UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x Annual report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal
year ended December 31, 2009
OR
o Transition report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
COMMISSION
FILE NUMBER: 0-9376
INNOVATIVE
FOOD HOLDINGS, INC.
(Name of
Registrant as Specified in its Charter)
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FLORIDA
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20-116776
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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3845 Beck Blvd., Suite 805 Naples,
Florida
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34114
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(239)
596-0204
(Registrant's
Telephone Number, Including Area Code)
SECURITIES
REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES
REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.0001 PAR VALUE
PER SHARE
(Title of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. o
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 x No o
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 ¨ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
Indicate
by a 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):
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
(Do
not check if a smaller reporting company)
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Smaller
reporting company x
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Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o No x
The
aggregate market value of the voting and non-voting stock held by non-affiliates
was approximately $1,001,690 as of March 24, 2010, based upon a
closing price of $0.007 per share for the issuer's common stock on such
date.
On March
24, 2010, a total of 189,388,638
shares of our common stock were outstanding.
INNOVATIVE
FOOD HOLDINGS, INC.
FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009
ITEMS
IN FORM 10-K
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PART
I
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PART
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Item
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Item
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Item
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PART
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Item
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Item
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FORWARD
LOOKING INFORMATION
MAY
PROVE INACCURATE
THIS
ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND
INFORMATION RELATING TO US THAT ARE BASED ON THE BELIEFS OF MANAGEMENT, AS WELL
AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO US. WHEN USED IN
THIS DOCUMENT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," “SHOULD,” AND
"EXPECT" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO US, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT OUR CURRENT VIEWS WITH
RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS, INCLUDING THOSE DESCRIBED IN THIS ANNUAL REPORT ON FORM 10-K.
SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM
THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED OR EXPECTED. WE DO
NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
PART
I
Our
History
We were
initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation.
From June 1979 through February 2003, we were either inactive or involved in
discontinued business ventures. We changed our name to Fiber Application Systems
Technology, Ltd in February 2003. In January 2004, we changed our state of
incorporation by merging into Innovative Food Holdings, Inc. (IVFH), a Florida
corporation formed for that purpose. As a result of the merger we changed our
name to that of Innovative Food Holdings, Inc. In January 2004 we also acquired
Food Innovations, Inc., a Delaware corporation, for 25,000,000 shares of
our common stock.
Our
Operations
Our business is currently
conducted by our subsidiaries, Food Innovations, Inc. (“FII” or “Food
Innovations”), which was incorporated in the State of Delaware on January 9,
2002, 4 The Gourmet, Inc. (d/b/a For The Gourmet, Inc.) and Gourmet Foodservice
Group, Inc. Since its incorporation, Food
Innovations, through a relationship with U.S.
Foodservice, has been
in the business of providing premium restaurants with the freshest
origin-specific perishables and specialty products shipped directly from our
network of vendors within 24 – 72 hours. Our customers include
restaurants, hotels, country clubs, national chain accounts, casinos, and
catering houses. Since its incorporation, For The Gourmet has been in
the business of providing consumers with gourmet food products shipped
directly from our network of vendors within 24 – 72 hours. Since its
incorporation, Gourmet
Foodservice Group has been in the business of providing premium restaurants with
the freshest origin-specific perishables and specialty products shipped directly
from our network of vendors within 24 – 72 hours. In
our business model, we take orders from our customers and then forward the
orders to our various suppliers for fulfillment. In order to preserve
freshness, we do not warehouse or store the vast majority of our products,
thereby significantly reducing our overhead. Rather, we carefully
select our suppliers based upon, among other factors, their quality, uniqueness,
reliability and access to overnight courier services.
Our
Products
We
distribute over 3,000 perishable and specialty food products, including
origin-specific seafood, domestic and imported meats, exotic game and poultry,
artisanal cheeses, caviar, wild and cultivated mushrooms, micro-greens, heirloom
and baby produce, organic farmed and manufactured food products, estate-bottled
olive oils and aged vinegars. We are constantly adding other products that food
distributors cannot effectively warehouse, including organic products and
specialty grocery items. We offer our customers access to the best food products
available nationwide, quickly and cost-effectively. Some of our best-selling
items include:
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Seafood - Alaskan
wild king salmon, Hawaiian sashimi-grade ahi tuna, Gulf of Mexico day-boat
snapper, Chesapeake Bay soft shell crabs, New England live lobsters,
Japanese hamachi
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Meat & Game -
Prime rib of American kurobuta pork, dry-aged buffalo tenderloin, domestic
lamb, Cervena venison, elk
tenderloin
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Produce - White
asparagus, baby carrot tri-color mix, Oregon wild ramps, heirloom
tomatoes
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Poultry - Grade A
foie gras, Hudson Valley quail, free range and organic chicken, airline
breast of pheasant
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Specialty -
Truffle oils, fennel pollen, prosciutto di Parma, wild boar
sausage
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Mushrooms -
Fresh morels, Trumpet Royale, porcini powder, wild golden
chanterelles
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Cheese - Maytag
blue, buffalo mozzarella, Spanish manchego, Italian gorgonzola
dolce
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In 2009
seafood accounted for 10% of sales, meat and game accounted for
18% of sales, specialty items accounted for 48% of
sales, produce accounted for 7% of sales, cheese accounted for 11% of
sales, and poultry accounted for 6% of sales.
Customer
Service and Logistics
Our
“live” chef-driven customer service department is available by telephone every
weekday, from 7 a.m. to 7 p.m., Florida time. The team is made up of four chefs
who are full-time employees of the Company, and who are experienced in all
aspects of perishable and specialty products. By employing chefs to handle
customer service, we are able to provide our customers with extensive
information about our products, including:
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Flavor
profile and eating qualities
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Recipe
and usage ideas
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Origin,
seasonality, and availability
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Cross
utilization ideas and complementary uses of
products
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Our
logistics team tracks every package to ensure timely delivery of products to our
customers. The logistics manager receives tracking information on all products
ordered, and packages are monitored from origin to delivery. In the event that
delivery service is interrupted, our logistics department begins the process of
expediting the package to its destination. The customer is then contacted before
the expected delivery commitment time allowing the customer ample time to make
arrangements for product replacement or menu changes. Our logistics manager
works directly with our vendors to ensure our strict packaging requirements are
in place at all times.
Relationship
with U.S. Foodservice
In
February 2010, our subsidiary, Food Innovations, signed a new
contract with US Foodservices, Inc. (“USF”). Under the current terms
of the contract, FII supplies overnight delivered, perishable sea foods,
fresh produce, and other exotic fresh foods. Such products are difficult for
broadline food distributors to manage profitably and keep in warehouse stock due
to their perishable nature and high-end limited customer base. Through USF’s
sales associates, FII’s products are available to USF accounts nationwide,
ensuring superior freshness and extended shelf life to their customers. This
current contract with USF expires on December 31, 2012. During the
years ended December 31, 2009, and 2008, sales through USF’s sales
associates accounted for 96% and 97% of total sales,
respectively. We believe that although a significant portion
of our sales occurs through the USF sales force, the success of the program is
less contingent on a contract then on the actual performance and quality of our
products. Other than our business arrangements with USF, we are not affiliated
with either USF or its subsidiary, Next Day Gourmet, L.P. (“Next Day
Gourmet”).
Growth
Strategy
Restaurant
industry sales are expected to equal 4% of the U.S. gross domestic product in
2010 and are projected to reach $580 billion in 2010, a 2.5 percent increase in
current dollars over 2009 sales. When adjusted for inflation, 2010 sales are
expected to be essentially flat, which is an improvement over the 1.2 and 2.9
percent negative growth in real sales that the industry experienced in 2008 and
2009, respectively. On a
typical day in America in 2010, more than 130 million people will be foodservice
patrons, according to the National Restaurant Association website
(www.restaurant.org).
For our
continued growth within the foodservice industry we rely heavily on the
availability to our customers of our chefs' culinary skills, a high level
of personal customer service, premium quality products, and sales available
through our relationship with USF.
We
anticipate attempting to grow our current business both through increased sales
of products to our existing foodservice customers, increasing our foodservice
customer base, and through further entry into markets such as the direct to
consumer market through a variety of potential sales channels, and sales
partnerships.
In
addition to attempting to grow our current business, we believe that there are
lateral opportunities in the food industry generally and such we may look
into the possibility of acquiring a gourmet food manufacturer or
gourmet distributor at some future point in time. We have no specific plans at
this point, nor do we know how we would finance any such acquisition. We
anticipate that, given our current cash flow situation, any acquisition would
involve the issuance of additional shares of our common stock or third party
financing, which may not be available on acceptable terms. No acquisition will
be consummated without thorough due diligence. No assurance can be given that we
will be able to identify and successfully conclude negotiations with any
potential target.
General
economic conditions and consumer confidence can affect the frequency of
purchases and amounts spent by consumers for food-prepared-away-from-home and,
in turn, can impact our customers and our sales. We believe the current general
economic conditions, including pressure on consumer disposable income, may
contribute to a decline in the foodservice market. We intend to
continue our efforts to expand our market share and grow earnings by focusing on
sales growth, margin management, productivity gains and supply chain management,
and product and service differentiation.
Competition
While we
face intense competition in the marketing of our products and services, it is
our belief that there is no other single company in the United States that
offers such a broad range of customer service oriented quality chef driven
perishables for delivery in 24 to 72 hours. Our primary competition is from
local meat and seafood purveyors that supply a limited local market and have a
limited range of products. However, many purveyors are well established, have
reputations for success in the development and marketing of these types of
products and services and have significantly greater financial, marketing,
distribution, personnel and other resources. These financial and other
capabilities permit such companies to implement extensive advertising and
promotional campaigns, both generally and in response to efforts by additional
competitors such as us, to enter into new markets and introduce new products and
services.
Insurance
We
maintain a general liability insurance policy with a per occurrence limit of
$1,000,000 and aggregate policy covering $2,000,000 of liability. In addition,
we have non-owned automobile personal injury coverage with a limit of
$1,000,000. Such insurance may not be sufficient to cover all potential claims
against us and additional insurance may not be available in the future at
reasonable costs.
Government
Regulation
Various
federal and state laws currently exist, and more are sure to be adopted,
regulating the delivery of fresh food products. However, our business plan does
not require us to deliver fresh food products directly, as third-party vendors
ship the products directly to our customers. We require all third-party vendors
to certify that they maintain $2,000,000 liability insurance coverage and
compliance with Hazard Analysis and Critical Control Point (HACCP), an FDA- and
USDA-mandated food safety program, or a similar standard. Any changes in the
government regulation of delivering of fresh food products that hinders our
current ability and/or cost to deliver fresh products, could adversely impact
our net revenues and gross margins and, therefore, our profitability and cash
flows could also be adversely affected.
Employees
We
currently employ 14 full-time employees, including 4 chefs and 2 executive
officers. We believe that our relations with our employees are satisfactory.
None of our employees are represented by a union.
Transactions
with Major Customers
Transactions
with major customers and related economic dependence information is set forth
under the heading Transactions with Major Customers in Note 14 to the
Consolidated Financial Statements included in the Financial Statements section
hereof and is incorporated herein by reference.
How
to Contact Us
Our
executive offices are located at 3845 Beck Blvd., Naples, Florida
34109; our Internet address is www.foodinno.com; and our telephone number
is (239) 596-0204. The contents of our website are not incorporated
in or deemed to be a part of this Annual Report on Form 10-K.
Risk
Factors
We
Have a History Of Losses Which May Continue, Requiring Us To Seek Additional
Sources of Capital Which May Not Be Available, Requiring Us To Curtail Or Cease
Operations.
We had a
net income of $845,611 for the year ended December 31, 2009,
including non-cash income of $756,434 from the gain on change in fair value of
warrant liability, $222,656 from the gain on extinguishment of debt, $83,492
from the gain on change in fair value of conversion option liability, and
$38,058 from the gain on change in fair value of stock option liability.We
cannot assure you that we can achieve or sustain profitability on a quarterly or
annual basis in the future. If revenues grow more slowly than we anticipate, or
if operating expenses exceed our expectations or cannot be adjusted accordingly,
we will incur losses. We will also incur losses if the fair value of
warrants, options, etc changes unfavorably. We will incur operating losses
until we are able to establish significant sales. Our possible success is
dependent upon the successful development and marketing of our services and
products, as to which we can give no assurance. Any future success that we might
enjoy will depend upon many factors, including factors out of our control or
which cannot be predicted at this time. These factors may include changes in or
increased levels of competition, including the entry of additional competitors
and increased success by existing competitors, changes in general economic
conditions, increases in operating costs, including costs of supplies,
personnel, marketing and promotions, reduced margins caused by competitive
pressures and other economic and non-economic factors. These conditions may have
a materially adverse effect upon us or may force us to reduce or curtail
operations. In addition, we will require additional funds to sustain and expand
our sales and marketing activities, particularly if a well-financed competitor
emerges. We can give no assurance that financing will be available in amounts or
on terms acceptable to us, if at all. Our inability to obtain sufficient funds
from our operations or external sources could require us to curtail or cease
operations.
