 30, 2009 and December
31, 2008, respectively
|
19,464
|
18,358
|
||||||
|
Additional
paid-in capital
|
2,157,609
|
1,985,335
|
||||||
|
Accumulated
deficit
|
(6,590,117
|
)
|
(7,433,454
|
)
|
||||
|
Total
stockholders' deficiency
|
(4,413,044
|
)
|
(5,429,761
|
)
|
||||
|
$
|
652,812
|
$
|
614,731
|
|||||
See notes
to consolidated financial statements.
|
Innovative Food Holdings, Inc. and
Subsidiaries
|
|
|
Consolidated
Statements of Operations
|
|
|
(UNAUDITED)
|
|
For
the Three
|
For
the Three
|
For
the Nine
|
For
the Nine
|
|||||||||||||
|
Months
Ended
|
Months
Ended
|
Months
Ended
|
Months
Ended
|
|||||||||||||
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
(Restated)
|
(Restated)
|
|||||||||||||||
|
Revenue
|
$
|
1,891,316
|
$
|
1,791,302
|
$
|
5,259,914
|
$
|
5,076,534
|
||||||||
|
Cost
of goods sold
|
1,451,934
|
1,439,641
|
4,024,294
|
4,019,275
|
||||||||||||
|
439,382
|
351,661
|
1,235,620
|
1,057,259
|
|||||||||||||
|
Selling,
general
and administrative expenses
|
360,201
|
463,693
|
1,119,320
|
1,341,255
|
||||||||||||
|
Total
operating expenses
|
360,201
|
463,693
|
1,119,320
|
1,341,255
|
||||||||||||
|
Operating
profit (loss)
|
79,181
|
(112,032
|
)
|
116,300
|
(283,996
|
)
|
||||||||||
|
Other
(income) expense:
|
||||||||||||||||
|
Impairment
on investment in Pasta Italiana
|
-
|
127,147
|
-
|
127,147
|
||||||||||||
|
Interest
expense
|
99,462
|
99,244
|
289,227
|
265,835
|
||||||||||||
|
(Gain)
loss on extinguishment of debt
|
-
|
-
|
(222,656
|
)
|
168,620
|
|||||||||||
|
(Gain) loss
from revaluation of penalty shares
|
-
|
(110,280
|
)
|
-
|
441,120
|
|||||||||||
|
(Gain)
loss from change in fair value of warrant liability
|
(777,595
|
)
|
(125,553
|
)
|
(523,312
|
)
|
838,849
|
|||||||||
|
Fair value of options issued
|
-
|
34,786
|
-
|
113,326
|
||||||||||||
|
(Gain)
loss from change in fair value of option liability
|
(84,314
|
)
|
(20,663
|
)
|
(49,268
|
)
|
52,088
|
|||||||||
|
Fair
value of conversion option issued
|
-
|
-
|
-
|
14,945
|
||||||||||||
|
(Gain)
loss from change in fair value of conversion option
liability
|
(732,928
|
)
|
(117,672
|
)
|
(221,028
|
)
|
940,240
|
|||||||||
|
Total
other expense
|
(1,495,375
|
)
|
(112,991
|
)
|
(727,037
|
)
|
2,962,170
|
|||||||||
|
Income
(loss) before income taxes
|
1,574,556
|
959
|
843,337
|
(3,246,166
|
)
|
|||||||||||
|
Income
tax expense
|
-
|
-
|
-
|
-
|
||||||||||||
|
Net
income (loss)
|
$
|
1,574,556
|
$
|
959
|
$
|
843,337
|
$
|
(3,246,166
|
)
|
|||||||
|
Net
income (loss) per share - basic
|
$
|
0.008
|
$
|
0.000
|
$
|
0.004
|
$
|
(0.018
|
)
|
|||||||
|
Net
income (loss) per share - diluted
|
$
|
0.001
|
$
|
0.000
|
$
|
0.001
|
$
|
(0.018
|
)
|
|||||||
|
Weighted
average shares outstanding - basic
|
194,638,638
|
181,787,638
|
189,817,233
|
181,787,638
|
||||||||||||
|
Weighted
average shares outstanding - diluted
|
684,679,238
|
702,814,718
|
679,857,833
|
181,787,638
|
||||||||||||
See notes
to consolidated financial statements.
|
Innovative Food Holdings, Inc. and
Subsidiaries
|
||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||
|
(UNAUDITED)
|
||||||||
|
Nine
Months Ended September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash
flows from operating activities:
|
(Restated)
|
|||||||
|
Net
income (loss)
|
$
|
843,337
|
$
|
(3,246,166
|
)
|
|||
|
Adjustments
to reconcile net loss to net
|
||||||||
|
cash used
in operating activities:
|
||||||||
|
Depreciation
and amortization
|
24,632
|
30,138
|
||||||
|
Non-cash
compensation
|
11,200
|
-
|
||||||
|
(Gain) loss on extinguishment of debt
|
(222,656
|
)
|
168,620
|
|||||
|
Impairment
of investments
|
-
|
127,147
|
||||||
|
Reserve
for bad debt
|
-
|
2,500
|
||||||
|
Fair
value of options issued
|
-
|
113,326
|
||||||
|
Fair
value of conversion options issued in excess of discount
|
-
|
14,945
|
||||||
|
Amortization
of discount on notes payable
|
62,100
|
60,281
|
||||||
|
Amortization
of discount on accrued interest
|
97,093
|
86,931
|
||||||
|
Change in fair value of warrant liability
|
(523,312
|
)
|
838,853
|
|||||
|
Change
in fair value of option liability
|
(49,268
|
)
|
52,088
|
|||||
|
Change in fair value of conversion option liability
|
(221,028
|
)
|
940,240
|
|||||
|
Revaluation of penalty for late registration of shares
|
-
|
441,116
|
||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(29,480
|
)
|
(23,870
|
)
|
||||
|
Other
current assets
|
(39,965
|
)
|
-
|
|||||
|
Bank
overdraft
|
-
|
3,372
|
||||||
|
Accounts
payable and accrued expenses
|
49,220
|
237,867
|
||||||
|
Accrued
liabilities- related party
|
(2,879
|
)
|
81,485
|
|||||
|
Net
cash used in operating activities
|
(1,006
|
)
|
(71,127
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||
|
Principal
payments received on loan
|
3,950
|
4,500
|
||||||
|
Acquisition
of property and equipment
|
(7,540
|
)
|
(4,379
|
)
|
||||
|
Net
cash (used in) provided by investing activities
|
(3,590
|
)
|
121
|
|||||
|
Cash
flows from financing activities:
|
||||||||
|
Principal
payments on debt
|
(11,976
|
)
|
(3,604
|
)
|
||||
|
Net
cash used in financing activities
|
(11,976
|
)
|
(3,604
|
)
|
||||
|
Decrease
in cash and cash equivalents
|
(16,572
|
)
|
(74,610
|
)
|
||||
|
Cash
and cash equivalents at beginning of period
|
160,545
|
74,610
|
||||||
|
Cash
and cash equivalents at end of period
|
$
|
143,973
|
$
|
-
|
||||
|
Supplemental
disclosure of cash flow information:
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$
|
-
|
$
|
-
|
||||
|
Income
Taxes
|
$
|
-
|
$
|
-
|
||||
|
Items
not affecting cash
|
||||||||
|
Revaluation
of conversion option liability
|
$
|
(221,028
|
)
|
$
|
940,240
|
|||
|
Revaluation
of warrant liability
|
$
|
(523,312
|
)
|
$
|
838,853
|
|||
|
Revaluation
of warrant liability
|
$
|
(49,268
|
)
|
$
|
52,088
|
|||
|
Revaluation
of penalty for late registration of shares
|
$
|
-
|
$
|
441,116
|
||||
|
Common
stock issued for consulting contract
|
$
|
16,250
|
$
|
-
|
||||
|
Common
stock issued to employees
|
$
|
1,200
|
$
|
-
|
||||
|
Common
stock issued for conversion of notes payable and accrued
interest
|
$
|
21,058
|
$
|
-
|
||||
See notes
to consolidated financial statements
INNOVATIVE FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
1.
BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS
Basis of
Presentation
The
accompanying unaudited consolidated financial statements of Innovative Food
Holdings, Inc., and its wholly owned subsidiaries, Food Innovations, Inc.
(“FII”), Food New Media Group, Inc. (“FNM”) and 4 The Gourmet,
Inc (“Gourmet”) (collectively, the “Company, or “IVFH”), have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. FNM is currently inactive. They do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for a complete financial statement
presentation. U.S. accounting principles also contemplate continuation of the
Company as a going concern.
Acquisition and Corporate
Restructure
We were
initially formed in September 1979 as Alpha Solarco Inc., a Colorado
corporation. From September 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 Food
Innovations, Inc. (‘FII”) converted 10,000 shares (post-reverse split) of FII
common stock outstanding into 25,000,000 shares of IVFH. On January
29, 2004, in a transaction known as a reverse acquisition, the shareholders of
Innovative Food Holdings, Inc. (“IVFH”) exchanged 25,000,000
shares of IVFH for 25,000,000 shares of Fiber Application
Systems (formerly known as Alpha Solarco) (“Fiber”), a publicly-traded
company. The shareholders of IVFH thus assumed control of
Fiber, and Fiber changed its name to IVFH. The 25,000,000
shares of IVFH 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 outstanding in Fiber at the time of the reverse acquisition;
the par value of these shares, or $16, was transferred from additional paid-in
capital at the time of the reverse acquisition.
2.
NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Business
Activity
Food
Innovations, Inc. (“FII”) is in the business of providing premium white
tablecloth restaurants with the freshest origin-specific perishables and
specialty food 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 90% 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.
Interim Financial
Information
The
accompanying unaudited interim consolidated financial statements have been
prepared by the Company, in accordance with generally accepted accounting
principles pursuant to Regulation S-X of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in audited consolidated financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
Accordingly, these interim financial statements should be read in conjunction
with the Company’s financial statements and related notes as contained in Form
10-K for the year ended December 31, 2008. In the opinion of management, the
interim consolidated financial statements reflect all adjustments, including
normal recurring adjustments, necessary for fair presentation of the interim
periods presented. The results of the operations for the three and nine months
ended September 30, 2009 are not necessarily indicative of the results of
operations to be expected for the full year.
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.
INNOVATIVE FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
Principles of
Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned operating subsidiary, Food Innovations,
Inc. and its other wholly-owned subsidiaries Food New Media Group,
Inc. and 4 The Gourmet, Inc. All material intercompany
transactions have been eliminated upon consolidation of these
entities.
Revenue
Recognition
The
Company recognizes revenue upon product delivery. We ship all our
products either overnight shipping terms or three day shipping terms to the
customer and the customer takes title to product and assumes risk and ownership
of the product when it is delivered. Shipping charges to customers
and sales taxes collectible from customers, if any, are included in
revenues.
For
revenue from product sales, the Company recognizes revenue in accordance with
Financial Accounting Standards Board “FASB” Accounting Standard Codification
“ASC” 605-15-05 (formerly referred to as “Staff Accounting Bulletin ("SAB") No.
104”, which superseded SAB No. 101, Revenue Recognition (“SAB No. 101”)). ASC
605-15-05 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)
collectability 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 collectability 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. FASB ASC 605-15-05 incorporates ASC 605-25-05 “Multiple-Deliverable
Revenue Arrangements” (formerly referred to as Emerging Issues Task Force
("EITF") No. 00-21). ASC 605-25-05 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 ASC 605-25-05 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. ASC 605-25-05 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 ASC
605-25-05 and ASC 605-45-05 (formerly referred to as EITF
99-19).
Cost of goods
sold
We have
included in cost of good sold all costs which are directly related to the
generation of revenue. These costs include primarily the cost of the product
plus the shipping costs.
Selling, general, and
administrative expenses
We have
included in selling, general, and administrative expenses all other costs which
support the Company’s operations but which are not includable as a cost of
sales. These include primarily payroll, facility costs such as rent and
utilities, selling expenses such as commissions and advertising, and other
administrative costs including professional fees. Advertising costs
are expensed as incurred.
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 $607 and $15,877
at September 30, 2009 and December 31, 2008, respectively.
INNOVATIVE FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
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
Inventory
is stated at the lower of cost or market determined by the first-in, first-out
method. Inventories consist primarily of specialty foods held for
resale.
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 any 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
September 30, 2009, 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
FASB ASC
220-10-15 (formerly referred to as 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, ASC 220-10-15
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 other
comprehensive income in any of the periods presented.
INNOVATIVE FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
Basic and Diluted Income
(Loss) Per Share
In
accordance with FASB ASC 260-10-45 (formerly referred to as SFAS No. 128),
"Earnings Per Share," the basic loss per common share is computed by dividing
net income 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, and the numerator is
changed to reflect any changes to net loss that would have occurred
had the dilutive shares been issued.
Diluted
earnings per shares was computed as follows for the three months ended September
30, 2009:
|
Income
|
Shares
|
Per-Share
|
||||||||||
|
(Numerator)
|
(Denominator)
|
Amount
|
||||||||||
|
Basic
earnings per share
|
$
|
1,574,556
|
194,638,638
|
$
|
0.008
|
|||||||
|
Effect
of Dilutive Securities:
|
||||||||||||
|
Conversion
of notes and interest to common stock:
|
||||||||||||
|
Additional
shares reserved for assured conversion
|
487,040,600
|
|||||||||||
|
Decrease
in interest expense due to assured conversion
|
99,462
|
|||||||||||
|
Remove
gain on revaluation of conversion option liability
|
(732,928
|
)
|
||||||||||
|
Shares
accrued, not yet issued
|
-
|
3,000,000
|
||||||||||
|
Diluted
earnings per share
|
$
|
941,090
|
684,679,238
|
$
|
0.001
|
|||||||
Diluted
earnings per shares was computed as follows for the nine months ended September
30, 2009:
|
Income
|
Shares
|
Per-Share
|
||||||||||
|
(Numerator)
|
(Denominator)
|
Amount
|
||||||||||
|
Basic
earnings per share
|
$
|
843,337
|
189,817,233
|
$
|
0.004
|
|||||||
|
Effect
of Dilutive Securities:
|
||||||||||||
|
Conversion
of notes and interest to common stock:
|
||||||||||||
|
Additional
shares reserved interest for conversion
|
487,040,600
|
|||||||||||
|
Decrease
in interest expense due to assured conversion
|
289,227
|
|||||||||||
|
Remove
gain on revaluation of conversion option liability
|
(221,028
|
)
|
||||||||||
|
Shares
accrued, not yet issued
|
-
|
3,000,000
|
||||||||||
|
Diluted
earnings per share
|
$
|
911,536
|
679,857,833
|
$
|
0.001
|
|||||||
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
Diluted
earnings per shares was computed as follows for the three months ended September
30, 2008:
|
Income
|
Shares
|
Per-Share
|
||||||||||
|
(Numerator)
|
(Denominator)
|
Amount
|
||||||||||
|
Basic
earnings per share
|
$
|
959
|
181,787,638
|
$
|
0.000
|
|||||||
|
Effect
of Dilutive Securities:
|
||||||||||||
|
Conversion
of notes and interest to common stock:
|
||||||||||||
|
Additional
shares reserved interest for conversion
|
345,827,080
|
|||||||||||
|
Decrease
in interest expense due to conversion
|
265,835
|
|||||||||||
|
Remove
gain on revaluation of conversion option liability
|
(125,553
|
)
|
||||||||||
|
Warrants
|
139,700,000
|
|||||||||||
|
Remove
gain on revaluation of warrant liability
|
(75,537
|
)
|
||||||||||
|
Options
|
35,500,000
|
|||||||||||
|
Remove
gain on revaluation of option liability
|
(20,663
|
)
|
||||||||||
|
Diluted
earnings per share
|
$
|
45,041
|
702,814,718
|
$
|
0.000
|
|||||||
Diluted
loss per share was not calculated for the nine months ended September 30, 2008
as the effect would have been anti-dilutive.
Anti-dilutive
shares for the three months ended September 30, 2009:
The
following warrants were not included in fully diluted earning per
share because the exercise prices of the warrants were greater than the average
market price of the Company’s common stock:
179,700,000
shares at an exercise price of $0.005 per share; 18,500,000 shares at an
exercise price of $0.011 per share; 74,000,000 shares at an exercise price of
$0.0115 per share; and 1,000,000 shares at an exercise price of $0.012 per
share.
The
following options were not included in fully diluted earning per
share because the exercise prices of the warrants were greater than the average
market price of the Company’s common stock:
15,000,000
shares at $0.005 per share and 20,000,000 shares at $0.007 per
share.
Anti-dilutive
shares for the nine months ended September 30, 2009:
The
following warrants were not included in fully diluted earning per
share because the exercise prices of the warrants were greater than the average
market price of the Company’s common stock:
Warrants: 179,700,000
shares at an exercise price of $0.005 per share; 18,500,000 shares at an
exercise price of $0.011 per share; 74,000,000 shares at an exercise price of
$0.0115 per share; and 1,000,000 shares at an exercise price of $0.012 per
share.
The
following options were not included in fully diluted earning per
share because the exercise prices of the warrants were greater than the average
market price of the Company’s common stock:
15,000,000
shares at $0.005 per share and 20,000,000 shares at $0.007 per
share.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
Anti-dilutive shares for the three
months ended September 30, 2008:
The
following warrants were not included in fully diluted earning per
share because the exercise prices of the warrants were greater than the average
market price of the Company’s common stock:
18,500,000
shares at an exercise price of $0.011 per share; 74,000,000 shares at an
exercise price of $0.0115 per share; and 11,000,000 shares at an exercise price
of $0.012 per share.
The
following options were not included in fully diluted earning per
share because the exercise prices of the warrants were greater than the average
market price of the Company’s common stock:
15,000,000
shares at $0.005 per share; 20,000,000 shares at $0.007 per share; and 500,000
shares at $0.50 per share.
Anti-dilutive
shares for the nine months ended September 30, 2008:
The
following securities were outstanding at September 30, 2008:
Warrants: 18,500,000
shares at an exercise price of $0.011 per share; 74,000,000 shares at an
exercise price of $0.0115 per share; and 11,000,000 shares at an exercise price
of $0.012 per share.
Options: 15,000,000
shares at $0.005 per share; 20,000,000 shares at $0.007 per share; and 500,000
shares at $0.50 per share.
Convertible
notes and interest: 339,260,240 shares at $0.005; 5,272,400 shares at
$0.01 per share; and 1,294,440 shares at 0.025 per share.
Liquidity
As
reflected in the accompanying consolidated financial statements, the Company had
net income of $1,574,556 and $959 for the three months ended
September 30, 2009 and 2008, respectively. The Company had net income of
$843,337 and a loss of $3,246,166 for the nine months ended September
30, 2009 and 2008, respectively. This variance was
principally due to non-cash adjustments due to the changes in the fair values of
warrants, conversion options and registration penalty liabilities rather to
differences in actual operating results. The Company had
an accumulated deficit
of $6,590,117 at September 30,
2009. In addition, the Company’s current liabilities exceeded its
current assets by $4,481,884 as of September 30,
2009. Consequently, its operations are subject to all risks inherent
in the establishment of a new business enterprise.
Historically,
we have funded our operations from cash generated by operations and from the
issuance of both debt and equity securities. 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. If the Company
cannot generate positive cash flow from operations or secure additional funds,
it will not be able to continue as a going concern.
By
adjusting its operations 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 it finds acceptable, 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 9 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, 2008 financial statements state
that our recurring losses raise substantial doubts about our ability as a going
concern.
INNOVATIVE FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
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 in investments with
credit quality institutions. At times, such investments may be in excess of
applicable government mandated insurance limit. At September 30, 2009 and 2008,
trade receivables from the Company’s largest customer amounted to 93 % and
95% respectively, of total trade receivables.
Reclassification
Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
Stock-Based
Compensation
The
Company accounts for stock-based compensation under the provisions of FASB ASC
718-10 (formerly referred to as SFAS 123R), Share-Based Payment. This
statement requires the Company to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award. That cost is recognized over the period in which the
employee is required to provide service in exchange for the award, which is
usually the vesting period.
In August
2005, the Company’s commitments to issue shares of common stock first exceeded
its common stock authorized. At this time, the Company began to value its stock
options via the liability method of accounting. Pursuant to guidance in ASC
780-10 the cost of these options are valued via the Black-Scholes
valuation method when issued, and re-valued at each reporting
period. The gain or loss from this revaluation is charged to
compensation expense during the period. Options expense and gain or
loss on revaluation during the three months ended September 30, 2009 and 2008
are summarized in the table below:
|
Three
Months ended September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Option
expense
|
$
|
-
|
$
|
34,786
|
||||
|
Gain
on revaluation of options
|
$
|
(84,314
|
)
|
$
|
(20,663
|
)
|
||
Options
expense and gain or loss on revaluation during the nine months ended September
30, 2009 and 2008 are summarized in the table below:
|
Nine
Months ended September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Option
expense
|
$
|
-
|
$
|
113,326
|
||||
|
(Gain)
loss on revaluation of options
|
$
|
(49,268
|
)
|
$
|
52,088
|
|||
Options
outstanding as of December 31, 2008, and changes during the nine
months ended September 30, 2009 are presented below:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
Options
outstanding at December 31, 2008
|
35,500,000
|
$
|
0.013
|
|||||
|
Granted
|
-
|
-
|
||||||
|
Exercised
|
-
|
-
|
||||||
|
Cancelled/Expired
|
(500,000
|
)
|
(0.500)
|
|||||
|
Options
outstanding at September 30, 2009
|
35,000,000
|
$
|
0.006
|
|||||
Aggregate
intrinsic value of options outstanding and options exercisable at September 30,
2009, 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 $0.0036 at September 30, 2009, and the exercise price multiplied by
the number of options outstanding. As of September 30, 2009 total unrecognized
stock-based compensation expense related to non-vested stock options was $0. The
total fair value of options vested was $0 for the three and nine month periods
ended September 30, 2009 and 2008.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
Significant Recent
Accounting Pronouncements
The
following accounting guidance has been issued and will be effective for the
Company in or after fiscal year 2009:
Financial
Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”)
820, Fair Value Measurements
and Disclosures (“ASC 820” and formerly referred to as FAS-157),
establishes a framework for measuring fair value in GAAP, clarifies the
definition of fair value within that framework, and expands disclosures about
the use of fair value measurements. ASC 820 is effective for fiscal years
beginning after November 15, 2007. ASC 820-10-65, Transition and Open Effective Date
Information, deferred the effective date of ASC 820, for non-financial
assets and liabilities that are not on a recurring basis recognized or disclosed
at fair value in the financial statements, to fiscal years, and interim periods,
beginning after November 15, 2008. The Company has adopted the guidance
within ASC 820 for non-financial assets and liabilities measured at fair value
on a nonrecurring basis at January 1, 2009 and will continue to apply its
provisions prospectively from January 1, 2009. The application of ASC 820
for non-financial assets and liabilities did not have a significant impact on
earnings nor the financial position for the periods presented.
FASB ASC
805, Business
Combinations (“ASC 805” and formerly referred to as FAS-141(R)) requires
the acquisition method to be applied to all transactions and other events in
which an entity obtains control over one or more other businesses, requires the
acquirer to recognize the fair value of all assets and liabilities acquired,
even if less than one hundred percent ownership is acquired, and establishes the
acquisition date fair value as measurement date for all assets and liabilities
assumed. The guidance within ASC 805 is effective prospectively for any
acquisitions made after fiscal years beginning after December 15,
2008.
FASB ASC
810, Consolidation
(“ASC 810”), ASC 810-10-65, Transition and Open Effective Date
Information (“ASC 810-10-65” and formerly referred to as FAS-160)
establishes accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
non-controlling interest in a subsidiary is an ownership interest in the
consolidated financial statements. ASC 810-10-65 is effective for fiscal years
beginning after December 15, 2008. The application of ASC 810-10-65 did not
have a significant impact on earnings nor the financial position.
FASB ASC
815, Derivatives and Hedging
(“ASC 815”), ASC 815-10-65, Transition and Open Effective Date
Information (“ASC 815-10-65”and formerly referred to as FAS-161) includes
a requirement for enhanced disclosures about an entity’s derivative and hedging
activities and thereby improves the transparency of financial reporting. ASC 815
is effective prospectively for fiscal years beginning after November 15,
2008. The application of ASC 815 expanded the required disclosures in regards to
the Company’s derivative and hedging activities.
FASB ASC
350, Intangibles – Goodwill
and Other, ASC 350-30-65, Transition and Open Effective Date
Information (“ASC 350-30-65” and formerly referred to as FSP FAS 142-3)
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible. ASC
350-30-65 is effective for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The guidance in this ASC
350-30-65 for determining the useful life of a recognized intangible shall be
applied prospectively to intangible assets acquired after the effective date.
The disclosure requirements of ASC 350-30-65, however, shall be applied
prospectively to all intangible assets recognized in the Company’s financial
statements as of the effective date. The application of ASC 350-30-65 is not
expected to have a material impact on earnings nor the financial
position.
FASB ASC
715, Compensation – Retirement
Benefits, ASC 715-20-65, Transition and Open Effective Date
Information (“ASC 715-20-65” and formerly referred to as FSP
FAS-132(R)-1) provides guidance on an employer’s disclosures about plan assets
of a defined benefit pension or other postretirement plans. ASC 715-20-65 is
effective prospectively for fiscal years ending after December 15, 2009.
The application of ASC 715-20-65 will expand the Company’s disclosures regarding
pension plan assets.
FASB ASC
825 Financial
Instruments, ASC 825-10-65, Transition and Open Effective Date
Information (“ASC 825-10-65” and formerly referred to as FSP FAS 107-1
and APB 28-1) requires disclosures about fair value of financial instruments for
interim reporting periods as well as in annual financial statements. This
guidance also requires those disclosures in summarized financial information at
interim reporting periods. ASC 825-10-65 is effective prospectively for interim
reporting periods ending after June 15, 2009. The application of ASC
825-10-65 expanded the Company’s disclosures regarding the use of fair value in
interim periods.