If
We Are Unable to Obtain Additional Funding Our Business Operations Will be
Harmed and If We Do Obtain Additional Financing Our Then Existing Shareholders
May Suffer Substantial Dilution.
Additional
capital will be required to effectively support our operations and to otherwise
implement our overall business strategy. However, we can give no assurance that
financing will be available when needed on terms that are acceptable to us. Our
inability to obtain additional capital will restrict our ability to grow and may
reduce our ability to continue to conduct business operations. If we are unable
to obtain additional financing, we will likely be required to curtail our
marketing and development plans and possibly cease our operations. Any
additional equity financing (or equity related financing such as convertible
debt financing) may involve substantial dilution to our then existing
shareholders.
Our
Independent Auditors Have Expressed Substantial Doubt About Our Ability to
Continue As a Going Concern, and We Concur With This Assessment
In their
report dated March 26, 2010, our independent auditors stated that our financial
statements for the year ended December 31, 2009 were prepared assuming that
we would continue as a going concern. Our ability to continue as a going concern
is an issue raised as a result of our significant losses from operations since
inception and our working capital deficiency. Our ability to continue as a going
concern is subject to our ability to continue to generate a profit and/or obtain
necessary funding from outside sources, including obtaining additional funding
from the sale of our securities, increasing our sales of product or services or
obtaining loans and grants from various financial institutions where
possible.
We
Have Historically Derived Substantially All of Our Revenue From One Client and
if We Were to Lose Such Client and Be Unable to Generate New Sales to
Offset Such Loss, We May Be Forced to Cease or Curtail Our
Operations.
In 2003,
Next Day Gourmet initially contracted with our subsidiary, Food Innovations, to
handle the distribution of over 3,000 perishable and specialty food products to
customers of USF. In February 2010 Food Innovations signed a new contract with
USF that expires in December 2012. Our sales through USF’s sales force generated
gross revenues for us of $7,277,390 in the year ended December 31,
2009, and $6,791,767 in the year ended December 31, 2008. Those amounts
contributed 96% and 97%, respectively, of our total sales in
those periods. Our sales efforts are for the most part substantially dependent
upon the efforts of the USF sales force. Although we have generated
revenues from additional customers other than USF, if our relationship with USF
were to be materially changed and we are unable to generate new sales
to offset such loss, we may be forced to cease or curtail our
operations.
We
May Be Unable to Manage Our Growth Which Could Result in Our Being Unable to
Maintain Our Operations.
Our
strategy for growth is focused on continued enhancements and expansion to our
existing business model, offering a broader range of services and products and
affiliating with additional vendors and through possible joint ventures.
Pursuing this strategy presents a variety of challenges. We may not experience
an increase in our services to our existing customers, and we may not be able to
achieve the economies of scale, or provide the business, administrative and
financial services, required to sustain profitability from servicing our
existing and future customer base. Should we be successful in our expansion
efforts, the expansion of our business would place further demands on our
management, operational capacity and financial resources. To a significant
extent, our future success will be dependent upon our ability to maintain
adequate financial controls and reporting systems to manage a larger operation
and to obtain additional capital upon favorable terms. We can give no assurance
that we will be able to successfully implement our planned expansion, finance
its growth, or manage the resulting larger operations. In addition, we can give
no assurance that our current systems, procedures or controls will be adequate
to support any expansion of our operations. Our failure to manage our growth
effectively could have a material adverse effect on our business, financial
condition and results of operations.
The
Foodservice Industry is Very Competitive, Which May Result in Decreased Revenue
for Us as Well as Increased Expenses Associated With Marketing Our Services and
Products.
We
compete against other providers of quality foods, some of which sell their
services globally, and some of these providers have considerably greater
resources and abilities than we have. These competitors may have greater
marketing and sales capacity, established distribution networks, significant
goodwill and global name recognition. Furthermore, it may become necessary for
us to reduce our prices in response to competition. This could impact our
ability to be profitable.
Our
Success Depends on Our Acceptance by the Chef Community and if the Chef
Community Does Not Accept Our Products Then Our Revenue Will be Severely
Limited.
The chef
community may not embrace our products. Acceptance of our services will depend
on several factors, including: cost, product freshness, convenience, timeliness,
strategic partnerships and reliability. Any of these factors could have a
material adverse effect on our business, results of operations and financial
condition. We also cannot be sure that our business model will gain wide
acceptance among chefs. If the market fails to continue to develop, or develops
more slowly than we expect, our business, results of operations and financial
condition will be adversely affected.
We
Rely Upon Outside Vendors and Shippers for Our Specialty Food Products and
Interruption in the Supply of Our Products May Negatively Impact Our
Revenues.
Shortages
in supplies of the food products we sell may impair our ability to provide our
services. Our vendors are independent and we cannot guarantee their future
ability to source the products that we sell. Many of our products are
wild-caught, and we cannot guarantee their availability in the future.
Unforeseen strikes and labor disputes as well as adverse weather conditions may
result in our inability to deliver our products in a timely manner. Since our
customers rely on us to deliver their orders within 24-72 hours, delivery delays
could significantly harm our business.
We
Are and May Be Subject to Regulatory Compliance and Legal
Uncertainties.
Changes
in government regulation and supervision or proposed Department of Agriculture
reforms could impair our sources of revenue and limit our ability to expand our
business. In the event any future laws or regulations are enacted which apply to
us, we may have to expend funds and/or alter our operations to insure
compliance.
The
Issuance of Shares Upon Conversion of Convertible Notes and Exercise of
Outstanding Warrants May Cause Immediate and Substantial Dilution to Our
Existing Stockholders.
The
issuance of shares upon conversion of convertible notes and exercise of warrants
may result in substantial dilution to the interests of other stockholders since
the note/warrant holders may ultimately convert or exercise and sell the full
amount of shares issuable on conversion/exercise. Although, for the most part,
such note/warrant holders may not convert their convertible notes and/or
exercise their warrants if such conversion or exercise would cause them to own
more than 4.99% of our outstanding common stock unless waived in writing by the
investor with 61 day notice to the Company, this restriction does not
prevent them from converting and/or exercising some of their holdings, selling
off those shares, and then converting the rest of their holdings. In this way,
they could sell more than this limit while never holding more than this limit.
We anticipate that eventually, over time, the full amount of the convertible
notes will be converted into shares of our common stock, in accordance with the
terms of the secured convertible notes, which will cause significant dilution to
our other shareholders.
If
We Are Required for any Reason to Repay Our Outstanding Convertible Notes We
Would Be Required to Deplete Our Working Capital, If Available, or Raise
Additional Funds.
We can be
required to repay certain of our convertible notes or other notes. If we are
required to repay a significant amount of these notes, we would be required to
use our limited working capital and/or raise additional funds (which may be
unavailable) which would have the effect of causing further dilution and
lowering shareholder value.
We
Have a History of Being In Default Under Certain Convertible Notes Which Could
Result in Legal Action Against Us, Which Could Require the Sale of Substantial
Assets.
While we
have not received a notice of default under any of our outstanding notes, we
have a history of being in default under certain of our outstanding convertible
notes, and possibly will be again in the future. This could require the early
repayment of the convertible notes, including a default interest rate of 15% on
the outstanding principal balance of the notes if the default is acted upon by
the note holders and not cured within the specified grace period. If we were
unable to repay the notes when required, the note holders could commence legal
action against us and foreclose on all of our assets to recover the amounts due.
Any such action would require us to curtail or cease
operations.
Our
Revenues Can be Affected by Price Increases Imposed by our
Carriers.
We
deliver our products to our customers through third party overnight or express
delivery carriers. If the carriers we use raise their shipping rates
or add charges such as fuel surcharges and other charges, we will either
have to absorb the increased costs which will put pressure on our bottom
line or pass on the cost to our customers which may result in reduced sales if
our customers are unwilling to pay the higher prices. Either way,
such an increase in shipping costs will likely have a negative impact on
our results of operations.
Our
Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading
Market in Our Securities is Limited, Which Makes Transactions in Our Stock
Cumbersome and May Reduce the Value of an Investment in Our Stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share (post-reverse
split) or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require:
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that
a broker or dealer approve a person's account for transactions in penny
stocks; and
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the
broker or dealer receives from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
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In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
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obtain
financial information and investment experience objectives of the person;
and
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make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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|
●
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
On
October 17, 2008, we entered into a three-year lease with Grand Cypress
Communities, Inc. for new premises consisting of 4,000 square feet at 3845 Beck
Blvd., Naples, Florida. The commencement date of the lease is
January 1, 2009. The annual rent and fees under the lease is
approximately $54,000. The lease provides for a buyout option at the
end of the lease with credit towards the purchase price received for the rental
payments made during the term of the lease.
In
September 2006 we commenced an action in New York Supreme Court, Nassau County,
against Pasta Italiana, Inc., Robert Yandolino and Lloyd Braider (collectively
“Pasta”) to collect on outstanding promissory notes
totaling $360,000 (plus interest and collection expenses) of
which $65,000 was personally guaranteed by the two individual
defendants. The defendants counterclaimed for an unspecified
amount of damages due to our alleged breach of an agreement to purchase the
corporate defendant.
On
September 5, 2008, we reached a settlement agreement with Pasta. The
settlement agreement (the “Pasta Settlement Agreement”) calls
for Pasta to pay to the Company $165,000 of the principal amount of the
note. Pasta is to make 36 monthly payments in the
amount of $4,500 beginning in September, 2008 and a final payment of
$3,000 The first of these 36 payments was received by the Company
during the third quarter of 2008. Upon execution of the
agreement, Pasta was also obligated to deliver to the Company 10% of its
fully diluted common stock. This stock is valued at $0 in the
Company’s financial statements for the period ended September 30,
2008. The Company was obligated to deliver to Pasta
1,500,000 shares of its common stock (valued at $9,000 at September 5, 2008) and
warrants to purchase an additional 1,000,000 shares of common stock at a price
of $0.012 (valued at $5,977 at September 5, 2008). The
Company recorded an impairment charge in the amount of $142,124 during the
three months ended September 30, 2008, representing the difference between the
net book value of the Pasta receivable prior to the Pasta Settlement Agreement
and the amount of the new note receivable negotiated in the Pasta Settlement
Agreement, plus the value of the Company’s common stock and warrants provided to
Pasta.
Interest
will accrue at a rate of 8% on the unpaid portion of the
$165,000. The accrued interest is to be paid semi-annually in
shares of common stock of Pasta (the “Pasta Interest
Shares”). The Pasta Interest Shares are valued at $0 in
the financial statements of the Company, and no interest income is recorded by
the Company for these shares during the three months ended September
30, 2008.
Pasta
made several payments required by the settlement agreement, totaling
$19,000. Thereafter, Pasta defaulted on the next
payment, and failed to cure its default within the required time period after a
Notice of Default was sent to it. We are continuing discussions with
Pasta in regards to resuming payments and continue examine all legal remedies
available to us to insure compliance with the agreement. We intend to pursue the
monies owed to us under the Pasta Settlement Agreement in a cost-effective
manner.
PART
II
Market
Information
Prices
for our common stock are quoted in the Pink Sheets. Since March 2004, our common
stock has traded under the symbol "IVFH". Prior thereto, our common stock traded
under the symbol "FBSN". 184,638,638 shares of our common stock were
outstanding as of December 31, 2009. The following table sets forth the high and
low closing sales prices of our common stock as reported in the OTCBB for
each full quarterly period within the two most recent fiscal
years.
|
Fiscal
Year Ending December 31, 2009
|
HIGH
|
LOW
|
||||||
|
First
Quarter
|
$ | 0.005 | $ | 0.001 | ||||
|
Second
Quarter
|
0.008 | 0.001 | ||||||
|
Third
Quarter
|
0.008 | 0.002 | ||||||
|
Fourth
Quarter
|
0.006 | 0.001 | ||||||
|
Fiscal
Year Ending December 31, 2008
|
HIGH
|
LOW
|
||||||
|
First
Quarter
|
$ | 0.008 | $ | 0.003 | ||||
|
Second
Quarter
|
0.008 | .003 | ||||||
|
Third
Quarter
|
0.008 | 0.003 | ||||||
|
Fourth
Quarter
|
0.0025 | 0.001 | ||||||
The
quotations listed above reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. On March
24, 2010, the closing price of our common stock as reported by the OTC Bulleting
Board was $0.007.
Security
Holders
On March
24, 2010, there were approximately 4,650 record holders of our common
stock. In addition, we believe there are numerous beneficial owners of our
common stock whose shares are held in "street name."
Dividends
We have
not paid dividends during the three most recently completed fiscal years, and
have no current plans to pay dividends on our common stock. We currently intend
to retain all earnings, if any, for use in our business.
Recent Sales and Other Issuances of
Our Equity Securities
During
the twelve months ended December 31, 2009, the Company had the
following transactions:
The
Company issued 600,000 shares of common stock to employees for services
previously provided. The fair value of these shares in the amount of $1,200 was
charged to operations during the year ended December 31, 2009.