FASB ASC
855, Subsequent Events
(“ASC 855” and formerly referred to as FAS-165), modified the subsequent event
guidance. The three modifications to the subsequent events guidance are: 1) To
name the two types of subsequent events either as recognized or non-recognized
subsequent events, 2) To modify the definition of subsequent events to refer to
events or transactions that occur after the balance sheet date, but before the
financial statement are issued or available to be issued and 3) To require
entities to disclose the date through which an entity has evaluated subsequent
events and the basis for that date, i.e. whether that date represents the date
the financial statements were issued or were available to be issued. This
guidance is effective for interim or annual financial periods ending after June
15, 2009, and should be applied prospectively.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
3.
ACCOUNTS RECEIVABLE
At
September 30, 2009 and December 31, 2008, accounts receivable consists
of:
|
September
30,
2009
|
December
31, 2008
|
|||||||
|
Accounts
receivable from customers
|
$
|
269,653
|
$
|
255,443
|
||||
|
Allowance
for doubtful accounts
|
(607
|
)
|
(15,877
|
)
|
||||
|
Accounts
receivable, net
|
$
|
269,046
|
$
|
239,566
|
||||
4. LOAN
RECEIVABLE
The loan
receivable consists of a loan to Pasta Italiana, Inc. (“Pasta”) in
the net carrying amount of $149,050 and $153,000 at September 30,
2009 and December 31, 2008, respectively. This note bears
interest at the rate of 15% per annum, payable in shares of Pasta
stock. The loan was renegotiated during the twelve months ended
December 31, 2008, and resulted in the Company recognizing an impairment to the
loan in the amount of $142,124, which was charged to operations during the year
ended December 31, 2008. This impairment was based upon the
renegotiated principal and interest amount due the
Company. At September 30, 2009, $96,550 of the amount due
is classified as a current asset, and $52,500 is classified as a long term
asset. At December 31, 2008, $60,000 was classified as a current asset, and
$93,000 is classified as a long-term asset. At September 30, 2009,
Pasta is not in compliance with the terms of the settlement
agreement. During the three months ended September 30, 2009, the Company
received principle payments in the amount of $3,950 from
Pasta. Management will consider the benefit to the Company of giving
formal notice to Pasta with regard to their non-compliance with the payment
terms of the Pasta note, which would trigger default status of the note, during
the coming three months ending December 31, 2009.
5.
INVENTORY
Inventory
consists of the Company's specialty food which has been purchased from third
parties. Components of inventories at September 30, 2009 and December 31, 2008
are as follows:
|
September
30,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Finished
goods
|
$
|
47,795
|
$
|
-
|
||||
|
Total
|
$
|
47,795
|
$
|
-
|
||||
6.
PROPERTY AND EQUIPMENT
A summary
of property and equipment at September 30, 2009 and December 31, 2008, is as
follows:
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
Computer
equipment
|
$
|
301,812
|
$
|
292,608
|
||||
|
Furniture
and fixtures
|
65,650
|
67,298
|
||||||
|
367,462
|
359,906
|
|||||||
|
Less
accumulated depreciation and amortization
|
(331,934
|
)
|
(307,286
|
)
|
||||
|
Total
|
$
|
35,528
|
$
|
52,620
|
||||
Depreciation
and amortization expense amounted to $7,305 and $9,741, respectively, for the
three months ended September 30, 2009 and 2008. Depreciation and amortization
expense amounted to $24,632 and $30,138, respectively, for the nine months ended
September 30, 2009 and 2008.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
7.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at September 30, 2009 and December 31, 2008 are
as follows:
|
September
30,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Trade
payables
|
$
|
705,205
|
$
|
824,172
|
||||
|
Accrued
payroll and commissions
|
23,850
|
8,441
|
||||||
|
$
|
729,055
|
$
|
832,613
|
|||||
At
September 30, 2009 and December 31, 2008, accrued liabilities to related parties
in the amount of $134,085 and $126,671, respectively, consisted of accrued
payroll and payroll related benefits.
8.
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 prices ranging from of
$0.005 to $0.010 per share. Beneficial conversion features
are embedded in the convertible accrued interest. The
Company is amortizing these beneficial conversion features over the
lives of the related notes payable. Certain of these notes
payable have exceeded their stated terms, and are still outstanding; in
those instances, the Company charges the value of these beneficial
conversion features to operations immediately, at the time the interest is
accrued.
During
the three months ended September 30, 2009 and 2008, the amounts of
$35,252, and $30,374, respectively, were credited to additional paid-in capital
as a discount on convertible interest. The aggregate amount of discounts on
convertible interest charged to operations during the three months ended
September 30, 2009 and 2008 was $26,998 and $33,514, respectively.
At
September 30, 2009 and December 31, 2008, the Company has the following accrued
interest on its balance sheet:
|
September
30, 2009:
|
Gross
|
Discount
|
Net
|
|||||||||
|
Non-related
parties
|
$
|
579,229
|
$
|
(27,959
|
)
|
$
|
551,270
|
|||||
|
Related
parties
|
163,178
|
-
|
163,178
|
|||||||||
|
Total
|
$
|
742,407
|
$
|
(27,959
|
)
|
$
|
714,448
|
|||||
|
December
31, 2008:
|
Gross
|
Discount
|
Net
|
|||||||||
|
Non-related
parties
|
$
|
441,013
|
$
|
(3,744
|
)
|
$
|
437,269
|
|||||
|
Related
parties
|
173,471
|
-
|
173,471
|
|||||||||
|
Total
|
$
|
614,484
|
$
|
(3,744
|
)
|
$
|
610,740
|
|||||
Certain
of the accrued interest is convertible in to shares of the Company’s common
stock at prices ranging from $0.005 to $0.010 per share. At September 30, 2009,
convertible accrued interest was $711,411 which was convertible
into 139,191,800 shares of common stock; at December 31,
2008, convertible accrued interest was $587,981 which was convertible into
114,043,320 shares of common stock.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
9.
NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
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. During
the three months ended June 30, 2009, the noteholder agreed to the
application of the original interest rate, instead of the default rate
beginning on April 1, 2009. The note is convertible into common stock of
the Company at a conversion price of $0.005 per share. 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. Interest in the
amount of $6,956 and $13,043 was accrued on this note during the three
months ended September 30, 2009 and 2008, respectively. Interest in the
amount of $26,596 and $38,846 was accrued on this note during the nine
months ended September 30, 2009 and 2008, 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 past due at December 31, 2008. The noteholder has
agreed to extend the maturity date of this note until January 1,
2010
|
$ | 345,000 | $ | 345,000 | ||||
|
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, has no provisions for a default or past due
rate 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. 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 and
2005. 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.
Interest in the amount of $504 was accrued on this note during the three
months ended September 30, 2009, and 2008. Interest in the amount of
$1,495 and $1,501 was accrued on this note during the nine months ended
September 30, 2009, and 2008, respectively. During the twelve months ended
December 31, 2006, $75,000 of the principal amount was converted into
common stock. This note is past due at September 30, 2009 and December 31,
2008.
|
25,000 | 25,000 | ||||||
|
Convertible
note payable in the original amount of $85,000 to Briolette Investments,
Ltd, dated March 11, 2004. The note bears interest at the rate of 8% per
annum, has no provisions for a default or past due rate 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. 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, 2005, and 2006. Accrued interest is convertible by the
holder into common stock of the Company at a price of $0.005 per share.
Interest in the amount of $766 was accrued on this note during the three
months ended September 30, 2009 and 2008. Interest in the amount of $2,273
and $2,298 was accrued on this note during the nine months ended September
30, 2009 and 2008, 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.
This note is past due at September 30, 2009 and December 31,
2008.
|
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, has no
provisions for a default or past due rate 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. 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, 2005, and 2006. 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. Interest in the amount of $1,614 was accrued on this note
during the three months ended September 30, 2009, and 2008. Interest in
the amount of $4,789 and $4,806 was accrued on this note during the nine
months ended September 30, 2009, and 2008, respectively. This note is past
due at September 30, 2009 and December 31, 2008.
|
80,000 | 80,000 | ||||||
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
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. During the three months
ended June 30, 2009, the Company negotiated the default interest rate and
the noteholder agreed to the application of the original interest rate,
instead of the default rate beginning on April 1, 2009. The note is
convertible into common stock of the Company at a conversion of $0.005 per
share. A beneficial conversion feature in the amount of $50,000 was
recorded as a discount to the note, and was amortized to interest expense
when the note entered default status in May, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share. Interest in the amount of $807 and $1,513 was accrued on this note
during the three months ended September 30, 2009 and 2008, respectively.
Interest in the amount of $3,085 and $4,506 was accrued on this note
during the nine months ended September 30, 2009 and 2008, respectively.
During the twelve months ended December 31, 2006, $10,000 of principal and
$589 of accrued interest was converted into common stock. This note is
past due at December 31, 2008. The noteholder has agreed to extend the
maturity date of this note until January 1, 2010.
|
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, has no provisions for a
default or past due rate 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. 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, 2004, 2005, and 2006. Accrued
interest is convertible into common stock of the Company at a price of
$0.005 per share. Interest in the amount of $1,009 was accrued on this
note during the three months ended September 30, 2009, and 2008. Interest
in the amount of $2,994 and $3,005 was accrued on this note during the
nine months ended September 30, 2009, and 2008, respectively. This note is
past due at September 30, 2009 and December 31, 2008.
|
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, has no
provisions for a default or past due rate 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. 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 and 2006. Accrued interest is convertible into common stock of the
Company at a price of $0.005 per share. Interest in the amount of $404 was
accrued on this note during the three months ended September 30, 2009 and
2008. Interest in the amount of $1,199 and $1,203 was accrued on this note
during the nine months ended September 30, 2009 and 2008, respectively.
During the twelve months ended December 31, 2006, the note holder
converted $10,000 of principal into common stock. This note is past due at
September 30, 2009 and December 31, 2008.
|
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, has no provisions for a default or past due rate 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, 2006, and 2007. 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 three months
ended September 30, 2009 and 2008. Interest in the amount of $1,495 and
$1,501 was accrued on this note during the nine months ended September 30,
2009 and 2008, respectively. This note is past due at September 30, 2009
and December 31, 2008.
|
25,000 | 25,000 |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
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, has no provisions for a default or past due rate 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. 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, 2006, and 2007. Accrued interest is convertible into
common stock of the Company at a price of $0.005 per share. Interest in
the amount of $377 was accrued on this note during the three months ended
September 30, 2009 and 2008. Interest in the amount of $1,119 and $1,123
was accrued on this note during the nine months ended September 30, 2009
and 2008, respectively. This note is past due at September 30, 2009 and
December 31, 2008.
|
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, has no provisions for a default or
past due rate 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 . 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, 2005, and 2006. Accrued interest is convertible into common stock of
the Company at a price of $0.01 per share. Interest in the amount of $202
was accrued on this note during the three months ended September 30, 2009,
and 2008. Interest in the amount of $599 and $602 was accrued on this note
during the nine months ended September 30, 2009, and 2008, respectively.
This note is past due at September 30, 2009 and December 31,
2008.
|
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, has no provisions for a default or
past due rate 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. 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, 2005, and 2006. Accrued interest is convertible into common stock of
the Company at a price of $0.01 per share. Interest in the amount of $202
was accrued on this note during the three months ended September 30, 2009,
and 2008. Interest in the amount of $599 and $602 was accrued on this note
during the nine months ended September 30, 2009, and 2008, respectively.
This note is past due at September 30, 2009 and December 31,
2008.
|
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, has no provisions for a
default or past due rate 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. 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, 2005, and 2006. Accrued interest is convertible into common stock of
the Company at a price of $0.01 per share. Interest in the amount of $202
was accrued on this note during the three months ended September 30, 2009,
and 2008. Interest in the amount of $599 and $602 was accrued on this note
during the nine months ended September 30, 29, and 2008, respectively.
This note is past due at September 30, 2009 and December 31,
2008.
|
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, has no provisions for a default or
past due rate 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. 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, 2005, and 2006. Accrued interest is convertible into common stock of
the Company at a price of $0.01 per share. Interest in the amount of $202
was accrued on this note during the three months ended September 30, 2009,
and 2008. Interest in the amount of $599 and $602 was accrued on this note
during the nine months ended September 30, 2009, and 2008, respectively.
This note is past due at September 30, 2009 and December 31,
2008.
|
10,000 | 10,000 |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
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, has no
provisions for a default or past due rate 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. 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,
2005, and 2006. Accrued interest is convertible into common stock of the
Company at a price of $0.005 per share. Interest in the amount of $161 was
accrued on this note during the three months ended September 30, 2009, and
2008. Interest in the amount of $478 and $480 was accrued on this note
during the nine months ended September 30, 2009, and 2008, respectively.
This note is past due at September 30, 2009 and December 31,
2008.
|
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, has no
provisions for a default or past due rate 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. 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, 2004,
2005, and 2006. Accrued interest is convertible into common stock of the
Company at a price of $0.005 per share. Interest in the amount of $101 was
accrued on this note during the three months ended September 30, 2009, and
2008. Interest in the amount of $300 and $301 was accrued on this note
during the nine months ended September 30, 2009, and 2008, respectively.