During
the year ended December 31, 2009, the Company issued 5,000,000 shares of common
stock to a consultant for services provided. The fair value of these
shares in the amount of $10,000 was charged to operations during the year ended
December 31, 2009.
During
the year ended December 31, 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 year ended December 31, 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 charged to operations during the year ended December 31,
2009.
During
the year ended December 31, 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.
The
Company issued three convertible notes payable in the aggregate amount of
$13,500 for additional salary due to the Company’s Chief Executive Officer,
convertible at the rate of $0.005 per share into an aggregate 2,700,000 shares
of common stock.
The
Company issued 2,000,000 options with an aggregate fair value of $7,993 to
purchase additional shares of common stock to two non-employee directors. These
options vested upon issuance.
The
Company committed to issuing 1,000,000 shares of common stock to each of its two
non-employee directors, for a total issuance of 2,000,000 shares of common
stock. The fair value of these shares in the amount of $8,000 was
charged to operations during the year ended December 31, 2009. As of
December 31, 2009, these shares have not been issued and are shown in accrued
liabilities due to related parties on the Company’s balance sheet.
Pursuant
to the terms of an employment agreement, the Company is committed to
make a cash payment of $4,830 and issue 966,000 shares of common stock to the
Company’s President. The fair value of these shares in the amount of $4,830 was
charged to operations during the year ended December 31, 2009. The
total value of the bonus of $9,660 is recorded on the Company’s balance sheet as
a liability to related parties as of December 31, 2009.
Pursuant
to the terms of an employment agreement, the Company is committed to make a cash
payment of $4,550 and issue 910,000 shares of common stock to the Company’s
Chief Executive Officer. The fair value of these shares in the amount of $4550
was charged to operations during the year ended December 31, 2009. The total
value of the bonus of $9,100 is recorded on the Company’s balance sheet as a
liability to related parties as of December 31, 2009.
All of
the issuances described above were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933 for the following reasons: (1)
none of the issuances involved a public offering or public advertising of the
payment of any commissions or fees; (2) the issuances for cash were to
“accredited investors”; (3) the issuances upon conversion of notes were for
notes held at least 12 months and did not involve the payment of any other
consideration; and (4) all issuances to affiliates and to non-affiliates holding
the securities for less than 1 year carried restrictive
legends.
Derivative
Securities Currently Outstanding
As of
December 31, 2009 and 2008, the Company has issued convertible notes payable in
the aggregate principal amount of $1,771,244 and $1,465,000, respectively, with
accrued interest of $749,055 and $614,484, respectively, which, if
converted to common stock, will result in our issuance of approximately
492,807,960 and 395,043,320 shares of common stock,
respectively, at conversion rates ranging from $0.005 to $0.010 per
share. The fair value of these embedded conversion options was
$1,384,992 and $1,150,000 at December 31, 2009 and 2008,
respectively. The Company revalues the conversion options at each
reporting period, and charges any change in value to operations. During the
years ended December 31, 2009 and 2008, the Company recorded a gain of $83,492
and a loss of $182,583, respectively, due to the change in value of the
conversion option liability.
The
Company has issued warrants for holders to purchase an additional 273,200,000
shares of common stock at December 31, 2009 and 2008. The Company
also has outstanding options to purchase an additional 37,000,000 and 35,500,000
shares of common stock at December 31, 2009 and 2008,
respectively. The fair value of these warrants was
$631,853 and $1,388,287 at December 31, 2009 and 2008,
respectively. The Company revalues the warrants at each
reporting period, and charges any change in value to operations. During the
years ended December 31, 2009 and 2008, the Company recorded a gain of $756,434
and a loss of $582,571, respectively, due to the change in value of the
warrants.
The
Company also has outstanding stock options to purchase an additional
53,000,000 and 35,500,000 shares of common stock at December 31,
2009 and 2008, respectively. The fair value of these stock
options was $144,627 and $174,692 at December 31, 2009 and
2008, respectively. The Company revalues the stock
options at each reporting period, and charges any change in value to
operations. During the years ended December 31, 2009 and 2008, the Company
recorded a gains of $38,058 and $27,119, respectively, due to the change in
value of the stock options.
The
Company also has outstanding obligations to issue a total of 0 and 110,280,000
additional shares of common stock (the “Penalty Shares”) at December 31, 2009
and 2008, respectively, pursuant to the terms of penalty agreements for failure
to register shares underlying certain convertible notes payable. The
fair value of the Penalty Shares was $0 and $551,400 at December 31,
2009 and 2008, respectively. The Company revalued the
Penalty Shares at each reporting period, and charged any change in
value to operations. During the years ended December 31, 2008, the Company
recorded a loss of $220,564 due to the change in value of
the Penalty Shares. (See note 10).
Securities
Authorized for Issuance Under Equity Compensation Plans
We do not
currently have any equity compensation plans. The
following shares are issuable pursuant to individual employment
arrangements:
|
Number
of
|
||||||||||||
|
Number
of
|
securities
|
|||||||||||
|
securities
to be
|
remaining
available
|
|||||||||||
|
issued
upon
|
Weighted-average
|
for
future issuance
|
||||||||||
|
exercise
of
|
exercise
price of
|
under
equity
|
||||||||||
|
outstanding
|
outstanding
|
compensation
plans
|
||||||||||
|
options,
warrants
|
options,
warrants,
|
(excluduing
securites
|
||||||||||
|
Plan
Category
|
and
rights
|
and
rights
|
reflected
in column (a))
|
|||||||||
|
Equity
compensation
|
||||||||||||
|
plans
approved by
|
||||||||||||
|
security
holders
|
None
|
N/A | N/A | |||||||||
|
Equity
compensation
|
||||||||||||
|
plans
not approved
|
||||||||||||
|
by
security holders
|
||||||||||||
|
Stock
options
|
16,000,000 |
(A)
|
||||||||||
|
Stock
options
|
20,000,000 | $ | 0.005 | N/A | ||||||||
|
Stock
options
|
17,000,000 | $ | 0.007 | N/A | ||||||||
|
Total
|
53,000,000 | N/A | N/A | |||||||||
(A) These
shares vest at the rate of 25% at the end of each quarter of 2010, beginning on
March 31. The exercise price will 120% of the closing price of the
Company’s common stock on the vesting date, but no lower than
$0.005.
Not
Applicable.
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 3(a)(51-1) under
the Exchange Act) during the three year period
preceding the date(s) on which those forward looking statements were first made,
except to the extent otherwise specifically provided by
rule, regulation or order of the Securities and Exchange Commission.
We caution readers that certain important factors may affect our actual results
and could cause such results to differ materially from any forward-looking
statements which may be deemed to have been made in this Report or which are
otherwise made by or on behalf of us. For this purpose, any statements
contained in this report that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as "may", "will", "expect",
"believe", "explore", "consider", "anticipate", "intend",
"could", "estimate", "plan", "propose" or "continue" or the negative
variations of those words or comparable terminology are intended to identify
forward-looking statements. Factors that may affect our results include, but are
not limited to, the risks and uncertainties associated with:
|
●
|
Our
ability to raise capital necessary to sustain our anticipated operations
and implement our business plan,
|
|
●
|
Our
ability to implement our business
plan,
|
|
●
|
Our
ability to generate sufficient cash to pay our lenders and other
creditors,
|
|
●
|
Our
ability to employ and retain qualified management and
employees,
|
|
●
|
Our
dependence on the efforts and abilities of our current employees and
executive officers,
|
|
●
|
Changes in
government regulations that are applicable to our 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
at December 31, 2009 and 2008:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Number
of warrants outstanding
|
273,200,000
|
273,200,000
|
||||||
|
Value
at December 31
|
$
|
631,853
|
$
|
1,388,287
|
||||
|
Number
of warrants issued during the year
|
-
|
84,200,000
|
||||||
|
Value
of warrants issued during the year
|
$
|
-
|
$
|
374,557
|
||||
|
Revaluation
gain (loss) during the year
|
$
|
756,434
|
|
$
|
(582,541
|
) | ||
|
Black-Scholes
model variables:
|
||||||||
|
Volatility
|
302.87%
- 386.12
|
%
|
203.6%
- 332.7
|
%
|
||||
|
Dividends
|
$
|
0
|
$
|
0
|
||||
|
Risk-free
interest rates
|
0.20%
- 0.43
|
%
|
0.27%
- 2.41
|
%
|
||||
|
Term
(years)
|
0.15
- 5.00
|
1.15-5.00
|
||||||
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 (“ASC 815-10-05”, formerly referred to as
SFAS No. 133) and FASB ASC 815-40-05 (“ASC 815-40-05”, 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. 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 at December 31, 2009 and 2008:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Number
of conversion options outstanding
|
346,248,800
|
285,000,000
|
||||||
|
Value
at December 31
|
$
|
1,384,992
|
$
|
1,150,000
|
||||
|
Number
of options issued during the year
|
68,448,800
|
69,400,000
|
||||||
|
Value
of options issued during the year
|
$
|
336,844
|
$
|
364,079
|
||||
|
Number
of options exercised or underlying
|
||||||||
|
notes
paid during the year
|
7,200,000
|
1,600,000
|
||||||
|
Value
of options exercised or underlying
|
||||||||
|
notes
paid during the year
|
$
|
18,360
|
$
|
8,800
|
||||
|
Revaluation
gain (loss) during the year
|
$
|
83,492
|
|
$
|
(182,583
|
)
|
||
|
Black-Scholes
model variables:
|
||||||||
|
Volatility
|
302.87%
to 393.23
|
%
|
193.7%
to332.7
|
%
|
||||
|
Dividends
|
0
|
0
|
||||||
|
Risk-free
interest rates
|
0.20%
- 0.43
|
%
|
0.27%
-2.41
|
%
|
||||
|
Term
(years)
|
1.00
- 10.00
|
1.00
– 10.00
|
||||||
c.) Stock options:
The
Company accounts for options in accordance FASB ASC 718-40 (“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 at December 31, 2009 and 2008:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Number
of options outstanding
|
37,000,000
|
35,500,000
|
||||||
|
Value
at December 31
|
$
|
144,627
|
$
|
174,692
|
||||
|
Number
of options issued during the year
|
2,000,000
|
-
|
||||||
|
Value
of options issued during the year
|
$
|
7,993
|
-
|
|||||
|
Number
of options recognized during the year
|
||||||||
|
pursuant
to SFAS 123(R)
|
2,000,000
|
20,100,000
|
||||||
|
Value
of options recognized during the year
|
||||||||
|
pursuant
to SFAS 123(R)
|
$
|
7,993
|
$
|
99,960
|
||||
|
Revaluation
gain (loss) during the year
|
$
|
(38,058
|
)
|
$
|
(27,119
|
) | ||
|
Black-Scholes
model variables:
|
||||||||
|
Volatility
|
302.87%
to 386.12%
|
203.7%
to 332.7%
|
||||||
|
Dividends
|
0
|
0
|
||||||
|
Risk-free
interest rates
|
0.20%
- 0.43
|
%
|
0.27%
- 2.41
|
%
|
||||
|
Term
(years)
|
0.15
- 5.00
|
0.37-5.00
|
||||||
Doubtful
Accounts Receivable
The
Company maintained an allowance in the amount of $3,574 for doubtful
accounts receivable at December 31, 2009, and $15,877 at December 31,
2008. Actual losses on accounts receivable were $0 for 2009 and 2008. 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 provide 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.
Background
We were
initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation.
From June 1979 through February 2003, we were either inactive or involved in
discontinued business ventures. In February 2003 we changed our name to Fiber
Application Systems Technology, Ltd.
In
January 2004, we changed our state of incorporation by merging into Innovative
Food Holdings, Inc. (“IVFH”), a Florida shell corporation. As a result of the
merger we changed our name to that of Innovative Food Holdings, Inc. In February
2004 we also acquired Food Innovations, Inc. (“FII”) a Delaware corporation
incorporated on January 9, 2002 and through FII we are in the business of
national food distribution using third-party shippers.
Transactions
With a Major Customer
Transactions
with a major customer and related economic dependence information is set forth
(1) following our discussion of Liquidity and Capital Resources, (2) under the
heading Transactions with Major Customers in Note 14 to the Consolidated
Financial Statements, and (3) as the fourth item under Risk Factors.
RESULTS
OF OPERATIONS
The
following is a discussion of our financial condition and results of operations
for the years ended December 31, 2009 and 2008.
This
discussion may contain forward looking-statements that involve risks and
uncertainties. Our future results could differ materially from the forward
looking-statements discussed in this report. This discussion should be read in
conjunction with our consolidated financial statements, the notes thereto and
other financial information included elsewhere in the report.
Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008
Revenue
Revenue
increased by $621,909 or approximately 9% to $7,591,639 for
the year ended December 31, 2009 from $6,969,730 in the
prior year. The increase was attributable to an increase in sales of
specialty items, cheese products, and poultry products, partially offset by
decreases in meat and game products, and seafood. 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 good
sold
Our cost
of goods sold for the year ended December 31, 2009 was $5,844,096, an
increase of $215,995 or approximately 4% compared to cost
of goods sold of $5,628,101 for the year ended December
31, 2008. Cost of goods sold is primarily made up of the following expenses
for the year ended December 31, 2009: shipping expenses in the amount of
$1,510,607; and cost of good of specialty, meat, game, cheese poultry and
other sales categories in the amount of $4,234,471.
In 2009
we continued to aggressively price our products in order to gain market
share and increase the number of our end users. We were successful in
doing so and increased the number of our end users by approximately
19.1% to more than 12,189 end users. We currently expect if market
conditions remain constant that our cost of goods sold will stabilize and likely
remain at historical levels in the first half
of 2010.
Selling, general, and
administrative expenses
Selling,
general, and administrative expenses decreased by $327,655 or approximately
17%, to $1,551,584 during the year ended December 31, 2009 compared
to $1,879,239 for the year ended December 31, 2008. Selling, general and
administrative expenses were primarily made up of the following for the year
ended December 31, 2009: payroll and related expenses, including employee
benefits, in the amount of $904,110; consulting and professional fees in the
amount of $253,333; insurance costs in the amount of $46,432; facilities and
related expenses in the amount of $89,646; office expense in the amount of
$85,348; travel and entertainment expenses in the amount of $43,767;
amortization and depreciation expense in the amount of $32,372; commissions
expense in the amount of $30,699; and computer support expenses in the amount of
$30,145. The decrease in selling, general, and administrative expenses was
primarily due to our using fewer outside consultants, and a decrease in legal
and accounting fees. We expect our legal fees to decrease in 2010 and
our accounting fees in 2010 to remain constant 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 and web
development fees in 2010.
Impairment of investment in
note receivable
During
the twelve months ended December 31, 2008, the Company renegotiated the terms of
its loan to Pasta Italiana. These revised terms resulted in recording
an impairment in the amount of $142,124. There was no such impairment
recorded during the twelve months ended December 31, 2009. (See "Item
3- Legal Proceedings").
Interest expense,
net
Interest
expense, net, increased by $40,755 or approximately 11% to $412,930 during
the twelve months ended December 31, 2009, compared to $372,175 during the
twelve months ended December 31, 2008. The primary reason for the
increase was the issuance of convertible notes payable for the Registration
Settlement (see note 3) and the amortization of the discount on these
convertible notes.
(Gain) Loss on
extinguishment of debt
Pursuant
to a registration rights agreement, the Company was obligated to register shares
of common stock underlying certain convertible notes payable. The
Company failed to register these shares in timely fashion, and accordingly
was subject to a penalty payable in additional shares of common stock (the
“Penalty Shares”). At December 31, 2008 there were a total of
110,280,000 Penalty Shares issuable. During the year ended December
31, 2008, the Company revalued the 110,280,000 Penalty Shares using the
Black-Scholes valuation model, and at December 31, 2008 recorded a liability in
the amount of $551,400. This revaluation resulted in recording
a loss in the amount of $220,564 during the twelve months ended December 31,
2008.
During
the year ended December 31, 2009, the Company negotiated a settlement of the
liability for the penalty shares whereby the Company issued
convertible notes payable in the amount of $328,744, and as a result the Company
recorded a gain on the transaction in the amount of $222,656.
During
the year ended December 31, 2008, the Company extended certain of its notes
payable, and as consideration for these extensions the Company provided the
lender 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 $168,629.
Fair value of warrants
issued in excess of discount on notes payable
During
the twelve months ended December 31, 2008, the Company issued convertible notes
payable along with detachable warrants to purchase shares of common
stock. The fair value of these warrants exceeded the principal amount
of the notes payable, and the Company charged this excess in the amount of
$99,960 to operations. There was no such charges during the
current year.
(Gain) Loss from change in
fair value of warrant liability
At
December 31, 2009, the Company had outstanding warrants to purchase an aggregate
273,200,000 shares (272,200,000 vested) of the Company’s common
stock. The Company valued the warrant liability at December 31, 2009
at $631,853. This revaluation resulted in a gain of
$756,434 which the Company included in operations during the year ended
December 31, 2009. This is an increase $1,338,975 or
approximately 230% compared to a loss of $582,541 from the revaluation of
the warrant liability which the Company recorded during the twelve months ended
December 31, 2008.
Fair value of conversion
option liability
During
the year ended December 31, 2008, the Company charged to operations the amount
of $114,945 representing the fair value of a conversion option liabilities
issued in excess of the amount of the discount on the related convertible notes
payable. There was no such charge during the
current year.
(Gain) loss from change in
fair value of conversion option liability
At
December 31, 2009, the Company had outstanding a liability to issue an aggregate
of 326,248,800 shares of the Company’s common stock pursuant to convertible
notes payable. The Company revalued this liability at December 31,
2009 at $1,384,992. This revaluation resulted in a gain of
$83,492 which the Company included in operations for the year ended
December 31, 2009. This is an increase of $266,075 or
approximately 146% compared to a loss of $182,583 from the revaluation of the
conversion option liability which the Company recorded during the twelve months
ended December 31, 2008.
Net Income
(Loss)
For the
reasons above, the Company had net income for the year ended December 31, 2009
of $845,611, an increase of $3,266,742 compared to a net loss of
$2,421,131 during the twelve months ended December 31,
2008.
Liquidity
and Capital Resources at December 31, 2009
As of
December 31, 2009, the Company had current assets of $652,216, consisting of
cash of $144,765, loans receivable of $143,050, other current assets
of $6,120, inventory of $19,075 and trade accounts receivable of
$339,206. Also, at December 31, 2009, the Company had current
liabilities of $5,029,162, consisting of accounts payable and accrued
liabilities of $856,206 (of which $160,845 is payable to a related party);
accrued interest of $576,933; accrued interest – related parties of $170,144;
current portion of notes payable, net of discounts of $918,907; current portion
of notes payable – related parties, net of discounts of $345,500; warrant
liability of $631,853; option liability of $144,627; and conversion option
liability of $1,384,992.
During
the twelve months ended December 31, 2009, the Company had generated cash from
operating activities of $9,105. This consisted of the Company’s net income of
$845,611, offset by charges to operations $32,392 for depreciation and
amortization, $15,450 for non-cash compensation, $222,656 for the
gain on extinguishments of debt, $7,993 for the value of new options issued,
$118,001 for the amortization of the discount on notes payable, $125,501 for the
amortization of the discount on accrued interest, $756,434 gain for
the revaluation of the warrant liability, $83,492 gain for the revaluation of
the conversion option liability, and a $38,058 gain for the revaluation of the
option liability. The Company’s results also reflect a
decrease in working capital deficiency of $1,187,712.
The
Company had cash used by investing activities of $3,520, in 2009, which
consisted of payments received on a loan receivable of $9,950 offset
by acquisitions of property and equipment of
$13,470.
The
Company had cash used by financing activities of $21,365, in 2009, which
consisted of principal payments on debt of
$21,365.
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.
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.
2010
Plans
During
2010, in addition to our efforts to increase sales in our existing foodservice
operations we plan to expand our business by expanding our focus to
additional Foodservice market, and continuing to extend our focus from a
mainly wholesale foodservice business directed towards chefs to
commencing retail sales by making sales direct to consumers through a variety of
direct to consumer sales channel relationships which are currently being
explored. In addition we are currently exploring the introduction of a variety
of new product categories, to leverage our existing foodservice customer
base.
As
discussed above, we also expect to improve our financial position, especially
with respect to cash flows, by reducing our expenditures for professional fees
to our attorneys and accountants, and by further improving our selling
efforts.
No
assurances can be given that any of these plans will come to fruition or that if
implemented that they will necessarily yield positive results.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues, or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
Inflation
In the
opinion of management, inflation has not had a material effect on the Company’s
financial condition or results of its operations.
Transactions
With Major Customers
The
Company’s largest customer, USF and its affiliates, accounted for
approximately 96% and 97% of total sales in the years ended
December 31, 2009 and 2008, respectively. A contract with USF,
expires December 31, 2012. Of our remaining active customers in
the year ended December 31, 2009, no other single customer contributed 1% or
more to our net revenue.
We
continue to conduct business with U.S. Food Services.
Stock-based
Compensation
Effective
January 1, 2006, the Company adopted FASB ASC 718-40 (“ASC 718-40”, formerly
referred to as SFAS No. 123 (revised), "Share-Based Payment" (SFAS 123(R)))
utilizing the modified prospective approach.
Under the
modified prospective approach, ASC 718-40 applies to new awards and to awards
that were outstanding on January 1, 2006 that are subsequently modified,
repurchased or cancelled. Under the modified prospective approach, compensation
cost recognized in the nine months of fiscal 2006 includes compensation cost for
all share-based payments granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair value estimated in accordance with the
original provisions of ASC 718-40, and compensation cost for all share-based
payments granted subsequent to January 1, 2006 based on the grant-date fair
value estimated in accordance with the provisions of ASC 718-40 Prior periods
were not restated to reflect the impact of adopting the new
standard.
A summary
of option activity as of December 31, 2008, and changes during the period
ended December 31, 2009 are presented below:
|
Options
|
Weighted
Average Exercise Price
|
|||||||
|
Outstanding
as December 31,2008
|
35,500,000 | $ | 0.013 | |||||
|
Non-vested
at December 31, 2008
|
100,000 | $ | 0.500 | |||||
|
Exercisable
at December 31, 2008
|
35,400,000 | $ | 0.012 | |||||
|
Issued
|
18,000,000 | $ | (a) | |||||
|
Exercised
|
- | - | ||||||
|
Forfeited
or expired
|
(500,000 | ) | 0.50 | |||||
|
Outstanding
at December 31, 2009
|
53,000,000 | $ | (b) | |||||
|
Non-vested
at December 31, 2009
|
18,000,000 | $ | (a) | |||||
|
Exercisable
at December 31, 2009
|
37,000,000 | $ | 0.006 | |||||
(a)
Consists of options to purchase 2,000,000 shares at a price of $0.007 and
options to purchase 16,000,000 shares which will vest at a rate of 4,000,000
options each quarter end, beginning on March 31, 2009. The exercise price of
these options will be at 120% of the closing price of the Company’s
common stock on the vesting dates.
(b)
Consists of options to purchase 22,000,000 shares at a price of
$0.007; options to purchase 15,000,000 shares at a price of $0.005;
and the 16,000,000 shares described in note (a) above.
Aggregate
intrinsic value of options outstanding and exercisable at December 31, 2009 and
2008 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 $0.004 and $0.005 as of December 31, 2009 and 2008,
respectively, and the exercise price multiplied by the number of options
outstanding. As of December 31, 2009 and 2008, total unrecognized stock-based
compensation expense related to stock options was $0. During the years ended
December 31, 2009 and 2008, the Company charged $7,993 and $0, respectively, to
operations related to recognized stock-based compensation expense for employee
stock options.
REPORT OF INDEPENDENT REGISTERED
PUBLIC AACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Innovative
Food Holdings, Inc.