This note is past due at September 30, 2009 and December 31,
2008.
|
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. During the three months ended June 30, 2009, the Company
negotiated the default interest rate and the noteholder agreed to the
application of the original interest rate, instead of the default rate
beginning on April 1, 2009. The note is convertible into common stock of
the Company at a conversion of $0.005 per share. A beneficial conversion
feature in the amount of $120,000 was recorded as a discount to the note,
and was amortized to interest expense when the note entered default status
in November 2005. Accrued interest is convertible into common stock of the
Company at a price of $0.005 per share. Interest in the amount of $2,419
and $4,537 was accrued on this note during the three months ended
September 30, 2009 and 2008, respectively. Interest in the amount of
$9,251 and $13,512 was accrued on this note during the nine months ended
September 30, 2009 and 2008, respectively. This note is past due at
December 31, 2008. The noteholder has agreed to extend the maturity date
of this note until January 1, 2010.
|
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, 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. During the three months ended June 30, 2009, the Company
negotiated the default interest rate and the noteholder agreed to the
application of the original interest rate, instead of the default rate
beginning on April 1, 2009. The note is convertible into common stock of
the Company at a conversion of $0.005 per share. A beneficial conversion
feature in the amount of $30,000 was recorded as a discount to the note,
and was amortized to interest expense when the note entered default status
in November 2005. Accrued interest is convertible into common stock of the
Company at a price of $0.005 per share. Interest in the amount of $605 and
$1,134 was accrued on this note during the three months ended September
30, 2009 and 2008, respectively. Interest in the amount of $2,312 and
$3,379 was accrued on this note during the nine months ended September 30,
2009 and 2008, respectively. This note is past due at December 31, 2008.
The noteholder agreed to extend the maturity date of this note until
January 1, 2010.
|
30,000 | 30,000 |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
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, 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. During the three months ended June 30, 2009, the Company
negotiated the default interest rate and the noteholder agreed to the
application of the original interest rate, instead of the default rate
beginning on April 1, 2009. The note is convertible into common stock of
the Company at a conversion of $0.005 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 when the note entered default status
in November, 2005. Accrued interest is convertible into common stock of
the Company at a price of $0.005 per share. Interest in the amount of $362
and $870 was accrued on this note during the three months ended September
30, 2009 and 2008, respectively. Interest in the amount of $1,496 and
$2,591 was accrued on this note during the nine months ended September 30,
2009 and 2008, 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, and during the twelve months ended
December 31, 2008, the holder of the note converted an additional $3,000
of principal into common stock. During the three months ended June 30,
2009, the holder converted $2,000 of principal and $1,058 of accrued
interest into common stock. This note is past due at December 31, 2008.
The noteholder has agreed to extend the maturity date of this note until
January 1, 2010.
|
18,000 | 20,000 | ||||||
|
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. During the three months ended June 30, 2009, the Company
negotiated the default interest rate and the noteholder agreed to the
application of the original interest rate, instead of the default rate
beginning on April 1, 2009. The note is convertible into common stock of
the Company at a conversion of $0.005 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 when the note entered default status
in November 2005. Accrued interest is convertible into common stock of the
Company at a price of $0.005 per share. Interest in the amount of $354 and
$870 was accrued on this note during the three months ended September 30,
2009 and 2008, respectively. Interest in the amount of $1,377 and $2,591
was accrued on this note during the nine months ended September 30, 2009
and 2008, 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, and during the twelve months need December 31,
2008, the holder of the note converted an additional $5,000 principal into
common stock. This note is past due at December 31, 2008. The noteholder
agreed to extend the maturity date of this note until January 1,
2010.
|
18,000 | 18,000 | ||||||
|
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. During the three months ended June 30, 2009, the Company
negotiated the default interest rate and the noteholder agreed to the
application of the original interest rate, instead of the default rate
beginning on April 1, 2009. The note is convertible into common stock of
the Company at a conversion of $0.005 per share. A beneficial conversion
feature in the amount of $10,000 was recorded as a discount to the note,
and was amortized to interest expense when the note entered default status
in November, 2005. Accrued interest is convertible into common stock of
the Company at a price of $0.005 per share. Interest in the amount of $121
and $226 was accrued on this note during the three months ended September
30, 2009 and 2008, respectively. Interest in the amount of $461 and $674
was accrued on this note during the nine months ended September 30, 2009
and 2008, 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 past due at December 31, 2008.
The noteholder has agreed to extend the maturity date of this note until
January 1, 2010.
|
6,000 | 6,000 |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
Note
payable in the amount of $120,000 to Alpha Capital, dated February 7,
2006. The note originally carried interest at the rate of 15% per annum,
and was originally due in full on February 7, 2007. The Company was 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 June 30, 2009,
the Company negotiated the default interest rate and the noteholder agreed
to the application of the original interest rate, instead of the default
rate beginning on April 1, 2009. 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.
This note entered technical default on October 31, 2007. The Company
recorded a discount to this note for the fair value of the conversion
feature in the amount of $95,588 and amortized this discount to interest
expense when the note entered default status in October 2007. In January
2009, the Company extended this note to April 16, 2009. As consideration
for the extension of this notes, the Company issued five-year warrants as
follows: warrants to purchase 24,000,000 shares of common stock at $0.0115
per share; 6,000,000 shares of common stock at $0.011 per share; and
2,400,000 shares of common stock at $0.005 per share. These warrants were
valued via the Black-Scholes valuation method at an aggregate amount of
$126,465. This transaction was accounted for as an extinguishment of debt,
and a loss of $126,465 was charged to operations during the twelve months
ended December 31, 2008. Interest in the amount of $4,537 and $6,049 was
accrued on this note during the three months ended September 30, 2009 and
2008, respectively. Interest in the amount of $15,211 and $18,016 was
accrued on this note during the nine months ended September 30, 2009 and
2008, respectively. This note is past due at September 30,
2009.
|
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 was 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. This note entered technical
default on October 31, 2007. The Company recorded a discount to this note
for the fair value of the conversion feature in the amount of $23,897 and
amortized this discount to interest expense when the note entered default
status in October 2007. On January 2009, the Company extended this note to
April 16, 2009. As consideration for the extension of this notes, the
Company issued five-year warrants as follows: warrants to purchase
6,000,000 shares of common stock at $0.0115 per share; 1,500,000 shares of
common stock at $0.011 per share; and 600,000 shares of common stock at
$0.005 per share. These warrants were valued via the Black-Scholes
valuation method at an aggregate amount of $31,616. This transaction was
accounted for as an extinguishment of debt, and a loss of $31,616 was
charged to operations during the twelve months ended December 31, 2008.
Interest in the amount of $1,134 was accrued on this note during the three
months ended September 30, 2009 and 2008. Interest in the amount of $3,736
and $3,378 was accrued on this note during the nine months ended September
30, 2009 and 2008, respectively. This note is past due at September 30,
2009.
|
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. On September 30, 2008, this note was extended to
December 31, 2009 in exchange for adding a convertibility feature to the
note. This feature allows for conversion to common stock at a price of
$0.005 per share. The Company valued this beneficial conversion feature at
the amount of $89,945 using the Black-Scholes valuation model. $75,000 of
this amount was charged to discount on the note; $4,001 of this discount
was amortized to interest expense during the year ended December 31, 2008.
During the three and six months ended June 30, 2009, $9,477 and $14,220
was amortized to interest expense, respectively. Interest in the amount of
$1,513 was accrued on this note during the three months ended September
30, 2009, and 2008. Interest in the amount of $4,489 and $4,506 was
accrued on this note during the nine months ended September 30, 2009, and
2008, respectively.
|
75,000 | 75,000 |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
Note
payable in the amount of $10,000 to Alpha Capital, dated May 19, 2006. The
note originally carried interest at the rate of 15% per annum, and was
originally due in full on November 19, 2006. 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 February
20 2006. At this time, the interest rate increased to 20% and the note
became immediately due and payable. During the three months ended June 30,
2009, the Company negotiated the default interest rate and the noteholder
agreed to the application of the original interest rate, instead of the
default rate beginning on April 1, 2009. 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. This note entered technical default on October 31, 2007. The
Company recorded a discount to this note for the fair value of the
conversion feature in the amount of $7,966 and amortized this discount to
interest expense when the note entered default status in October 2007. On
March 12, 2008, the Company extended this note to March 4, 2009. As
consideration for the extension of this notes, the Company issued
five-year warrants as follows: warrants to purchase 2,000,000 shares of
common stock at $0.0115 per share; 500,000 shares of common stock at
$0.011 per share; and 200,000 shares of common stock at $0.005 per share.
These warrants were valued via the Black-Scholes valuation method at an
aggregate amount of $10,539. This transaction was accounted for as an
extinguishment of debt, and a loss of $10,539 was charged to operations
during the twelve months ended December 31, 2008. Interest in the amount
of $377 and $504 was accrued on this note during the three months ended
September 30, 2009 and 2008, respectively. Interest in the amount of
$1,243 and $1,501 was accrued on this note during the nine months ended
September 30, 2009 and 2008, respectively. The noteholder agreed to extend
the maturity date of this note until January 1, 2010.
|
10,000 | 10,000 | ||||||
|
Twenty-nine
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 and have no due date. These notes and accrued interest are
convertible into common stock of the Company at a rate of $0.005 per
share. Beneficial conversion features in the aggregate amount of $9,000
for the year ended December 31, 2006, $39,190 for the year ended December
31, 2007, $58,464 for the year ended December 31, 2008, and $8,100 for the
three months ended March 31, 2009 were calculated using the Black-Scholes
valuation model. Since these notes are payable on demand, the value of
these discounts were charged immediately to interest expense. Interest in
the aggregate amount of $2,632 and $1,933 was accrued on these notes
during the three months ended September 30, 2009 and 2008, respectively.
Interest in the aggregate amount of $7,638 and $4,977 was accrued on these
notes during the nine months ended September 30, 2009 and 2008,
respectively.
|
130,500 | 117,000 | ||||||
|
Twelve
one-year notes payable in the amount of $1,500 each for an aggregate
amount of $18,000 to Mountain Marketing, for services. A note in the
amount of $1,500 is dated as of the last day of each month of the year
ended December 31, 2008. These notes are convertible into common stock of
the Company at the rate of $0.005 per share. Discounts in the aggregate
amount of $15,664 were amortized to interest during the year ended
December 31, 2008. These notes do not bear interest. During the three
months ended June 30, 2009, the Company issued 3,600,000 shares of common
stock for the conversion of these notes payable.
|
- | 18,000 | ||||||
|
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. Interest
in the amount of $316 and $441 was capitalized to this note during the
three months ended September 30, 2009 and 2008, respectively. Interest in
the amount of $1,044 and $1,410 was capitalized to this note during the
nine months ended September 30, 2009 and 2008, respectively. Principal and
interest in the amounts of $1,672 were paid on this note during the three
months ended September 30, 2009 and 2008. Principal and interest in the
amounts of $5,017 were paid on this note during the nine months ended
September 30, 2009 and 2008.
|
12,113 | 16,087 | ||||||
|
Convertible
note payable in the amount of $200,000 to Alpha Capital, dated December
31, 2008. This note bears interest at the rate of 8% per annum, and is due
in full on December 31, 2009. Principal and accrued interest is
convertible into common stock of the Company at the rate of $0.005 per
share. Also issued with this note are warrants to purchase 40,000,000
shares of the Company’s common stock at a price of $0.005 per share. The
Company calculated a discount to the note in the amount of $200,000, and
recorded $9,261 and $11,577 amortization for this discount during the
three and nine months ended September 30, 2009, respectively. Interest in
the aggregate amount of $4,033 and $0 was accrued on this note during the
three months ended September 30, 2009 and 2008, respectively. Interest in
the aggregate amount of $11,967 and $0 was accrued on this note during the
nine months ended September 30, 2009 and 2008, respectively. During the
three months ended September 30, 2009, the Company made an $8,000 payment
on the principle of this note.
|
192,000 | 200,000 |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
|
September
30, 2009
|
December
31, 2008
|
|||||||
|
Convertible
note payable for the settlement of the amount owed for the penalty for the
late registration of shares in the amount of $230,000 to Alpha Capital,
dated January 1, 2009. This note bears interest at the rate of 8% per
annum, and is due in full on July 31, 2011. Principal and accrued interest
is convertible into common stock of the Company at the rate of $0.005 per
share. The Company calculated a discount to the note in the amount of
$230,000, and recorded $3,164 and $6,483 amortization for this discount
during the three and nine months ended September 30, 2009, respectively.