Naples,
Florida
We have
audited the accompanying consolidated balance sheets of Innovative Food
Holdings, Inc., and subsidiaries (“the Company”) as of December 31, 2009 and
2008 and the related consolidated statements of operations, stockholders'
deficiency, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have nor were we engaged to perform, an audit of its Internal
Control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s internal control
over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2009 and 2008 and the results of its operations and its cash flows for each
of the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 1, the Company has incurred significant
losses from operations since its inception and has a working capital
deficiency. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/
Bernstein & Pinchuk LLP
New York,
NY
March 26,
2010
|
Innovative
Food Holdings, Inc. and Subsidiaries
|
||||||||
|
Consolidated
Balance Sheets
|
||||||||
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$
|
144,765
|
$
|
160,545
|
||||
|
Accounts
receivable, net
|
339,206
|
239,566
|
||||||
|
Loan
receivable, current portion net
|
143,050
|
60,000
|
||||||
|
Inventory
|
19,075
|
- | ||||||
|
Other
current assets
|
6,120
|
9,000
|
||||||
|
Total
current assets
|
652,216
|
469,111
|
||||||
|
Loan
receivable, net
|
-
|
93,000
|
||||||
|
Property
and equipment, net
|
33,698
|
52,620
|
||||||
|
$
|
685,914
|
$
|
614,731
|
|||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable and accrued liabilities
|
$
|
695,361
|
$
|
832,613
|
||||
|
Accrued
liabilities- related parties
|
160,845
|
126,671
|
||||||
|
Accrued
interest, net
of discount
|
576,933
|
437,269
|
||||||
|
Accrued
interest - related parties, net of discount
|
170,144
|
173,471
|
||||||
|
Notes
payable, current portion, net of discount
|
918,907
|
938,364
|
||||||
|
Notes
payable - related parties, current portion, net of
discount
|
345,500
|
261,002
|
||||||
|
Warrant
liability
|
631,853
|
1,388,287
|
||||||
|
Option
liability
|
144,627
|
174,692
|
||||||
|
Conversion
option liability
|
1,384,992
|
1,150,000
|
||||||
|
Penalty
for late registration of shares
|
-
|
551,400
|
||||||
|
Total
current liabilities
|
5,029,162
|
6,033,769
|
||||||
|
Note
payable
|
27,718
|
10,723
|
||||||
|
5,056,880
|
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, and 184,638,638 and
|
||||||||
|
173,358,038
shares outstanding at December 31, 2009 and 2008,
respectively
|
19,464
|
18,358
|
||||||
|
Additional
paid-in capital
|
2,197,413
|
1,985,335
|
||||||
|
Accumulated
deficit
|
(6,587,843
|
)
|
(7,433,454
|
)
|
||||
|
Total
stockholders' deficiency
|
(4,370,966
|
)
|
(5,429,761
|
)
|
||||
|
$
|
685,914
|
$
|
614,731
|
|||||
See notes
to consolidated financial statements.
|
Innovative
Food Holdings, Inc. and Subsidiaries
|
||||||||
|
Consolidated
Statements of Operations
|
||||||||
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Revenue
|
$
|
7,591,639
|
$
|
6,969,730
|
||||
|
Cost
of goods sold
|
5,844,096
|
5,628,101
|
||||||
|
Gross
margin
|
1,747,543
|
1,341,629
|
||||||
|
Selling,
general and Administrative expenses
|
1,551,584
|
1,879,239
|
||||||
|
Operating
income (loss)
|
195,959
|
(537,610
|
)
|
|||||
|
Other
(income) expense:
|
||||||||
|
Impairment
of notes receivable
|
-
|
142,124
|
||||||
|
Interest
expense, net
|
412,930
|
372,175
|
||||||
|
(Gain)
loss on extinguishments of debt
|
(222,656
|
)
|
168,620
|
|||||
|
Loss
on revaluation of penalty shares
|
-
|
220,564
|
||||||
|
Fair
value of warrants issued in excess of discount on
notes
|
-
|
99,960
|
||||||
|
(Gain)
loss from change in fair value of warrant liability
|
(756,434
|
)
|
582,541
|
|||||
|
Fair
value of conversion options issued
|
-
|
114,945
|
||||||
|
(Gain)
loss from change in fair value of conversion option
liability
|
(83,492
|
)
|
182,583
|
|||||
|
(649,652
|
)
|
1,883,512
|
||||||
|
Income
( Loss) before income tax expense
|
845,611
|
(2,421,122
|
)
|
|||||
|
Income
tax expense
|
-
|
-
|
||||||
|
Net
income (loss)
|
$
|
845,611
|
$
|
(2,421,122
|
)
|
|||
|
Net
income (loss) per share - basic
|
$
|
0.004
|
$
|
(0.013
|
)
|
|||
|
Net
income (loss) per share- diluted
|
$
|
0.002
|
$
|
(0.013
|
)
|
|||
|
Weighted
average shares outstanding - basic
|
191,032,491
|
182,011,728
|
||||||
|
Weighted
average shares outstanding- diluted
|
688,840,451
|
182,011,728
|
||||||
See notes
to consolidated financial statements.
|
Innovative
Food Holdings, Inc. and Subsidiaries
|
||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income (loss)
|
$
|
845,611
|
$
|
(2,421,122
|
)
|
|||
|
Adjustments
to reconcile net income (loss) to net
|
||||||||
|
cash
provided by (used in) operating activities:
|
||||||||
|
Depreciation
and amortization
|
32,392
|
39,332
|
||||||
|
Non-cash
compensation
|
15,450
|
-
|
||||||
|
(Gain) loss on extinguishments of debt
|
(222,656
|
)
|
168,620
|
|||||
|
Fair
value of warrants issued
|
-
|
99,960
|
||||||
|
Fair
value of stock options issued
|
7,993
|
138,312
|
||||||
|
Fair
value of conversion options issued
|
-
|
114,945
|
||||||
|
Amortization
of discount on notes payable
|
118,001
|
78,137
|
||||||
|
Amortization
of discount on accrued interest
|
125,501
|
135,360
|
||||||
|
Impairment
of investment in notes receivable
|
-
|
142,124
|
||||||
|
Allowance
for bad debt
|
-
|
5,877
|
||||||
|
Change in fair value of warrant liability
|
(756,434
|
)
|
582,541
|
|||||
|
Change
in fair value of option liability
|
(38,058
|
)
|
(5,717
|
)
|
||||
|
Change in fair value of conversion option liability
|
(83,492
|
)
|
182,583
|
|||||
|
Revaluation of penalty for late registration of shares
|
-
|
220,564
|
||||||
|
Changes
in assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(99,640
|
)
|
(2,295
|
)
|
||||
|
Prepaid
expenses and other current assets
|
(16,195
|
)
|
(1,970
|
)
|
||||
|
Accounts
payable and accrued expenses- related party
|
32,847
|
84,495
|
||||||
|
Accounts
payable and accrued expenses
|
47,785
|
325,184
|
||||||
|
Net
cash (used in) provided by operating activities
|
9,105
|
(113,070
|
)
|
|||||
|
Cash
flows from investing activities:
|
||||||||
|
Principal
payments received on loan
|
9,950
|
12,000
|
||||||
|
Acquisition
of property and equipment
|
(13,470
|
)
|
(8,129
|
)
|
||||
|
Net
cash (used in) provided by investing activities
|
(3,520
|
)
|
3,871
|
|||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from issuance of debt
|
-
|
200,000
|
||||||
|
Principal
payments on debt
|
(21,365
|
)
|
(4,866
|
)
|
||||
|
Net
cash (used in) provided by financing activities
|
(21,365
|
)
|
195,134
|
|||||
|
Net
(decrease) increase in cash and cash
equivalents
|
(15,780
|
)
|
85,935
|
|||||
|
Cash
and cash equivalents at beginning of year
|
160,545
|
74,610
|
||||||
|
Cash
and cash equivalents at end of year
|
$
|
144,765
|
$
|
160,545
|
||||
See notes
to consolidated financial statements.
Innovative
Food Holdings, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows (continued)
|
Supplemental
disclosure of cash flow information:
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$
|
1,326
|
$
|
1,926
|
||||
|
Taxes
|
$
|
-
|
$
|
-
|
||||
|
Other
items not affecting cash:
|
||||||||
|
Revaluation
of conversion option liability
|
$
|
(83,492
|
)
|
$
|
297,528
|
|||
|
Revaluation
of warrant liability
|
$
|
(756,434
|
)
|
$
|
682,501
|
|||
|
Revaluation
of option liability
|
$
|
(38,058
|
)
|
$
|
5,717
|
|
||
|
Common
stock issued for consulting contract
|
$
|
12,500
|
$
|
-
|
||||
|
Common
stock issued to employees as bonus
|
$
|
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. and Subsidiaries
|
|
|
Consolidated
Statements of Changes in Stockholders' Deficiency
|
|
|
For
the two years ended December 31, 2009
|
|
Common
Stock
|
||||||||||||||||||||
|
Amount
|
Par
Value
|
Additional
Paid-In
Capital
|
Accumulated
Deficit
|
Total
|
||||||||||||||||
|
Balance
at December 31, 2007 (Restated)
|
181,787,638
|
$
|
18,179
|
$
|
1,832,407
|
$
|
(5,012,332
|
)
|
$
|
(3,161,746
|
)
|
|||||||||
|
Common
stock issued for the conversion of notes payable and accrued
interest
|
1,789,400
|
179
|
8,768
|
-
|
8,947
|
|||||||||||||||
|
Reclassification
of conversion option liability
|
-
|
-
|
8,800
|
-
|
8,800
|
|||||||||||||||
|
Discount
due to Beneficial conversion feature on interest accrued on convertible
notes payable
|
-
|
-
|
135,360
|
-
|
135,360
|
|||||||||||||||
|
Loss
for the year ended December 31, 2008
|
-
|
-
|
-
|
(2,421,122
|
)
|
(2,421,122
|
)
|
|||||||||||||
|
Balance
as of December 31, 2008
|
183,577,038
|
$
|
18,358
|
$
|
1,985,335
|
$
|
(7,433,454
|
)
|
$
|
(5,429,761
|
)
|
|||||||||
|
Common
stock issued pursuant to consulting agreement
|
6,250,000
|
625
|
15,625
|
-
|
16,250
|
|||||||||||||||
|
Common
stock issued to employees
|
600,000
|
60
|
1,140
|
-
|
1,200
|
|||||||||||||||
|
Common
stock issued for conversion of note payable
|
4,211,600
|
421
|
20,637
|
-
|
21,058
|
|||||||||||||||
|
Discount
due to beneficial conversion feature of interest accrued on convertible
notes payable
|
-
|
-
|
156,316
|
-
|
156,316
|
|||||||||||||||
|
Reclassification
from conversion options liability to equity
|
-
|
-
|
18,360
|
-
|
18,360
|
|||||||||||||||
|
Income
for the year ended December 31, 2009
|
-
|
-
|
-
|
845,611
|
845,611
|
|||||||||||||||
|
Balance
as of December 31, 2009
|
194,638,638
|
19,464
|
2,197,413
|
(6,587,843
|
)
|
(4,370,966
|
)
|
|||||||||||||
See notes
to consolidated financial statements.
INNOVATIVE
FOOD HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Activity
Primarily
through our subsidiary, Food Innovations, Inc. (“FII”), we are in the business
of providing premium white tablecloth restaurants with the freshest
origin-specific perishables and specialty products direct from its network of
vendors to the end users (restaurants, hotels, country clubs, national chain
accounts, casinos, and catering houses) within 24 - 72 hours, except as
stated hereafter, eliminating all wholesalers and distributors. We currently
sell the majority of our products through a distributor relationship between FII
and Next Day Gourmet, L.P., a subsidiary of US Foodservice, Inc. (“USF”), a $20
Billion broadline distributor.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
Principles of
Consolidation
The
accompanying 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.,
Gourmet Foodservice Group, Inc. and 4 The Gourmet, Inc. (d/b/a For 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 Standards Codification
“ASC” 605-15-05 (formerly referred to as Staff Accounting Bulletin
("SAB") No. 104, "Revenue Recognition," which
superseded 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. 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 $3,574
and $15,877 at December 31, 2009 and 2008, respectively.
Property and
Equipment
Property
and equipment are valued at cost. Depreciation is provided over the
estimated useful lives up to five years using the straight-line
method. Leasehold improvements are depreciated on a straight-line
basis over the term of the lease.
The
estimated service lives of property and equipment are as follows:
Computer
Equipment
3 years
Office
Furniture and Fixtures 5 years
Inventories
The
Company does not currently maintain any material amount of inventory. However,
any such inventory is valued at the lower of cost or market and is determined by
the first-in, first-out method.
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
December 31, 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
comprehensive income in any of the periods presented.
Basic and Diluted Loss Per
Share
In
accordance with FASB ASC 260-10-45 (“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 loss available to common stockholders less preferred dividends
by the weighted average number of common shares outstanding. Diluted loss per
common share is computed similarly to basic loss per common share, except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been issued
and if the additional common shares were not
anti-dilutive.
Diluted
earnings per share was computed as follows for the year ended December 31,
2009:
|
Income
(Numerator)
|
Shares
(Denominator)
|
Per-Share
Amount
|
||||||||||
|
Basic
earnings per share
|
$ | 845,611 | 191,032,491 | $ | 0.004 | |||||||
|
Effect
of Dilutive Securities
|
||||||||||||
|
Conversion
of notes and interest into common stock:
|
||||||||||||
|
Additional
shares
|
492,807,960 | |||||||||||
|
Decrease
in interest expense due to conversion
|
402,950 | |||||||||||
|
Remove
gain on revaluation of conversion option liability
|
(83,492 | ) | ||||||||||
|
Shares
accrued, not yet issued
|
5,000,000 | |||||||||||
|
Diluted
earnings per share
|
$ | 1,165,069 | 688,840,451 | $ | 0.002 | |||||||
The
Company has excluded the following securities from the calculation of diluted
net loss per share because these securities are anti-dilutive:
Anti-dilutive
shares at December 31, 2009:
Warrants
to purchase 179,700,000 shares at $0.005 per share, 18,500,000 shares at $0.011
per share, and 74,000,000 shares at $0.0115 per share were not
included in the computation of loss per share because the warrant exercise
prices were greater than the average market price of the common shares
and 37,5000,000 shares issuable upon the conversion of options. The Company
has included additional shares for conversion of notes and interest even though
the total assumed shares exceed the currently authorized shares by
188,840,451.
Anti-dilutive
shares at December 31, 2008:
Warrants
to purchase 179,700,000 shares at $0.005 per share, 18,500,000 shares at $0.011
per share, and 74,000,000 shares at $0.0115 per share were not
included in the computation of loss per share because the warrant exercise
prices were greater than the average market price of the
common shares. Also not included in the calculation of loss per
share were 399,984,600 shares issuable upon the conversion of debt and
convertible interest; 35,500,000 shares issuable upon the conversion of
options, 110,280,000 penalty shares issuable because the effect would have been
anti-dilutive; 5,000,000 shares of common stock the Company has committed to
issue to a service provider; and 3,000,000 shares of common stock the Company
has committed to issue to its President.
Liquidity
As
reflected in the accompanying consolidated financial statements, the Company had
net income of $845,611 and a net loss of $2,421,122 for the years ended December
31, 2009 and 2008, respectively. This variance was principally
due to changes in fair values of warrant, conversion option and registration
penalty liabilities rather to differences in actual operating
results. The Company had an accumulated deficit
of $6,587,843 at December 31, 2009. In
addition, the Company’s current liabilities exceeded its current assets
by $4,376,946 as of December 31, 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. It the Company
cannot secure additional funds it will not be able to continue as a going
concern.
By
adjusting its operation and development to the level of available resources,
management believes it has sufficient capital resources to meet projected cash
flow through the next twelve months. The Company also intends to increase market
share and cash flow from operations by focusing its sales activities on specific
market segments. However, if thereafter, the Company is not successful in
generating sufficient liquidity from operations or in raising sufficient capital
resources, on terms acceptable to us, this could have a material adverse effect
on our business, results of operations, liquidity and financial
condition. Currently, we do not have any material long-term
obligations other than those described in Note 7 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, 2009 financial statements state
that our recurring losses raise substantial doubts about our ability as a going
concern.
Concentrations of Credit
Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash in investments
with credit quality institutions. At times, such investments may be in excess of
applicable government mandated insurance limit. At December 31, 2009 and 2008,
trade receivables from the Company’s largest customer amount to 85%
and 86%, 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
Effective
January 1, 2006, the Company adopted FASB ASC 718-40 (“ASC 718-40”, formerly
referred to as SFAS No. 123(R)). 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
718-40 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
twelve months ended December 31, 2009 and 2008 are summarized in the table
below:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Option
expense
|
$ | 7,993 | $ | 138,313 | ||||
|
(Gain)
loss on revaluation of options
|
(38,058 | ) | 5,717 | |||||
A summary
of option activity as of December 31, 2008, and changes during the period ended
December 31, 2009 are presented below:
|
Options
|
Weighted
Average Exercise Price
|
|||||||
|
Outstanding
as December 31,2008
|
35,500,000
|
$
|
0.013
|
|||||
|
Non-vested
at December 31, 2008
|
100,000
|
$
|
0.500
|
|||||
|
Exercisable
at December 31, 2008
|
35,400,000
|
$
|
0.012
|
|||||
|
Issued
|
18,000,000
|
$
|
(a)
|
|||||
|
Exercised
|
-
|
-
|
||||||
|
Forfeited
or expired
|
(500,000
|
)
|
0.50
|
|||||
|
Outstanding
at December 31, 2009
|
53,000,000
|
$
|
(b)
|
|||||
|
Non-vested
at December 31, 2009
|
18,000,000
|
$
|
(a)
|
|||||
|
Exercisable
at December 31, 2009
|
37,000,000
|
$
|
0.006
|
|||||
(a)
Consists of options to purchase 2,000,000 shares at a price of $0.007 and
options to purchase 16,000,000 shares which will vest at a rate of 4,000,000
options each quarter end, beginning on March 31, 2009. The exercise price of
these options will be at 120% of the closing price of the Company’s
common stock on the vesting dates.
(b)
Consists of options to purchase 22,000,000 shares at a price of
$0.007; options to purchase 15,000,000 shares at a price of $0.005; and the
16,000,000 shares described in note (a) above.
Aggregate
intrinsic value of options outstanding and exercisable at December 31, 2009 and
2008 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 $0.004 and $0.005 as of December 31, 2009 and 2008,
respectively, and the exercise price multiplied by the number of options
outstanding. As of December 31, 2009 and 2008, total unrecognized stock-based
compensation expense related to stock options was $0. During the years ended
December 31, 2009 and 2008, the Company charged $7,993 and $138,312,
respectively, to operations related to recognized stock-based compensation
expense for employee stock options.
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 net income of
$845,611 for the year ended December 31, 2009, and had an accumulated
deficit of $6,587,843 as of December 31, 2009. The
Company’s net income of $845,611 was generated primarily by non-cash
transactions, including non-cash gains of $754,434 on the revaluation of the
warrant liability, $83,492 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.
Significant Recent
Accounting Pronouncements
The
following accounting guidance has been issued and will be effective for the
Company in or after fiscal year 2009:
In
October 2009, FASB issued Accounting Standards Update (“ASU”) No. 2009-13 on
Topic 605, Revenue
Recognition- Multiple Deliverable Revenue Arrangements- a consensus of the FASB
Emerging Issues Task Force (“ASU 2009-13”). The objective of
ASU 2009-13 is to address the accounting for multiple-deliverable arrangements
to enable vendors to account for products and services (deliverables) separately
rather than as a combined unit. Vendors often provide multiple
products or services to their customers. Those deliverables often are
provided at different points in time or over different time
periods. ASU 209-13 provides amendments to certain criteria in
Subtopic 605-25, Multiple-Element Arrangements
(“Subtopic 605-25”) for separating consideration in multiple-deliverable
arrangements. The amendments in ASU 2009-13 establish a selling price
hierarchy for determining the selling price of a deliverable. The
selling price used for each deliverable will be based upon vendor specific
objective evidence if available, third-party evidence if vendor-specific
objective evidence is not available, or estimated selling price if neither
vendor specific objective evidence nor third-party evidence is
available. The amendments in ASU 2009-13 also will replace the term
fair value in the revenue allocation guidance with selling price to clarify that
the allocation of revenue is based upon entity-specific assumptions rather than
assumptions of a marketplace participant. ASU 2009-13 is effective
for fiscal years beginning on or after June 15, 2010. Early adoption
is permitted and can be applied prospectively or retrospectively. The
Company is currently evaluating the impact, if any, ASU 2009-13 will have on its
consolidated financial statements.
On
August 28, 2009, the FASB issued Accounting Standards Update (ASU)
No. 2009-05, “Measuring Liabilities at Fair Value” (ASU 2009-05). ASU
2009-05 provides additional guidance clarifying the measurement of liabilities
at fair value. ASU 2009-05 is effective in fourth quarter 2009 for a
calendar-year entity. The Company adopted ASU 2009-05 in the fourth quarter
of 2009. This standard did not have an effect on the Company’s financial
position, results of operations, cash flows or disclosures.
In
June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification TM and the Hierarchy of Generally Accepted Accounting Principles,
as amended, which was codified into Topic 105 Generally Accepted Accounting
Standards in the ASC. This standard establishes the FASB ASC as the source of
authoritative accounting principles recognized by the FASB to be applied in the
preparation of financial statements in conformity with generally accepted
accounting principles. This standard is effective for interim and annual
financial periods ending after September 15, 2009. We have our
references to GAAP in this report in accordance with the provisions of this
pronouncement. The implementation of FASB ASC 105 did not have a material effect
on the Company’s financial position, results of operations, cash flows or
disclosures.
In
April 2009, the FASB issued FASB Staff Position (FSP) FAS 107-1 and APB
28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS
107-1 and APB 28-1) (codified as ASC 825). FSP FAS 107-1 and APB 28-1 amends
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to
require disclosures about fair value of financial instruments in interim as well
as in annual financial statements and amends guidance previously referenced as
APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in interim financial statements. FSP FAS 107-1 and APB 28-1 were
adopted as of June 30, 2009 and only amends the disclosure requirements
about fair value of financial instruments in interim periods. The Company
adopted this amendment during the second quarter of 2009 and there was no
impact.
2.
ACCOUNTS RECEIVABLE
At
December 31, 2009 and 2008, accounts receivable consists of:
|
December
31,
2009
|
December
31,
2008
|
|||||||
|
Accounts
receivable from customers
|
$
|
342,780
|
$
|
255,443
|
||||
|
Allowance
for doubtful accounts
|
(3,574
|
)
|
(15,877
|
)
|
||||
|
Accounts
receivable, net
|
$
|
339,206
|
$
|
239,566
|
||||
3. LOAN
RECEIVABLE AND INTEREST RECEIVABLE
The
balance of loan receivable consisted of a loan to Pasta Italiana, Inc. (“Pasta”)
in the net carrying amount of $143,050 at December 31, 2009 and $153,000 at
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 December 31, 2009, $143,050 of
the amount due is classified as a current asset, and $0 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. Subsequent to
December 31, 2009, the Company has received an additional $1,000 in payments on
this note.
4. INVENTORY
Inventory
consists of molecular gastronomy products, honey, and meat glue which is
warehoused in Naples, Florida; and prepaid Kobe products held by our meat
vendors.
5.
PROPERTY AND EQUIPMENT
A summary
of property and equipment at December 31, 2009 and 2008, is as
follows:
|
December
31,
2009
|
December
31,
2008
|
|||||||
|
Computer
hardware and software
|
$
|
305,794
|
$
|
292,608
|
||||
|
Furniture
and fixtures
|
67,298
|
67,298
|
||||||
|
373,092
|
359,906
|
|||||||
|
Less
accumulated depreciation and amortization
|
(339,394
|
)
|
(307,286
|
)
|
||||
|
Total
|
$
|
33,698
|
$
|
52,620
|
||||
Depreciation
and amortization expense for property and equipment amounted to $32,392 and
$39,332 for the year ended December 31, 2009 and 2008,
respectively.
6.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2009 and 2008 are as
follows:
|
December
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Trade
payables
|
$ | 689,075 | $ | 824,172 | ||||
|
Accrued
payroll and commissions
|
6,286 | 8,441 | ||||||
| $ | 695,361 | $ | 832,613 | |||||
At
December 31, 2009 and 2008, accrued liabilities to related parties consisted of
accrued payroll and payroll related benefits.
7. ACCRUED
INTEREST
Accrued
interest on the Company’s convertible notes payable is convertible at the option
of the note holders into the Company’s common stock at price ranging from of
$0.005 to $0.010 per share. There is a beneficial conversion feature
embedded in the convertible accrued interest, which can be exercised at any time
by the note holders. The Company is amortizing this beneficial conversion
feature over the life of the related notes payable. Certain of the
notes payable have exceeded their stated terms, and are still outstanding;
in those instances, the Company expenses the value of the beneficial conversion
feature on the accrued interest immediately.
During
the twelve months ended December 31, 2009 and 2008, the amounts of $156,316, and
$135,360, 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 twelve months ended
December 31, 2009 and 2008 was $125,501 and $135,360, respectively.
At
December 31, 2009, the Company has the following accrued interest on its balance
sheet:
|
Gross
|
Discount
|
Net
|
||||||||||
|
Non-related
parties
|
$ | 611,416 | $ | 34,483 | $ | 576,933 | ||||||
|
Related
parties
|
170,144 | - | 170,144 | |||||||||
|
Total
|
$ | 781,560 | $ | 34,483 | $ | 747,077 | ||||||
At
December 31, 2008, the Company has the following accrued interest on its balance
sheet:
|
|
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 December 31, 2009,
convertible accrued interest was $749,055 which was convertible into 146,559,160
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.
8. NOTES
PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
|
December
31, 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. 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
$33,552and $51,889 was accrued on this note during the twelve months
ended December 31, 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. In April 2009, the noteholder agreed to
waive the default interest rate of 15%, and the note resumed accruing
interest at the rate of 8% per annum. Also in April 2009, the
noteholder 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 $1,999 and $2,005 was accrued
on this note during the twelve months ended December 31, 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 December 31,
2009 and 2008.
|
25,000 | 25,000 | ||||||
|
Convertible
note in the amount of $85,000 originally payable 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. On December 21, 2006, this note
was transferred to Whalehaven Capital. 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 $3,039 and $3,064 was
accrued on this note during the twelve months ended December 31, 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. During the year ended December 31, 2009,the
noteholder agreed to extend the maturity date until February 15,
2010.
|
38,000
|
38,000
|
|
Convertible note payable in the
amount of $80,000 to Brown Door, Inc., a related party, 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 $6,403 and $6,420 was accrued
on this note during the twelve months ended December 31, 2009 and
2008, respectively. This note is past due at December 31, 2009 and
2008.
|
80,000
|
80,000
|
|
Convertible
note payable in the amount of $50,000 to Whalehaven Capital Fund, Ltd.