Interest in the aggregate amount of $4,638 was accrued on this note during
the three months ended September 30, 2009. Interest in the aggregate
amount of $13,712 was accrued on this note during the nine months ended
September 30, 2009.
|
230,000 | - | ||||||
|
Convertible
note payable for the settlement of the amount owed for the penalty for the
late registration of shares in the amount of $38,000 to Whalehaven
Capital, dated January 1, 2009. This note bears interest at the rate of 8%
per annum, and is due in full on July 31, 2011. Principal and accrued
interest is convertible into common stock of the Company at the rate of
$0.005 per share. The Company calculated a discount to the note in the
amount of $38,000, and recorded $523 and $1,071 amortization for this
discount during the three and nine months ended September 30, 2009,
respectively. Interest in the aggregate amount of $1,436 was accrued on
this note during the three months ended September 30, 2009. Interest in
the aggregate amount of $4,245 was accrued on this note during the nine
months ended September 30, 2009.
|
38,000 | - | ||||||
|
Convertible
note payable for the settlement of the amount owed for the penalty for the
late registration of shares in the amount of $25,310 to Asher Brand, dated
January 1, 2009. This note bears interest at the rate of 8% per annum, and
is due in full on July 31, 2011. Principal and accrued interest is
convertible into common stock of the Company at the rate of $0.005 per
share. The Company calculated a discount to the note in the amount of
$25,310, and recorded $348 and $713 amortization for this discount during
the three and nine months ended September 30, 2009, respectively. Interest
in the aggregate amount of $510 was accrued on this note during the three
months ended September 30, 2009. Interest in the aggregate amount of
$1,507 was accrued on this note during the nine months ended September 30,
2009.
|
25,310 | - | ||||||
|
Convertible
note payable for the settlement of the amount owed for the penalty for the
late registration of shares in the amount of $25,310 to Momona Capital,
dated January 1, 2009. This note bears interest at the rate of 8% per
annum, and is due in full on July 31, 2011. Principal and accrued interest
is convertible into common stock of the Company at the rate of $0.005 per
share. The Company calculated a discount to the note in the amount of
$25,310, and recorded $348 and $713 amortization for this discount during
the three and nine months ended September 30, 2009, respectively. Interest
in the aggregate amount of $510 was accrued on this note during the three
months ended September 30, 2009. Interest in the aggregate amount of
$1,507 was accrued on this note during the nine months ended September 30,
2009.
|
25,310 | - | ||||||
|
Convertible
note payable for the settlement of the amount owed for the penalty for the
late registration of shares in the amount of $10,124 to Lane Ventures,
dated January 1, 2009. This note bears interest at the rate of 8% per
annum, and is due in full on July 31, 2011. Principal and accrued interest
is convertible into common stock of the Company at the rate of $0.005 per
share. The Company calculated a discount to the note in the amount of
$10,124, and recorded $139 and $285 amortization for this discount during
the three and nine months ended September 30, 2009, respectively. Interest
in the aggregate amount of $205 was accrued on this note during the three
months ended September 30, 2009. Interest in the aggregate amount of $606
was accrued on this note during the nine months ended September 30
2009.
|
10,124 | - | ||||||
| $ | 1,791,357 | $ | 1,481,087 |
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
|
Note
|
Unamortized
|
Net
of
|
||||||||||
|
September
30, 2009:
|
Amount
|
Discounts
|
Discount
|
|||||||||
|
Notes
payable - current portion
|
$
|
918,766
|
$
|
-
|
$
|
918,766
|
||||||
|
Notes
payable - related parties, current portion
|
345,500
|
(37,842
|
)
|
307,658
|
||||||||
|
Notes
payable
|
527,091
|
(507,903
|
)
|
19,188
|
||||||||
|
Total
|
$
|
1,791,357
|
$
|
(545,745
|
)
|
$
|
1,245,612
|
|||||
|
Note
|
Unamortized
|
Net
of
|
||||||||||
|
December
31, 2008:
|
Amount
|
Discounts
|
Discount
|
|||||||||
|
Notes
payable - current portion
|
$
|
938,364
|
$
|
-
|
$
|
938,364
|
||||||
|
Notes
payable - related parties, current portion
|
332,000
|
(70,998
|
)
|
261,002
|
||||||||
|
Notes
payable
|
210,723
|
(200,000
|
)
|
10,723
|
||||||||
|
Total
|
$
|
1,481,087
|
$
|
(270,998
|
)
|
$
|
1,210,089
|
|||||
|
Three
months ended
|
||||||||
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Discount
on Notes Payable amortized to interest expense:
|
$
|
26,998
|
$
|
33,514
|
||||
|
Nine
months ended
|
||||||||
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Discount
on Notes Payable amortized to interest expense:
|
$
|
97,093
|
$
|
86,931
|
||||
Maturities
of debt are as follows:
|
December
31,
|
||||
|
2009
|
$
|
672,890
|
||
|
2010
|
592,908
|
|||
|
2011
|
525,559
|
|||
|
$
|
1,791,357
|
|||
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
Conversion Options Embedded
in Convertible Notes
The
Company accounts for conversion options embedded in convertible notes in
accordance with FASB ASC 815-10-05 (“ASC 815-10-05”, formerly referred to as
SFAS No. 133) ‘‘Accounting for Derivative Instruments and Hedging Activities’’
and FASB ASC 815-40-05 (“ASC 815-40-05”, formerly referred to as EITF 00-19)
‘‘Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock”. ASC 815-10-05 generally requires companies
to bifurcate conversion options embedded in convertible notes from their host
instruments and to account for them as free standing derivative financial
instruments in accordance with ASC 815-40-05.
At
September 30, 2009 and December 31, 2008, the Company
had outstanding $1,779,244 and $1,465,000 in
principal, respectively, of various convertible notes with embedded conversion
options accounted for as free standing derivative financial instruments in
accordance with ASC 815-10-05 and ASC 815-40-05 . The fair
value of these embedded conversion options was $1,252,256 and $1,150,000 at
September 30, 2009 and December 31, 2008, respectively. The fair
value of these embedded conversion options were estimated at September 30, 2009
using the Black-Scholes option pricing model with the following
assumptions: risk free interest rate of 0.18%; expected dividend
yield of 0%; expected option life of 10; and volatility of
369%. The fair value of these embedded conversion options were
estimated at December 31, 2008 using the Black-Scholes option pricing model with
the following assumptions: risk free interest rate of 0.27%; expected
dividend yield of 0%; expected option life of 10; and volatility of
332.67%. The expected term of 10 years was used for all notes in both
periods because several of the notes are currently or have been in default, and
accordingly the term of the note is deemed not relevant as a variable for the
Black-Scholes calculation. The Company revalues the conversion
options at each reporting period, and charges any change in value to operations.
During the three months ended September 30, 2009 and 2008, the Company recorded
a gain of $732,928 and $117,672, respectively, due to the change in value of the
conversion option liability. During the nine months ended September 30, 2009 and
2008, the Company recorded a gain of $221,028 and a loss of $940,240,
respectively, due to the change in value of the conversion option
liability.
When
convertible notes payable are satisfied by payment or by conversion to equity,
the Company revalues the related conversion option liability at the time of the
payment or conversion. The conversion option liability is then
relieved by this amount, which is charged to additional paid-in
capital. During the three months ended September 30, 2009 and 2008, a
conversion option in the amount of $5,760 and $0, respectively, was transferred
from liability to equity due to the conversion or payment of the related
convertible notes payable. During the nine months ended September 30, 2009 and
2008, a conversion option in the amount of $13,560 and $0, respectively, was
transferred from liability to equity due to the conversion or payment of
the related convertible notes payable.
Discounts on notes
payable
The
Company calculates the fair value of any beneficial conversion features embedded
in its convertible notes via the Black-Scholes valuation method. The Company
also calculates the fair value of any detachable warrants offered with its
convertible notes via the Black-Scholes valuation method. The
instruments are considered discounts to the notes, to the extent the aggregate
value of the warrants and conversion features do not exceed the face value of
the notes. These discounts are amortized to interest expense via the effective
interest method over the term of the notes. The fair value of these
instruments is expensed as original issue discount to the extent that the value
of these instruments exceeds the face value of the notes.
Extension of notes
payable
The
Company accounts for modifications of its notes payable according to the
guidance in FASB ASC 470-50-40 (“ASC 470-50-40”, and formerly referred to as
EITF 96-19), “Debtor’s Accounting for a Modification or Exchange of Debt
Instruments” and FASB ASC 470-50-40 (“ASC 470-50-40”, and formerly referred to
as EITF 06-6, “Debtor’s Accounting for a Modification (or Exchange) of
Convertible Debt Instruments”) Pursuant to ASC 470-50-40, changes to an existing
note should be accounted for as an extinguishment of the note with resultant
gain or loss if the present value of the cash flows from the new note vary
by more than 10% from the present value of the cash flows from the
original note. ASC 470-50-40 provides an exception to this rule for
the addition of conversion options accounted for as a derivative
liability.
During
the year ended December 31, 2007, the Company negotiated the extension of three
of its notes payable in the aggregate amount of $160,000. As
consideration for the extension, the Company agreed to add a convertibility
feature to the notes. Because this note falls under the exception in
ASC 470-50-40 regarding the addition of conversion options accounted for as a
derivative liability, the Company accounted for this transaction as a
modification of the existing note. The conversion option liability was valued at
the amount of $127,450 at the date of the issuance of the extension via the
Black-Scholes method. This amount was debited to discount on notes payable, and
is being amortized via the effective interest method over the extended term of
the related notes.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
During
the year ended December 31, 2008, the Company negotiated the further extension
of these three notes payable in the aggregate amount of $160,000. As
consideration for the extension, the Company provided warrants to purchase an
aggregate 43,200,000 shares of common stock. The Company valued these
warrants at the date of issuance via the Black-Scholes valuation method at
$168,620. The value of these warrants are considered a component of
the 10% present value calculation under ASC 470-50-40. The Company accounted for
this transaction as an extinguishment of debt, and recorded a loss on
extinguishment in the amount of $168,620. This amount was charged to
operations during the year ended December 31, 2008.
During
the nine months ended September 30, 2009, the Company negotiated the
extension of its notes payable in the aggregate amount of
$587,000. The Company extended the maturity date of these notes until
January 1, 2010. These notes, along with two additional notes payable
in the aggregate amount of $150,000, contained certain provisions for a default
interest rate. The Company negotiated an agreement with the
noteholders and the noteholders have agreed to the original interest
rate of 8% per annum.
Embedded conversion features
of notes payable:
The
Company accounts for conversion options embedded in convertible notes in
accordance with FASB ASC 815-10-05 (“ASC 815-10-05”, and formerly referred to as
SFAS No. 133) and FASB ASC 815-40-05 (“ASC 815-40-05”, and formerly referred to
as EITF 00-19). ASC 815-10-05 generally requires companies to bifurcate
conversion options embedded in convertible notes and preferred shares from their
host instruments and to account for them as free standing derivative financial
instruments in accordance with ASC 815-40-05.
The
Company values embedded conversion features utilizing the Black-Scholes
valuation model. Conversion options are valued upon issuance, and
re-valued at each financial statement reporting date. Any change in
value is charged to income or expense during the period. The
following table illustrates certain key information regarding our conversion
option valuation assumptions for the nine months ended September 30,
2009 and 2008:
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Number
of options outstanding
|
349,448,800
|
243,000,000
|
||||||
|
Value
at September 30,
|
$
|
1,252,256
|
$
|
1,700,972
|
||||
|
Number
of options issued during the period
|
-
|
15,000,000
|
||||||
|
Value
of options issued during the period
|
$
|
-
|
$
|
89,945
|
||||
|
Number
of options exercised or underlying
|
||||||||
|
notes
paid during the period
|
5,600,000
|
-
|
||||||
|
Value
of options exercised or underlying
|
||||||||
|
notes
paid during the period
|
$
|
13,560
|
$
|
-
|
||||
|
Revaluation
gain (loss) during the period
|
$
|
221,028
|
$
|
(940,240
|
)
|
|||
|
Black-Scholes
model variables:
|
||||||||
|
Volatility
|
364.61
- 390.59
|
%
|
213.70-
669.34
|
%
|
||||
|
Dividends
|
-
|
-
|
||||||
|
Risk-free
interest rates
|
0.18
– 0.43
|
%
|
1.51
- 2.17
|
%
|
||||
|
Term
(years)
|
10.00
|
10.00
|
||||||
10.
PENALTY FOR LATE REGISTRATION OF SHARES
During
the twelve months ended December 31, 2008, the Company accrued liabilities for
the issuance of 0 and 22,760,000, respectively (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, 2008, there were a total of 110,280,000 Penalty Shares
issuable. During the twelve months ended
December 31, 2008, the Company revalued these 110,280,000
Penalty Shares. This resulted in losses of $ 220,564
and $3,296, respectively. The liability carried on the Company’s
balance sheets at December 31, 2008 representing the value of the Penalty Shares
is $551,400.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
On
January 1, 2009, the Company reached a settlement agreement (the “Registration
Penalty Settlement” ) with the parties to whom the penalty for the late
registration is owed. The agreement was a cancellation of the
liability for the registration of shares in exchange for convertible notes in
the amount of $328,744. At January 1, 2009, the Company valued the
conversion option liability based upon the closing price of the Company’s common
stock. This value was the same as the December 31, 2008 value of
$551,400. During the nine months ended September 30, 2009, the
Company recognized a gain on settlement of the conversion option liability in
the amount of $222,656, representing the difference between the value of the
conversion option of $551,400 and the notes payable issued pursuant
to the Registration Penalty Settlement of $328,744.
The
registration rights which triggered the accrual of the penalty shares expired on
November 27, 2008. At December 31, 2008, the Company had accrued the
maximum number of shares issuable under the registration rights
agreement.
Except
for the penalties disclosed above for not registering the shares of common stock
underlying certain convertible notes, there are no circumstances that would
require the Company to transfer any consideration to the note
holders.
11.
INCOME TAXES
Deferred
income taxes result from the temporary differences arising from the use of
accelerated depreciation methods for income tax purposes and the straight-line
method for financial statement purposes, and an accumulation of Net Operating
Loss carryforwards for income tax purposes with a valuation allowance against
the carryforwards for book purposes.
In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Included in deferred tax assets are Federal and State net
operating loss carryforwards of approximately $6,700,000, which will
expire beginning in 2028. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon our cumulative losses through September 30, 2009, we have provided a
valuation allowance reducing the net realizable benefits of these deductible
differences to $0 at September 30, 2009. The amount of the deferred
tax asset considered realizable could change in the near term if projected
future taxable income is realized. In the event
of significant changes in the Company's ownership, the Company's
future use of its existing net operating losses may be limited.