(“Whalehaven Capital”) dated February 25, 2005. We did not meet certain of
our obligations under the loan documents relating to this
issuance. These lapses include not reserving the requisites
numbers of treasury shares, selling subsequent securities without offering
a right of first refusal, not complying with reporting obligations, not
having our common shares quoted on the OTC:BB and not timely registering
certain securities. This note is in technical default as of May
16, 2005. The note originally carried interest at the rate
of 8% per annum, and was due in full on February 24, 2007. Upon default,
the note’s interest rate increased to 15% per annum, and the note became
due immediately. The note is convertible into common stock of the Company
at a conversion of $0.005 per share. 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 $3,892 and $6,019 was accrued on this note during the
twelve months ended December 31, 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. In April 2009, the noteholder agreed to
waive the default interest rate of 15%, and the note resumed accruing
interest at the rate of 8% per annum. During the year ended
December 31, 2009, the noteholder agreed to extend the maturity date until
February 15, 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 $4,003 and $4,014 was accrued on
this note during the twelve months ended December 31, 2009 and 2008,
respectively. This note is past due at December 31, 2009 and
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 $1,603 and $1,607
was accrued on this note during the twelve months ended December 31,
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 December 31, 2009 and
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 $1,999 and $2,005 was accrued on this
note during the twelve months ended December 31, 2009 and 2008,
respectively. This note is past due at December 31, 2008 and
2009.
|
25,000
|
25,000
|
||||||
|
Convertible
note payable in the amount of $25,000 to The Jay & Kathleen Morren
Trust dated January 25, 2005. The note bears interest at the rate of
6% per annum, 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 $1,496 and was $1,500 accrued on this
note during the twelve months ended December 31, 2009 and 2008,
respectively. This note is past due at December 31, 2009
and 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 $801
and $804 was accrued on this note during the twelve months ended
December 31, 2009 and 2008, respectively. This note is past due
at December 31, 2009 and 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 $801
and $804 was accrued on this note during the twelve months ended
December 31, 2009 and 2008, respectively. This note is past due
at December 31, 2009 and 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 $801 and $804 was accrued on this note during the twelve
months ended December 31, 2009 and 2008, respectively. This note is
past due at December 31, 2009 and 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 $801
and $804 was accrued on this note during the twelve months ended
December 31, 2009 and 2008, respectively. This note is past due
at December 31, 2009 and 2008.
|
10,000
|
10,000
|
|
Convertible note payable in the
amount of $8,000 to Adrian Neilan dated March 11, 2004. The note bears
interest at the rate of 8% per annum, 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 $639 and $641 was
accrued on this note during the twelve months ended December 31, 2009, and
2008, respectively. This note is past due at
December 31, 2009 and 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
$401 and $402 was accrued on this note during the twelve months ended
December 31, 2009 and 2009, respectively. This note is past due at
December 31, 2009 and 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. 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 $11,670 and $18,049 was accrued on
this note during the twelve months ended December 31, 2009 and 2008,
respectively. In April 2009, the noteholder agreed to waive the
default interest rate of 15%, and the note resumed accruing interest at
the rate of 8% per annum. Also in April 2009, the noteholder
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. 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 $4,870 and $4,512 was accrued on this note during
the twelve months ended December 31, 2009 and 2009,
respectively. In April 2009, the noteholder agreed to waive the
default interest rate of 15%, and the note resumed accruing interest at
the rate of 8% per annum. During the year ended December
31, 2009, the noteholder agreed to extend the maturity date until February
15, 2010.
|
30,000
|
30,000
|
||||||
|
Convertible
note payable in the original amount of $25,000 to Asher Brand, dated
August 25, 2005. We did not meet certain of our obligations under the loan
documents relating to this issuance. These lapses include not
reserving the requisite number of treasury shares, selling subsequent
securities without offering a right of first refusal, not complying with
reporting obligations, not having our common shares quoted on the OTC:BB
and not timely registering certain securities. This note was in
technical default as of November 13, 2005. The note originally
carried interest at the rate of 8% per annum, and was due in full on
August 25, 2007. Upon default, the note’s interest rate increased to 15%
per annum and the note became immediately due The note is convertible into
common stock of the Company at a conversion of $0.005 per share. 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 $1,858 and $3,382 was accrued on this
note during the twelve months ended December 31, 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 year ended December 31, 2009,
the noteholder converted $2,000 of principal and $1,058 of accrued intret
into common stock. In April 2009, the noteholder agreed to waive the
default interest rate of 15%, and the note resumed accruing interest at
the rate of 8% per annum. Also in April 2009, the noteholder
agreed to extend the maturity date of this note until January 1,
2010.
|
18,000
|
23,000
|
|
Convertible
note payable in the original amount of $25,000 to Momona Capital, dated
August 25, 2005. We did not meet certain of our obligations under the loan
documents relating to this issuance. These lapses include not
reserving the requisite number of treasury shares, selling subsequent
securities without offering a right of first refusal, not complying with
reporting obligations, not having our common shares quoted on the OTC:BB
and not timely registering certain securities. This note was in
technical default at November 13, 2005. The note originally
carried interest at the rate of 8% per annum, and was due in full on
August 25, 2007. Upon default, the note’s interest rate increased to 15%
per annum and the note became immediately due The note is convertible into
common stock of the Company at a conversion of $0.005 per share . 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 $3,747 and $3,355 was accrued on this note during the
twelve months ended December 31, 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. In April 2009,
the noteholder agreed to waive the default interest rate of 15%, and the
note resumed accruing interest at the rate of 8% per
annum. Also in April 2009, 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. 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 $582 and $990 was accrued on this note
during the twelve months ended December 31, 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. In April 2009, the
noteholder agreed to waive the default interest rate of 15%, and the note
resumed accruing interest at the rate of 8% per annum. Also in
April 2009, the noteholder agreed to extend the maturity date of this note
until January 1, 2010.
|
6,000
|
6,000
|
|
Note
payable in the amount of $120,000 to Alpha Capital, dated February 7,
2006. The originally carried interest at the rate of 15% per annum, and
was originally due in full on February 7, 2007. The Company 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 $95,588 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 24,000,000 shares of
common stock at $0.0115 per share; 6,000,000shares 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 $19,748and $24,065 was accrued
on this note during the twelve months ended December 31, 2009 and 2008,
respectively. In January 2009, the noteholder agreed to extend the
maturity date of this note to April 16,
2009. In April 2009, the noteholder agreed to
waive the default interest rate of 15%, and the note resumed accruing
interest at the rate of 8% per annum. Also in April 2009, the
noteholder agreed to extend the maturity date of this note until April 16,
2009. This note is past due at December 31,
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 March 12, 2008, the Company
extended this note to March 4, 2009. As consideration for the
extension of this note, 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 $2,917 and $4,512 was accrued on this note during the twelve
months ended December 31, 2009 and 2008, respectively. In
April 2009, the noteholder agreed to waive the default interest rate of
15%, and the note resumed accruing interest at the rate of 8% per
annum. Also in April 2009, the noteholder agreed to extend the
maturity date until February 15, 2010.
|
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; $70,999 and $18,945 of
this discount was amortized to interest expense during the year ended
December 31, 2009 and 2009, respectively. Interest in the amount of
$6,002 and $6,019 was accrued on this note during the twelve
months ended December 31, 2009 and 2008,
respectively.
|
75,000
|
75,000
|
||||||
|
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,
and $58,464 for the year ended December 31, 2008 for 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 $10,270 and
$7,171 was accrued on these notes during the twelve months ended December
31, 2009 and 2008, respectively.
|
130,500
|
117,000
|
||||||
|
Note
payable in the amount of $10,000 to Alpha Capital, dated May 19, 2006. The
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
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 $1,620and
$2,005 was accrued on this note during the twelve months ended December
31, 2009 and 2008, respectively. In April 2009, the noteholder
agreed to waive the default interest rate of 15%, and the note resumed
accruing interest at the rate of 8% per annum. Also in April
2009, the noteholder agreed to extend the maturity date until January 1,
2010.
|
10,000
|
10,000
|
|
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 year
ended December 31, 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
$1,326 and $2,269 was capitalized to this note during the
twelve months ended December 31, 2009 and 2008,
respectively. Principal and interest in the amounts of $6,690
were paid on this note during the twelve months ended December 31, 2009
and 2008.
|
10,723
|
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 $11,428 amortization for
the year ended December 31, 2009. Interest in the
aggregate amount of $15,744 was accrued on this note during the year ended
December 31, 2009. During the year ended December 31, 2009, the
Company made principal payments on this note in the amount of
$16,000.
|
184,000
|
200,000
|
||||||
|
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 re convertible into shares of common stock of the
Company at a rate of $0.005 per share. The Company calculated a
discount to the note in the amount of $230,000, and recorded $11,428 and
$0 amortization for this discount during the year ended December 31, 2009
and 2008, respectively. Interest in the aggregate amount of
$18,350 was accrued on this note during the year ended December 31,
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 are convertible into
shares of common stock of the Company at a rate of $0.005 per
share. The Company calculated a discount to the note in the
amount of $38,000, and recorded $1,888 and $0 amortization for this
discount during the year ended December 31, 2009 and 2008,
respectively. Interest in the aggregate amount of $5,681 was
accrued on this note during the year ended December 31,
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 are convertible into shares of common stock of the
Company at a rate of $0.005 per share. The Company calculated a
discount to the note in the amount of $25,310, and recorded $1,258 and $0
amortization for this discount during the year ended December 31, 2009 and
2008, respectively. Interest in the aggregate amount of $2,017
was accrued on this note during the year ended December 31,
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 interestare convertible into shares of common stock of the
Company at a rate of $0.005 per share. The Company calculated a
discount to the note in the amount of $25,310, and recorded $1,258 and $0
amortization for this discount during the year ended December 31, 2009 and
2008, respectively. Interest in the aggregate amount of $2,017
was accrued on this note during the year ended December 31,
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 Lance 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 are convertible into shares of common stock of the
Company at a rate of $0.005 per share. The Company calculated a
discount to the note in the amount of $10,124, and recorded $503 and $0
amortization for this discount during the year ended December 31, 2009 and
2008, respectively. Interest in the aggregate amount of $811
was accrued on this note during the year ended December 31,
2009.
|
10,124 | - | ||||||
|
|
$ | 1,781,967 | $ | 1,481,087 |
|
Note
|
Unamortized
|
Net
of
|
||||||||||
|
December
31, 2009:
|
Amount
|
Discounts
|
Discount
|
|||||||||
|
Notes
payable - current portion
|
$
|
1,014,907
|
$
|
(96,000
|
)
|
$
|
918,907
|
|||||
|
Notes
payable - related parties, current portion
|
345,500
|
-
|
345,500
|
|||||||||
|
Notes
payable
|
421,560
|
(393,842
|
)
|
27,718
|
||||||||
|
Total
|
$
|
1,781,967
|
$
|
(489,841
|
)
|
$
|
1,292,126
|
|||||
|
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
|
|||||
|
Twelve
months ended
|
||||||||
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Discount
on Notes Payable amortized to interest expense:
|
$
|
118,001
|
$
|
78,137
|
||||
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) and FASB ASC 815-40-05 (“ASC 815-40-05”, formerly referred to as
EITF 00-19). 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
December 31, 2009 and 2008, the Company had outstanding $1,771,244 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 $1,384,992 and $1,150,000 at
December 31, 2009 and 2008, respectively. The fair value of these
embedded conversion options were estimated at December 31, 2009 using the
Black-Scholes option pricing model with the following
assumptions: risk free interest rate of 0.20%; expected dividend
yield of 0%; expected option life of 10; and volatility of
302.87%. 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 years ended December 31, 2009 and 2008, the Company recorded a gain
of $83,492 and a loss of $182,583, 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 years ended December 31, 2009 and 2008,
conversion option liabilities in the amounts of $18,360 and $8,800 were
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”). 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 460-50-40 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.
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 is 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 year ended December 31, 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 agreed to have the original interest rate of 8%
per annum.
Also
during the year ended December 31, 2009, the Company negotiated further
extensions of its notes payable in the aggregate amount of $517. The
company extended the maturity dates to January 1, 2010.
During
the year ended December 31, 2009, the Company negotiated the extension of its
notes payable in the aggregate amount of $138,000. The Company
extended the maturity date of these notes until February 15, 2010.
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 at December 31, 2009 and 2008:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Number
of conversion options outstanding
|
346,248,800
|
285,000,000
|
||||||
|
Value
at December 31
|
$
|
1,384,992
|
$
|
1,150,000
|
||||
|
Number
of options issued during the year
|
68,448,800
|
69,400,000
|
||||||
|
Value
of options issued during the year
|
$
|
336,844
|
$
|
364,079
|
||||
|
Number
of options exercised or underlying
|
||||||||
|
notes
paid during the year
|
7,200,000
|
1,600,000
|
||||||
|
Value
of options exercised or underlying
|
||||||||
|
notes
paid during the year
|
$
|
18,360
|
$
|
8,800
|
||||
|
Revaluation
gain (loss) during the year
|
$
|
83,492
|
|
$
|
(182,583
|
)
|
||
|
Black-Scholes
model variables:
|
||||||||
|
Volatility
|
302.87%
to 393.23
|
%
|
193.7%
to332.7
|
%
|
||||
|
Dividends
|
0
|
0
|
||||||
|
Risk-free
interest rates
|
0.20%
- 0.43
|
%
|
0.27%
-2.41
|
%
|
||||
|
Term
(years)
|
1.00
- 10.00
|
1.00
– 10.00
|
||||||
9. RELATED
PARTY TRANSACTIONS
For the
year ended December 31, 2009:
The
Company issued three convertible notes payable in the aggregate amount of
$13,500 for additional salary due to the Company’s Chief Executive Officer,
convertible at the rate of $0.005 per share into an aggregate 2,700,000 shares
of common stock.