The
income tax provision (benefit) for the nine months ended September 30, 2009
and 2008 consists of the following:
|
September
30, 2009
|
September 30,
2008
|
|||||||
|
Current
|
||||||||
|
Federal
|
$
|
-
|
$
|
-
|
||||
|
State
|
-
|
-
|
||||||
|
-
|
-
|
|||||||
|
Deferred
|
||||||||
|
Federal
|
-
|
-
|
||||||
|
State
|
-
|
-
|
||||||
|
-
|
-
|
|||||||
|
$
|
-
|
$
|
-
|
|||||
A
reconciliation between the actual income tax expense and income taxes computed
by applying the statutory Federal and state income tax rates to income from
continuing operations before income taxes is as follows:
|
Nine
Months Ended September 30, 2009
|
Nine
Months
Ended September 30, 2008
|
|||||||
|
Computed
“expected” income tax expense at approximately 34%
|
$
|
239,000
|
$
|
(1,098,000
|
)
|
|||
|
Increase
(decrease) in NOL carryforwards
|
(239,000
|
)
|
1,098,000
|
|||||
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of our deferred
tax assets and liabilities as of September 30, 2009 and 2008 are as
follows:
|
September 30,
2009
|
September 30,
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss
|
$
|
(1,471,000
|
)
|
$
|
(3,622,000
|
)
|
||
|
Allowance
and accruals not recognized for income tax purposes
|
-
|
-
|
||||||
|
Total
gross deferred tax assets
|
(1,471,000
|
)
|
(3,622,000
|
)
|
||||
|
Less
: Valuation allowance
|
1,471,000
|
3,622,000
|
||||||
|
Net
deferred tax assets
|
$
|
0
|
$
|
0
|
||||
|
Deferred
tax liabilities:
|
||||||||
|
Total
gross deferred tax liabilities:
|
||||||||
|
Depreciation
and amortization, net
|
(1,000
|
)
|
(3,000
|
)
|
||||
|
Deferred
state tax liability
|
-
|
-
|
||||||
|
Total
net deferred tax liabilities
|
$
|
(1,000
|
)
|
$
|
(3,000
|
)
|
||
These
amounts have been presented in the consolidated balance sheets as
follows:
|
September
30, 2009
|
September 30,
2008
|
|||||||
|
Current
deferred tax asset
|
$
|
-
|
$
|
-
|
||||
|
Non
current deferred tax asset
|
-
|
-
|
||||||
|
Non
current deferred tax liability
|
-
|
-
|
||||||
|
Total
net deferred tax asset
|
$
|
-
|
$
|
-
|
||||
12.
EQUITY
Common
Stock
During
the three months ended March 31, 2009, the Company issued 5,000,000
shares of common stock to a consultant for services previously provided. The
fair value of these shares of $10,000 was charged to operations during the year
ended December 31, 2008.
During
the three months ended June 30, 2009, the Company issued 600,000 shares of
common stock to employees for services previously provided. The fair
value of these shares of $1,200 was charged to operations during the three
months ended June 30, 2009.
During
the three months ended June 30, 2009, the Company issued 3,600,000 shares of
common stock to an investor for the conversion of a note payable in the amount
of $18,000.
During
the three months ended June 30, 2009, the Company issued 1,250,000 shares of
common stock to a consultant for services. The fair value of these
shares in the amount of $6,250 was recorded as a prepaid asset. As of
June 30, 2009, the Company has charged $3,125 to operations.
During
the three months ended September 30, 2009, the Company issued no shares of
common stock.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
During
the three months ended June 30, 2009, the Company issued 611,600 shares of
common stock to an investor for the conversion of $2,000 of principal of a
convertible note and $1,058 of accrued interest on the convertible
note.
Warrants
The
following table summarizes the significant terms of warrants outstanding at
September 30, 2009. These warrants may be settled in cash or via cashless
conversion into shares of the Company’s common stock at the request of the
warrant holder. These warrants were granted as part of a financing
agreement:
|
Range
of
exercise
prices
|
Number
of
warrants
outstanding
|
Weighted
average
remaining
contractual
life
(years)
|
Weighted
average
exercise
price
of
outstanding
warrants
|
Number
of
warrants
exercisable
|
Weighted
average
exercise
price
of
exercisable
warrants
|
||||||||||||||||
|
$
|
0.0050
|
179,700,000
|
1.32
|
$
|
0.0050
|
179,700,000
|
$
|
0.0050
|
|||||||||||||
|
$
|
0.0110
|
18,500,000
|
1.99
|
$
|
0.0110
|
18,500,000
|
$
|
0.0110
|
|||||||||||||
|
$
|
0.0120
|
1,000,000
|
3.96
|
$
|
0.0120
|
-
|
$
|
-
|
|||||||||||||
|
$
|
0.0115
|
74,000,000
|
1.99
|
$
|
0.0115
|
74,000,000
|
$
|
0.0115
|
|||||||||||||
|
273,200,000
|
1.55
|
$
|
0.072
|
272,200,000
|
$
|
0.071
|
|||||||||||||||
Transactions
involving warrants are summarized as follows:
|
Number
of
warrants
|
Weighted
Average
Exercise
Price
|
|||||||
|
Warrants
exercisable at December 31, 2008
|
273,200,000
|
$
|
0.008
|
|||||
|
Granted
|
-
|
-
|
||||||
|
Exercised
|
-
|
-
|
||||||
|
Cancelled
/ Expired
|
-
|
-
|
||||||
|
Warrants
outstanding at September 30, 2009
|
273,200,000
|
$
|
0.007
|
|||||
|
Exercisable
|
272,200,000
|
$
|
0.007
|
|||||
|
Not
exercisable
|
1,000,000
|
$
|
0.012
|
|||||
Options
In
December 2006, the Company agreed to issue 5,000,000 options with five year
terms to purchase additional shares of common stock to each of the Company’s
three directors, pursuant to a board resolution for services performed in 2006
(a total of 15,000,000 options). These options have no alternative settlement
provisions. The options were issued in April 2007. Compensation cost was
recognized via the straight-line attribution method.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
In
January 2008, the Company agreed to issue 5,000,000 options with five year terms
to purchase additional shares of common stock to each of the Company’s three
directors and the Company’s President pursuant to a board resolution for
services performed (a total of 20,000,000 options). The options were issued in
January 2008. Compensation cost was recognized via the straight-line
attribution method as expensed to operations during the year ended December 31,
2008.
The
following table summarizes the changes outstanding and the related prices for
the options to purchase shares of the Company’s common stock issued by the
Company:
|
Weighted
|
Weighted
|
|||||||||||||||||||||
|
Weighted
|
average
|
average
|
||||||||||||||||||||
|
average
|
exercise
|
exercise
|
||||||||||||||||||||
|
Range
of
|
Number
of
|
remaining
|
price
of
|
Number
of
|
price
of
|
|||||||||||||||||
|
exercise
|
options
|
contractual
|
outstanding
|
options
|
exercisable
|
|||||||||||||||||
|
prices
|
outstanding
|
life
(years)
|
options
|
exercisable
|
options
|
|||||||||||||||||
|
$
|
0.005
|
15,000,000
|
2.14
|
$
|
0.005
|
15,000,000
|
$
|
0.005
|
||||||||||||||
|
$
|
0.007
|
20,000,000
|
3.50
|
$
|
0.007
|
20,000,000
|
$
|
0.007
|
||||||||||||||
|
35,000,000
|
2.92
|
$
|
0.009
|
35,000,000
|
$
|
0.008
|
||||||||||||||||
Transactions
involving stock options are summarized as follows:
|
Weighted
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
Options
outstanding at December 31, 2008
|
35,500,000
|
$
|
0.013
|
|||||
|
Granted
|
-
|
-
|
||||||
|
Exercised
|
-
|
-
|
||||||
|
Cancelled
/ Expired
|
(500,000
|
)
|
(0.500)
|
|||||
|
Options
outstanding at September 30, 2009
|
35,000,000
|
$
|
0.006
|
|||||
Accounting for warrants
and stock options
The
Company accounts for the issuance of common stock purchase warrants, stock
options, and other freestanding derivative financial instruments in accordance
with the provisions of FASB ASC 815-40-15 (“ASC 815-40-15” and formerly referred
to as EITF 00-19). Based on the provisions of ASC 815-40-05 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). At September
30, 2009 and 2008, the Company had no freestanding
derivative financial instruments that require net cash settlement or give the
counterparty a choice of net cash settlement or settlement in
shares.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
The fair
value of these warrants and stock options 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. As the Company no longer had
sufficient shares authorized to settle all of our outstanding contracts, this
triggered a change in the manner in which the Company accounts for the warrants
and stock options. The Company began to account for these
warrants and stock options utilizing the liability method. Pursuant
to ASC 815-40-05 ,"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 states that the warrants and stock options which are a
derivative liability should be revalued each reporting period. The recorded
value of such warrants and stock options can fluctuate significantly based on
fluctuations in the market value of the underlying securities of the issuer of
the warrants and stock options, as well as in the volatility of the stock price
during the term used for observation and the term remaining for warrants. During
the three months ended September 30, 2009 and 2008, the Company recognized
a gain of $777,595 and of $125,553, respectively, for the change in the fair
value of the warrant liability and recorded the gains and losses in
operations during the three months ended September 30, 2009 and
2008. During the nine months ended September 30, 2009 and 2008, the
Company recognized a gain of $523,312 and a loss of $838,849, respectively, for
the change in the fair value of the warrant liability and recorded
the gains and losses in operations during the nine months ended
September 30, 2009 and 2008. During the three months ended
September 30, 2009 and 2008, the Company recognized a gain of $84,314
and $20,663, respectively, for the change in the fair value of the stock option
liability and recorded these amounts in operations during the three months ended
September 30, 2009 and 2008. During the nine months ended September
30, 2009 and 2008, the Company recognized a gain of $49,268
and a loss of $52,088, respectively, for the change in the fair value
of the stock option liability and recorded these amounts in operations during
the nine months ended September 30, 2009 and 2008.
The
Company valued warrants using the Black-Scholes valuation model utilizing the
following variables:
|
September 30,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Volatility
|
363.81-386.12
|
%
|
203.6%
- 332.7
|
%
|
||||
|
Dividends
|
$
|
-
|
$
|
-
|
||||
|
Risk-free
interest rates
|
0.18-0.43
|
%
|
0.27%
- 2.41
|
%
|
||||
|
Term
(years)
|
0.40-4.46
|
1.15
- 5.00
|
||||||
The
Company valued stock options using the Black-Scholes valuation model utilizing
the following variables:
|
September 30,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Volatility
|
363.81-386.12
|
%
|
203.6%
- 332.7
|
%
|
||||
|
Dividends
|
$
|
-
|
$
|
-
|
||||
|
Risk-free
interest rates
|
0.18-0.43
|
%
|
0.27%
- 2.41
|
%
|
||||
|
Term
(years)
|
2.14-3.31
|
1.15
- 5.00
|
||||||
Insufficient Authorized but
Unissued Shares of Common Stock
The
Company has a potential obligation to issue 797,240,600
and 724,807,080 shares of common stock upon the conversion
of convertible notes and accrued interest, warrants and penalty shares issuable
at September 30, 2009, and 2008, respectively. The
Company had 194,638,638 and
181,787,638 shares of common stock outstanding at
September 30, 2009, and 2008, respectively,
and 500,000,000 shares of common stock authorized at
September 30, 2009 and 2008. The Company has exceeded its
shares authorized by 491,879,238 and 406,594,718
shares at September 30, 2009 and 2008, respectively.
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
13. 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. The Company has reported a net income
of $1,574,556 and $843,337 for the three and
nine months ended September 30, 2009, and had an
accumulated deficit of $6,590,117 as of September 30,
2009. The Company’s net income for the nine months ended September
30, 2009 of $843,337 was generated primarily by non-cash
transactions, including non-cash gains of $523,312 on the revaluation of the
warrant liability, $49,268 on the revaluation of the option liability,
$221,028 for the revaluation of the conversion option liability, and $222,656 on
the extinguishment of debt. 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 any adjustments to the financial statements
which would be necessary should the Company not be able to continue as a going
concern.
14. AMENDMENTS
TO FINANCIAL STATEMENTS
By
letters dated November 7, 2008 and March 6, 2009, the
Company received comments from the SEC to its Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2007. As such, the Company has
amended its financial statements for the three and nine months
ended September 30, 2008.
In the
table below, in tabular format, are the areas of major changes for
the three months ended September 30, 2008:
|
Previously
Reported
|
Adjustment
|
Restated
Amount
|
||||||||||
|
Current
liabilities
|
$
|
6,852,354
|
$
|
(143,742)
|
$
|
6,705,240
|
||||||
|
Total
liabilities
|
$
|
6,939,467
|
$
|
(68,742)
|
$
|
6,792,353
|
||||||
|
Additional
paid-in capital
|
$
|
890,264
|
$
|
1,041,912
|
$
|
1,932,176
|
||||||
|
Accumulated
deficit
|
$
|
(7,360,328
|
)
|
$
|
(898,170
|
)
|
$
|
(8,258,498
|
)
|
|||
|
Total stockholders’
deficiency
|
$
|
(6,451,885
|
)
|
$
|
143,742
|
$
|
(6,308,143
|
)
|
||||
|
Total
liabilities and (deficiency in) stockholders' equity
|
$
|
487,582
|
$
|
-
|
$
|
487,582
|
||||||
|
Selling,
general and administrative expenses
|
$
|
449,556
|
$
|
14,137
|
$
|
463,693
|
||||||
|
Total
operating expenses
|
$
|
(97,895
|
)
|
$
|
(14,137
|
)
|
$
|
(112,032
|
)
|
|||
|
Total
other expense
|
$
|
318,735
|
$
|
(431,726
|
)
|
$
|
(112,991)
|
|||||
|
Net
loss
|
$
|
(416,630
|
)
|
$
|
417,589
|
$
|
959
|
|||||
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2009
(Unaudited)
In the
table below, in tabular format, are the areas of major changes for
the nine months ended September 30, 2008:
|
Previously
Reported
|
Adjustment
|
Restated
Amount
|
||||||||||
|
Current
liabilities
|
$
|
6,852,354
|
$
|
(143,742
|
)
|
$
|
6,708,612
|
|||||
|
Total
liabilities
|
$
|
6,939,467
|
$
|
(143,742)
|
$
|
6,795,725
|
||||||
|
Additional
paid-in capital
|
$
|
890,264
|
$
|
1,041,912
|
$
|
1,932,176
|
||||||
|
Accumulated
deficit
|
$
|
(7,360,328
|
)
|
$
|
(898,170
|
)
|
$
|
(8,258,498
|
)
|
|||
|
Total stockholders’
deficiency
|
$
|
(6,451,885
|
)
|
$
|
143,742
|
$
|
(6,308,143
|
)
|
||||
|
Total
liabilities and (deficiency in) stockholders' equity
|
$
|
487,582
|
$
|
-
|
$
|
487,582
|
||||||
|
Selling,
general and administrative expenses
|
$
|
1,314,904
|
$
|
26,351
|
$
|
1,341,255
|
||||||
|
Total
operating loss
|
$
|
(257,645
|
)
|
$
|
(26,351
|
)
|
$
|
(283,996
|
)
|
|||
|
Total
other expense
|
$
|
3,077,637
|
$
|
(115,467
|
)
|
$
|
2,962,170
|
|||||
|
Net
loss
|
$
|
(3,335,282
|
)
|
$
|
89,116
|
$
|
(3,246,166
|
)
|
||||
The
following changes were made to the footnote disclosure of our financial
statements:
Beneficial
conversion features of notes payable were added:
We have
added to the disclosures regarding the settlement agreement on our note
receivable from Pasta Italiana, and recalculated the impairment recorded on the
note;
We have
recalculated the beneficial conversion features of notes payable, and amortized
the discount on notes payable via the effective interest method over the term of
the related notes;
We have
revised our accounting for stock options issued, and included the revaluation of
the fair value of stock options as compensation expense;
We have
revised our accounting for the extension of one of our notes payable to reflect
an extinguishment loss;
We have
revised our notes payable footnotes to reflect changes to discounts,
amortization of discounts, and losses on the renegotiation of
notes;
We have
revised our accounting and related disclosure regarding the liability for the
conversion feature of notes payable for notes that are paid or converted, so
that these liabilities are revalued at the time of conversion, and credited to
additional paid-in capital.
15.
SUBSEQUENT EVENT
As of the
date of this interim financial report November 12, 2009, there have been no
subsequent events that warrant disclosure by the Company
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD
LOOKING STATEMENTS
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,
|
|
●
|
The
fact that over 90% of our revenues come from one
customer,
|
|
●
|
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 current 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 and weather
conditions.
|
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
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 are 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.
On August
25, 2005, the Company entered into contracts which obligated the company under
certain circumstances to issue shares of common stock in excess of the number of
shares of common stock authorized. Under accounting guidance provided by FASB
ASC 815-40-05 (formerly referred to as EITF 00-19), effective August 25,
2005, the Company began to account for all derivative financial
instruments, including warrants, conversion features embedded in notes payable,
and stock options, via the liability method of accounting.
Accordingly, all these instruments are valued at issuance utilizing
the Black-Scholes valuation method, and are re-valued at each period ending
date, also using the Black-Scholes valuation method. Any gain or loss
from revaluation is charged to operations during the period.
(a)
Warrants:
The
Company values warrants using the Black-Scholes valuation
model. Warrants are valued upon issuance, and re-valued at each
financial statement reporting date. Any change in value is charged to
income or expense during the period. The following table illustrates
certain key information regarding our warrants and warrant valuation assumptions
for the nine months ended September 30, 2009 and 2008:
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Number
of warrants outstanding
|
273,200,000
|
233,200,000
|
||||||
|
Value
at September 30
|
$
|
864,975
|
$
|
1,444,638
|
||||
|
Number
of warrants issued during the period
|
-
|
-
|
||||||
|
Value
of warrants issued during the period
|
$
|
-
|
$
|
-
|
||||
|
Revaluation
(gain) loss during the period
|
$
|
(523,312
|
)
|
$
|
838,849
|
|||
|
Black-Scholes
model variables:
|
||||||||
|
Volatility
|
355.74-387.88
|
%
|
203.65%
-255.74
|
%
|
||||
|
Dividends
|
$
|
-
|
-
|
-
|
||||
|
Risk-free
interest rates
|
0.18-
0.43
|
%
|
1.55
- 2.41
|
%
|
||||
|
Term
(years)
|
0.40
– 4.75
|
0.62
-4.93
|
||||||
b.)
Embedded conversion features of notes payable:
The
Company accounts for conversion options embedded in convertible notes in
accordance with FASB ASC 815-10-05 (formerly referred to as SFAS No.
133) and FASB ASC 815-40-05 (formerly referred to as EITF
00-19). FASB ASC 815-10-05 (formerly referred to as SFAS
133) generally requires companies to bifurcate conversion options embedded in
convertible notes and preferred shares from their host instruments and to
account for them as free standing derivative financial instruments in accordance
with FASB ASC 815-40-05 (formerly referred to as EITF 00-19).
The
Company values embedded conversion features utilizing the Black-Scholes
valuation model. Conversion options are valued upon issuance, and
re-valued at each financial statement reporting date. Any change in
value is charged to income or expense during the period. The
following table illustrates certain key information regarding our conversion
option valuation assumptions at September 30, 2009 and
2008:
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Number
of options outstanding
|
349,448,800
|
243,000,000
|
||||||
|
Value
at September 30
|
$
|
1,252,256
|
$
|
1,700,972
|
||||
|
Number
of options issued during the period
|
-
|
15,000,000
|
||||||
|
Value
of options issued during the period
|
$
|
-
|
$
|
89,945
|
||||
|
Number
of options exercised or underlying
|
||||||||
|
notes
paid during the period
|
5,600,000
|
-
|
||||||
|
Value
of options exercised or underlying
|
||||||||
|
notes
paid during the period
|
$
|
13,560
|
$
|
-
|
||||
|
Revaluation
(gain) loss during the period
|
$
|
(221,028
|
)
|
$
|
940,240
|
|||
|
Black-Scholes
model variables:
|
||||||||
|
Volatility
|
364.61
- 390.59
|
%
|
213.70-
369.34
|
%
|
||||
|
Dividends
|
-
|
-
|
||||||
|
Risk-free
interest rates
|
0.18
– 0.43
|
%
|
1.51
- 2.17
|
%
|
||||
|
Term
(years)
|
10.00
|
10.00
|
||||||
c.) Stock
options
The
Company accounts for options in accordance FASB ASC 718-40 (formerly referred to
as SFAS 123(R)). Options are valued upon issuance, and re-valued at
each financial statement reporting date, utilizing the Black-Scholes valuation
model. Option expense is recognized over the requisite service
period of the related option award. Any change in value is charged to income or
expense during the period. The following table illustrates certain
key information regarding our options and option assumptions for the nine months
ended September 30, 2009 and 2008:
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Number
of options outstanding
|
35,000,000
|
35,500,000
|
||||||
|
Value
at September 30
|
$
|
125,424
|
$
|
207,510
|
||||
|
Number
of options issued during the period
|
-
|
20,025,000
|
||||||
|
Value
of options issued during the period
|
$
|
-
|
113,326
|
|||||
|
Number
of options recognized during the period
|
||||||||
|
pursuant
to SFAS 123(R)
|
-
|
-
|
||||||
|
Value
of options recognized during the period
|
||||||||
|
pursuant
to SFAS 123(R)
|
$
|
-
|
$
|
-
|
||||
|
Revaluation
(gain) loss during the period
|
$
|
(49,268
|
)
|
$
|
52,088
|
|||
|
Black-Scholes
model variables:
|
||||||||
|
Volatility
|
355.74-387.88
|
%
|
203.65%
- 255.74
|
%
|
||||
|
Dividends
|
-
|
-
|
||||||
|
Risk-free
interest rates
|
0.18-
0.43
|
%
|
1.55
- 2.41
|
%
|
||||
|
Term
(years)
|
0.40-4.75
|
0.62
-4.93
|
||||||
Doubtful Accounts
Receivable
The
Company maintained an allowance in the amount of $607 for doubtful accounts
receivable at September 30, 2009, and $15,877 at December 31, 2008. Actual
losses on accounts receivable were $0 for 2008, 2007 and 2006. The Company has
an operational relationship of several years with our major customers, and we
believe this experience provides us with a solid foundation from which to
estimate our expected losses on accounts receivable. Should our sales mix change
or if we develop new lines of business or new customers, these estimates and our
estimation process will change accordingly. These estimates have been accurate
in the past.
Fair Value of Financial
Instruments
The
Company measures its financial assets and liabilities in accordance with
accounting principles generally accepted in the United States of America. The
estimated fair values approximate their carrying value because of the short-term
maturity of these instruments or the stated interest rates are indicative of
market interest rates. These fair values also vary due to the market price of
the Company’s stock at the date of valuation. Generally, these liabilities will
increase as the price of the Company’s stock increases (with resultant gain),
and decrease as the Company’s stock decreases (yielding a loss). These
fluctuations are likely to continue as long as the Company has large financial
instrument liabilities on its balance sheet. Should the Company succeed in
removing these liabilities from its balance sheet, either by satisfying them or
by reclassifying them as equity; the amount of gains and losses recognized will
be reduced.
Income
Taxes
The
Company has a history of losses, and as such has recorded no liability for
income taxes. Until such time as the Company begins to generate a profit and
provides evidence that a continued profit is a reasonable expectation,
management will not determine that there is a basis for accruing an income tax
liability. These estimates have been accurate in the past as the Company has not
yet generated a profit
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 Concentrations of Credit Risk in Note 2 to the
Consolidated Financial Statements, and (3) as the fourth risk factor listed
under Forward Looking Statements.
Background
The
following discussion should be read in conjunction with the financial statements
of the company and related notes included elsewhere in this Report and in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.
RESULTS
OF OPERATIONS
The
following is a discussion of our financial condition and results of operations
for the three and nine months ended September 30, 2009 and 2008.
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.
Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008
Revenue
Revenue
increased by $99,984, or approximately 6%, to $1,891,316 for the
three months ended September 30, 2009 from $1,791,332 during the
prior year. Sales increases in Seafoods, Meat and Game, and
Cheese were offset by sales decreases in Poultry,
Produce, and Specialty lines. We continue to assess the
potential of new revenue sources from the manufacture and sale of proprietary
food products and additional sales channel opportunities and will implement that
strategy if, based on our analysis, 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.
Currently,
a small portion of our revenues comes from imported products or international
sales. Our current sales from such segments may be hampered and
negatively impacted by any economic tariffs that may be imposed in the United
States or in foreign countries.
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 goods
sold
Our cost
of goods sold for the three months ended September 30, 2009 was
$1,451,934, an increase of $12,293 or approximately 1% compared
to cost of goods sold of $1,439,641 for the three months
ended September 30, 2008. Cost of goods sold is primarily made up of the
following expenses for the three months ended September 30, 2009: of good of
specialty, meat, game, cheese poultry and other sales categories in the
amount of $1,054,170, and shipping expenses in the amount of
$380,284. Shipping costs decreased $72,930 for 2009 versus 2008,
while cost of specialty meat, game, cheese poultry and other sales categories
increased $67,743.
Selling, general and
administrative expenses
Selling,
general and administrative expenses were $360,201 for the three months
ended September 30, 2009, a decrease of $103,492, or approximately
22%, compared to $463,693 for the three months ended September 30,
2008. The primary components of selling, general, and
administrative expenses for the three months ended September 30, 2009 were
payroll and related costs of $223,918; consulting and professional
fees of $53,249; facilities costs of $24,575; travel and entertainment costs of
$16,543; insurance costs of $12,527; commission expense of $8,429;
amortization and depreciation of $7,305 and software expense of $6,097. We
expect our legal fees to decrease in 2009 due to (i) an expected reduction in
costs related to the Pasta litigation (ii) our continued negotiation of flat
billing fees rates with several of our professional service providers including
for much of our legal fees going forward. We also expect to incur
reduced accounting fees in 2009 as we have primarily addressed the SEC’s
comments to our previous filings. We do however expect to increase
our spending on advertising and marketing fees in
2009.
Interest (income) expense,
net
Interest
(income) expense, net of interest income, increased by $218, or approximately
1%, from $99,244 during the three months ended September 30, 2008 to $99,462 for
the three months ended September 30, 2009. Interest expense remained relatively
unchanged because our debt levels and interest rates did not change
significantly compared to the prior year.
Loss from revaluation of
penalty shares
During
the three months ended September 30, 2008, the Company revalued the 110,280,000
Penalty Shares using the Black-Scholes valuation model, and at September 30,
2008 recorded liabilities in the amount of $771,956. These
revaluations resulted in recording gains in the amount of $110,280 during the
three months ended September 30, 2008. In January 2009, the Company
reached a settlement agreement with the parties to whom these penalty shares
were owed, and the Company was relieved of its obligation to issue these shares
and this liability was eliminated. As a result, there was no gain or loss on
revaluation of the liability for penalty shares during the three months ended
September 30, 2009.
Gain and loss from change in
fair value of warrant liability
At
September 30, 2009, the Company has outstanding warrants to purchase an
aggregate 272,200,000 shares of the Company’s common
stock. The Company valued this warrant liability at September 30,
2009 at $864,975. This revaluation resulted in a gain of
$777,595, which the Company charged to operations during the three
months ended September 30, 2009. This is an
increase of $652,042 or approximately 519% compared to a
gain of $125,553 from the revaluation of the warrant liability which
the Company recorded during the three months ended September 30,
2008.
Gain and loss from change in
fair value of option liability
At
September 30, 2009, the Company had outstanding a liability to issue an
aggregate 35,000,000 shares of the Company’s common stock pursuant to the
exercise of stock options. The Company revalued this liability at
September 30, 2009 at $125,424. This revaluation resulted
in a gain of $84,314 which the Company included in operations for the
three months ended September 30, 2009. This is an
increase of $63,651 or approximately 308% compared to a
gain of $20,663 from the revaluation of the conversion option liability which
the Company recorded during the three months ended September 30,
2008.
Gain and loss from change in
fair value of conversion option liability
At
September 30, 2009, the Company had outstanding a liability to issue an
aggregate of 487,040,600 shares of the Company’s common stock pursuant to
convertible notes payable. The Company revalued this liability at
September 30, 2009 at $1,252,256. This revaluation resulted in a gain
of $732,928 which the Company included in operations for the three
months ended September 30, 2009. This is an increase of
$615,256 or approximately 523% compared to a gain of
$117,672 from the revaluation of the conversion option liability
which the Company recorded during the three months ended September 30,
2008.
Net Income
For the
reasons stated above, net income for the three months ended September 30,
2009 was $1,574,556, an increase of $1,573,597 compared to net income of $959,
during the three months ended September 30, 2008. It is important
to note that a substantial portion of these gains and
losses are the result of non-cash items, such as the revaluation of warrant
liability, option liability, and conversion option liability, as well as the
gain and loss on the extinguishment of debt. These non-cash items of
income and expense had no direct impact on our cash flows during the
periods ended September 30, 2009 or 2008.
Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
Revenue
Revenue
increased by $183,350 or approximately 4%, to $5,259,914 for the nine
months ended September 30, 2009 from $5,076,564 during the prior
year. Sales increases in Seafoods, Meat and Game, and
Cheese were offset by sales decreases in Poultry,
Produce, and Specialty lines. We continue to assess the
potential of new revenue sources from the manufacture and sale of proprietary
food products and additional sales channel opportunities and will implement that
strategy if, based on our analysis, 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.
Currently,
a small portion of our revenues comes from imported products or international
sales. Our current sales from such segments may be hampered and
negatively impacted by any economic tariffs that may be imposed in the United
States or in foreign countries.
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 goods
sold
Our cost
of goods sold for the nine months ended September 30, 2009 was
$4,024,294, an increase of $5,019 or less than 1% compared
to cost of goods sold of $4,019,275 for the nine months
ended September 30, 2008. Cost of goods sold is primarily made up of the
following expenses for the nine months ended September 30, 2009: cost of good of
specialty, meat, game, cheese poultry and other sales categories in the
amount of $2,935,106, and shipping expenses in the amount of
$1,044,322. Shipping costs decreased $84,607 for 2009 versus 2008,
and cost of good for specialty foods, meat, game, cheese, and poultry increase
by $44,760
Selling, general and
administrative expenses
Selling,
general and administrative expenses were $1,119,320 for the nine months
ended September 30, 2009, a decrease of $221,935 or approximately 17%,
compared to $1,341,255 for the nine months ended September 30,
2008. The primary components of selling, general, and
administrative expenses for the nine months ended September 30, 2009 were
payroll and related costs of $672,829; consulting and professional
fees of $182,448; facilities costs of $95,724; insurance costs of
$56,254; travel and entertainment expenses of $31,092; amortization
and depreciation of $24,632; commission expense of $23,149; and software expense
of $17,752. Our legal fees in 2009 have decreased and we expect our legal
fees to continue to decrease in 2009 due to (i) an expected reduction in costs
related to the Pasta litigation (ii) our continued negotiation of flat billing
fees rates with several of our professional service providers including for much
of our legal fees going forward. We also expect to incur reduced
accounting fees in 2009 as we have primarily addressed the SEC’s comments to our
previous filings. We do however expect to increase our spending on
advertising and marketing fees in 2009.
Interest (income) expense,
net
Interest
(income) expense, net of interest income, increased by $23,392, or approximately
9%, from $265,835 during the nine months ended September 30, 2008 to $289,227
for the nine months ended September 30, 2009. This increase was attributable
primarily to the new issuances of convertible notes payable for services
performed and the settlement of the penalty for late registration of shares, to
the renegotiation of the interest rate with noteholders, and to the amortization
of the discount associated with the beneficial conversion features of
these notes.
Gain and loss on
extinguishment of debt
During
the nine months ended September 30, 2008, the Company extended certain of its
notes payable, and as consideration for these extensions the Company provided
the lenders with warrants to purchase an aggregate 43,200,000 shares
of the Company’s common stock. This resulted in a loss on
extinguishment of debt in the amount of $168,620. During the nine
months ended September 30, 2009, the Company negotiated a settlement of the
liability for penalty shares, whereby the Company issued convertible notes
payable in the amount of $528,744, as a result the Company recorded a gain on
the transactions of $222,656.
Loss from revaluation of
penalty shares
During
the nine months ended September 30, 2008, the Company revalued the 110,280,000
Penalty Shares using the Black-Scholes valuation model, and at September 30,
2008 recorded liabilities in the amount of $771,956. These
revaluations resulted in recording losses in the amount of $441,120 during the
nine months ended September 30, 2008. In January 2009, the Company reached
a settlement agreement with the parties to whom these penalty shares were owed,
and the Company was relieved of its obligation to issue these shares and this
liability was eliminated. As a result, during the nine months ended September
30, 2009, there was no gain or loss on revaluation of the liability for penalty
shares.
Gain and loss from change in
fair value of warrant liability
At
September 30, 2009, the Company has outstanding warrants to purchase an
aggregate 272,200,000 shares of the Company’s common
stock. The Company valued this warrant liability at September 30,
2009 at $864,975. This revaluation resulted in a gain of
$523,312 which the Company charged to operations during the nine
months ended September 30, 2009. This is an
increase of $1,362,161 or approximately 162% compared to a
loss of $838,849 from the revaluation of the warrant liability which
the Company recorded during the nine months ended September 30,
2008.
Gain and loss from change in
fair value of option liability
At
September 30, 2009, the Company had outstanding a liability to issue an
aggregate of 35,000,000 shares of the Company’s common stock pursuant
to the exercise of stock options. The Company revalued this liability at
September 30, 2009 at $125,424. This revaluation resulted in a gain
of $49,268 which the Company included in operations for the nine
months ended September 30, 2009. This is an increase of
$101,356 or approximately 195% compared to a loss of $52,088 from the
revaluation of the conversion option liability which the Company recorded during
the nine months ended September 30, 2008.
Gain and loss from change in
fair value of conversion option liability
At
September 30, 2009, the Company had outstanding a liability to issue an
aggregate of 794,240,600 shares of the Company’s common stock pursuant to
convertible notes payable. The Company revalued this liability at
September 30, 2009 at $1,252,256. This revaluation resulted in a gain
of $221,028 which the Company included in operations for the nine
months ended September 30, 2009. This is an increase of
$1,161,268 or approximately 124% compared to a loss of
$940,240 from the revaluation of the conversion option liability
which the Company recorded during the nine months ended September 30,
2008.
Net income
(loss)
For the
reasons stated above, net income for the nine months ended September 30, 2009
was $843,337, an increase of $4,089,503 or approximately 126% compared to a net
loss of $3,246,166, during the nine months ended September 30, 2008. It is
important to note that a substantial portion of these
gains and losses are the result of non-cash items, such as the revaluation of
warrant liability, option liability, and conversion option liability, as well as
the gain and loss on the extinguishment of debt. These non-cash items
of income and expense had no direct impact on our cash flows during
the periods ended September 30, 2009 or 2008.
Liquidity
and Capital Resources
As of
September 30, 2009, the Company had current assets of $564,784, consisting of
cash of $143,973, trade accounts receivable of $269,046, loans
receivable of $96,550, inventory of $47,795, and other current assets
of $7,420. Also, at September 30, 2009, the Company had
current liabilities of $5,046,668, consisting of accounts payable and
accrued liabilities of $863,140 (of which $134,085 is payable to a related
party); accrued interest of $551,270; accrued interest – related parties of
$163,178; current portion of notes payable, net of discounts of $918,766;
current portion of notes payable – related parties, net of discounts of
$307,659; warrant liability of $864,975; option liability of $125,424; and
conversion option liability of $1,252,256. This resulted in a working
capital deficit of $4,481,884.
During
the nine months ended September 30, 2009, the Company had cash used by operating
activities of $1,006. The Company had the following non-cash items during the
period: non-cash costs of $24,632 for depreciation and
amortization, $11,200 for non-cash compensation, $97,093 for the
amortization of the discount on accrued interest, and $62,100 for the
amortization of the discount on notes payable; the Company also had the
following non-cash gains during the period: $222,656 for gain on
extinguishment of debt, $523,312 for the revaluation of the warrant liability,
$221,028 for the revaluation of the conversion option liability, and $49,268 for
the revaluation of the option liability. The Company also had a
change in the components of working capital during the period that generated a
use of cash in the amount
of $23,105.
The
Company had cash used by investing activities of $3,590, which
consisted of payments made for the acquisitions of property and equipment of
$7,540, partially offset by principal payments received on a loan receivable of
$3,950.
The
Company had cash used by financing activities of $11,976, which consisted
of principal payments on debt.
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. If the Company cannot secure additional funds
it will not be able to continue as a going concern according to the current
business plan.
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, 2008 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.
RISK
FACTORS
The
Company’s business and success is subject to numerous risk factors as detailed
in its Annual Report on Form 10-K for the year ended December 31, 2008 which is
available at no cost at www.sec.gov.
ITEM 4T - 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 pursuant to the requirements of the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, among other things, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports that we file under the Exchange Act is accumulated and communicated
to our management, including our principal executive and financial officers, as
appropriate, to allow timely decisions regarding required
disclosure.
(a)
Evaluation of disclosure controls and procedures
Our
Principal Executive Officer and Principal Financial Officer, after evaluating
the effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by this Quarterly Report, have concluded that as of that date, our disclosure
controls and procedures were adequate and effective to ensure that information
required to be disclosed by us in the reports we file or submit with the
Securities and Exchange Commission is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. The conclusions notwithstanding, you are advised
that no system is foolproof.
(b)
Changes in internal control over financial reporting
There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by Exchange Act Rules 13a-15(d) and
15d-15 that occurred during the period covered by this Quarterly Report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
This
quarterly 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 quarterly report.
PART
II. - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities
Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
SIGNATURE
|
TITLE
|
DATE
|
||
|
/s/Sam
Klepfish
Sam
Klepfish
|
Chief
Executive Officer
|
November
13, 2009
|
||
|
/s/
John McDonald
John
McDonald
|
Principal
Financial Officer
|
November
13, 2009
|
EXHIBIT
31.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
302 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
I, Sam
Klepfish, certify that:
1. I
have reviewed this quarterly report on Form 10-Q 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. The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
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 registrant's fourth
fiscal 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 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: November 13, 2009 | /s/ Sam Klepfish |
| Sam Klepfish, Chief Executive Officer and Director |
EXHIBIT
31.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
302 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
I, John
McDonald, certify that:
1. I
have reviewed this quarterly report on Form 10-Q 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. The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
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 registrant's fourth
fiscal 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 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: November 13, 2009 | /s/ John McDonald |
|
John
McDonald
Principal
Financial Officer
|
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
In
connection with the Quarterly Report of Innovative Food Holdings, Inc. (the
"Company") on Form 10-Q for the quarter ended September 30, 2009 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I, Sam
Klepfish, Chief Executive Officer and Director of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and result of operations of the
Company.
/s/ Sam
Klepfish
Sam
Klepfish
Chief
Executive Officer and Director
November
13, 2009
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
In
connection with the Quarterly Report of Innovative
Food Holdings, Inc. (the "Company") on Form 10-Q for the quarter ended
September 30, 2009 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
November
13, 2009