The
Company issued 2,000,000 options to purchase additional shares of common stock
to two non-employee directors.
The
Company committed to issuing 1,000,000 shares of common stock to each of its two
non-employee directors, for a total issuance of 2,000,000 shares of common
stock. The fair value of these shares in the amount of $8,000 was
charged to operations during the year ended December 31, 2009. As of
December 31, 2009, these shares have not been issued and are shown in accrued
liabilities due to related parties on the Company’s balance sheet.
Pursuant
to the terms of an employment agreement, the Company is committed to
make a cash payment of $4,830 and issue 966,000 shares of common stock to the
Company’s President. The fair value of these shares in the amount of $4,830 was
charged to operations during the year ended December 31, 2009. The
total value of the bonus of $9,660 is recorded on the Company’s balance sheet as
a liability to related parties as of December 31, 2009.
Pursuant
to the terms of an employment agreement, the Company is committed to make a cash
payment of $4,550 and issue 910,000 shares of common stock to the Company’s
Chief Executive Officer. The fair value of these shares in the amount of $4550
was charged to operations during the year ended December 31, 2009. The total
value of the bonus of $9,100 is recorded on the Company’s balance sheet as a
liability to related parties as of December 31, 2009.
For the
year ended December 31, 2008:
The
Company issued twelve convertible notes payable in the aggregate amount of
$54,000 for additional salary due to the Company’s Chief Executive
Officer;
The
Company added a convertibility feature valued at $75,000 to a note payable to a
board member in the amount of $75,000 as consideration for extending the term of
the note to December 31, 2009;
The Company
issued options to purchase 20,000,000 shares of common stock at a price of
$0.007 per share to officers and directors.
The
Company committed to issue 3,000,000 shares of common stock to the Company’s
President as a bonus for past service. As of December 31, 2008, the
fair value of these shares in the amount of $24,000 was charged to
operations. As of December 31, 2008 these share have not been issued
and are shown on the balance sheet in accrued liabilities-related
parties.
10.
PENALTY FOR LATE REGISTRATION OF SHARES
At
December 31, 2008, the Company had accrued liabilities for the issuance of a
total of 110,280,000 shares (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. During the twelve months
ended December 31, 2008, the Company revalued these
110,280,000 Penalty Shares, resulting in a loss of
$220,564. The liability carried on the Company’s balance sheet at
December 31, 2008 representing the value of the Penalty Shares is
$551,400.
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 year ended December 31, 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, expired on
November 27, 2008. At December 31, 2009, 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 $2,300,000, 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 December 31, 2009, we have provided a valuation allowance
reducing the net realizable benefits of these deductible differences to $0 at
December 31, 2009. The amount of the deferred tax asset considered
realizable could change in the near term if projected future taxable income is
realized. Due to significant changes in the Company's ownership, the
Company's future use of its existing net operating losses may be
limited.
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:
|
Twelve
Months Ended December 31, 2009
|
Twelve
Months Ended December 31, 2008
|
|||||||
|
Computed
“expected” income tax expense at approximately
34%
|
$
|
288,000
|
$
|
(818,000
|
)
|
|||
|
Change
in valuation allowance
|
(288,000
|
)
|
818,000
|
|||||
|
$
|
-
|
$
|
-
|
|||||
The
valuation allowance is primarily composed of the net operating loss of the
Company.
12. COMMON
STOCK
During
the year ended December 31, 2009, the Company had the following
transactions:
The
Company issued 600,000 shares of common stock to employees for services
previously provided. The fair value of these shares in the amount of $1,200 was
charged to operations during the year ended December 31, 2009.
During
the year ended December 31, 2009, the Company issued 5,000,00 shares of common
stock to a consultant for services provided. The fair value of these
shares in the amount of $10,000 was charged to operations during the year ended
December 31, 2009.
During
the year ended December 31, 2009, the Company issued 3,600,000 hares of common
stock to an investor for the conversion of a note payable in the amount of
$18,000.
During
the year ended December 31, 209, 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 charged to operations during the year ended December 31,
2009.
During
the year ended December 31, 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.
During
the year ended December 31, 2008, the Company had the following
transactions:
The
Company issued 1,789,400 shares of common stock for the conversion of a note
payable and accrued interest in the amount of $8,947.
The
Company committed to issue 3,000,000 shares of common stock to the Company’s
President as a bonus for past service. As of December 31, 2008, the
fair value of these shares in the amount of $24,000 was charged to
operations. As of December 31, 2008 these share have not been issued
and are shown on the balance sheet in accrued liabilities-related
parties.
The
Company committed to issue 5,000,000 shares of common stock to a consultant for
services. During the year ended December 31, 2008, the Company
charged to operations the fair value of these shares in the amount of
$10,000. As of December 31, 2008, these shares have not been issued
and are shown on the balance sheet in accrued liabilities.
Warrants
The
following table summarizes the significant terms of warrants outstanding at
December 31, 2009. These warrants may be settle 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:
|
Weighted
|
Weighted
|
||||||||||||||||||||
|
Weighted
|
average
|
average
|
|||||||||||||||||||
|
average
|
exercise
|
exercise
|
|||||||||||||||||||
|
Range
of
|
Number
of
|
remaining
|
price
of
|
Number
of
|
price
of
|
||||||||||||||||
|
exercise
|
warrants
|
contractual
|
outstanding
|
warrants
|
exercisable
|
||||||||||||||||
|
prices
|
outstanding
|
life
(years)
|
warrants
|
exercisable
|
warrants
|
||||||||||||||||
|
$
|
0.0050
|
179,700,000
|
1.06
|
$
|
0.0050
|
179,700,000
|
$
|
0.0050
|
|||||||||||||
|
$
|
0.0110
|
18,500,000
|
1.74
|
$
|
0.0110
|
18,500,000
|
$
|
0.0110
|
|||||||||||||
|
$
|
0.0120
|
1,000,000
|
3.71
|
$
|
0.0120
|
-
|
$
|
-
|
|||||||||||||
|
$
|
0.0115
|
74,000,000
|
1.74
|
$
|
0.0115
|
74,000,000
|
$
|
0.0115
|
|||||||||||||
|
273,200,000
|
1.30
|
$
|
0.0072
|
272,200,000
|
$
|
0.0072
|
|||||||||||||||
Transactions
involving warrants are summarized as follows:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
Warrants
outstanding at January 31, 2009
|
189,000,000 | $ | 0.007 | |||||
|
Granted
|
84,200,000 | 0.008 | ||||||
|
Exercised
|
- | |||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Warrants
outstanding at December 31, 2008
|
273,200,000 | $ | 0.007 | |||||
|
Exercisable
at December 31, 2008
|
272,200,000 | $ | 0.007 | |||||
|
Not
exercisable at December 31, 2008
|
1,000,000 | $ | 0.012 | |||||
|
Granted
|
- | $ | - | |||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Warrants
outstanding at December 31, 2009
|
273,200,000 | $ | 0.007 | |||||
|
Exercisable
at December 31, 2009
|
272,200,000 | $ | 0.007 | |||||
|
Not
exercisable at December 31, 2009
|
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.
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.
In
December 2009, the Company agreed to issue 1,000,000 options with five year
terms to purchase additional shares of the Company’s common stock to each on the
Company’s two non-employee directors pursuant to a board resolution for services
performed during the year ended December 31, 2009. The fair value of
these shares in the amount of 7,993 was charged to operations during the year
ended December 31, 2009.
Also in
December 2009, the Company agreed to issue 8,000,000 options with five year
terms to purchase additional shares of common stock to each of the Company’s
common stock to each of the two non-employee directors for services related to
the year ending December 31, 2010. These options vest at the rate of
25% each quarter beginning March 31, 2010 and have exercise prices equal to the
closing price of the Company’s common stock on the vesting date plus a 20%
premium, but no lower than a price of $0.005 per share.
The
following table summarizes the changes outstanding and the related prices for
the shares of the Company’s common stock issued to employees of the
Company:
|
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
|
1.89
|
$
|
0.005
|
15,000,000
|
$
|
0.005
|
|||||||||||||
|
$
|
0.007
|
22,000,000
|
3.41
|
$
|
0.007
|
22,000,000
|
$
|
0.007
|
|||||||||||||
|
NA
|
16,000,000
|
NA
|
NA
|
0
|
NA
|
||||||||||||||||
|
53,000,000
|
2.95
|
$
|
0.006
|
37,000,000
|
$
|
0.006
|
|||||||||||||||
Options
not vested are not exercisable.
Transactions
involving stock options issued to employees are summarized as
follows:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
Options
outstanding at December 31, 2007
|
15,500,000 | $ | 0.021 | |||||
|
Granted
|
20,000,000 | $ | 0.007 | |||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at December 31, 2008
|
35,500,000 | $ | 0.013 | |||||
|
Non-vested
at December 31, 2008
|
100,000 | $ | 0.500 | |||||
|
Vested
at December 31, 2008
|
35,400,000 | $ | 0.012 | |||||
|
Granted
|
2,000,000 | $ | 0.007 | |||||
|
Granted
|
16,000,000 |
NA
|
||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
(500,000 | ) | 0.50 | |||||
|
Options
outstanding at December 31, 2009
|
53,000,000 | NA | ||||||
|
Non-vested
at December 31, 2009
|
16,000,000 | NA | ||||||
|
Vested
at December 31, 2009
|
37,000,000 | $ | 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 December 31, 2009 and 2008, the
Company has no freestanding derivative financial instruments that require net
cash settlement or give the counterparty a choice of net cash settlement or
settlement in shares.
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 815-40-15, “If a
contract is reclassified from permanent or temporary equity to an asset or a
liability, the change in fair value of the contract during the period the
contract was classified as equity should be accounted for as an adjustment to
stockholders' equity." Accordingly, during the year ended December 31, 2005, the
Company charged the amount of $10,374,536 to stockholders' equity. At the same
time, the Company changed the way in which it accounts for the beneficial
conversion feature of convertible notes payable (see note 8).
The
accounting guidance shows that the warrants and 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 twelve months ended December 31, 2009 and 2008, the Company recognized
a gain of $756,434 and a loss of $582,541, respectively, for the change in the
fair value of the warrant liability and recorded the change in operations
during the twelve months ended December 31, 2009 and
2008. During the twelve months ended December 31, 2009 and 2008,
the Company recognized a gain of $38,058 and a loss of $27,119, respectively,
for the change in the fair value of the stock option liability and recorded
these amounts in operations during the twelve months ended December 31,
2009 and 2008.
The
Company valued warrants using the Black-Scholes valuation model utilizing the
following variables:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Volatility
|
302.87%
- 386.12
|
%
|
203.6%
- 332.7
|
%
|
||||
|
Dividends
|
$
|
0
|
$
|
0
|
||||
|
Risk-free
interest rates
|
0.18%
- 0.43
|
%
|
0.27-2.41
|
%
|
||||
|
Term
(years)
|
0.15
- 5.00
|
1.15-5.00
|
||||||
The
Company valued stock options using the Black-Scholes valuation model utilizing
the following variables:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Black-Scholes
model variables:
|
||||||||
|
Volatility
|
302.87%
to 386.12%
|
203.7%
to 332.7%
|
||||||
|
Dividends
|
$
|
0
|
$
|
0
|
||||
|
Risk-free
interest rates
|
0.18%
-0.43
|
%
|
0.27%
-2.41
|
%
|
||||
|
Term
(years)
|
0.15
- 5.00
|
0.37-5.00
|
||||||
Insufficient Authorized but
Unissued Shares of Common Stock
The
Company has a potential obligation to issue 805,007,960 and 825,964,600
shares of common stock upon the conversion of convertible notes and
accrued interest, warrants and penalty shares issuable at December 31, 2009 and
2008, respectively. The Company had 194,638,638 and
183,577,038 shares of common stock outstanding at December 31,
2009 and 2008, respectively, and 500,000,000 shares of
common stock authorized at December 31, 2009 and 2008. The
Company’s potential obligation to issue shares has exceeded its shares
authorized by 499,646,598 and 509,541,638 shares at December 31, 2009 and
2008, respectively. The Company has agreed that it will take the
necessary steps to increase its authorized shares once it has 425,000,000 shares
outstanding.
13.
EMPLOYMENT AGREEMENTS
SAM
KLEPFISH
In 2008,
the Company and its Chief Executive Officer Sam Klepfish were parties
to an oral agreement which provided, among other things:
|
●
|
Mr.
Klepfish is to receive a monthly salary in the amount of
$10,028
|
|
●
|
Mr.
Klepfish received an additional monthly salary of $4,500
which is not paid in cash, but is recorded on a monthly basis as a
convertible note payable. These notes payable are convertible into common
stock of the Company at a rate of $0.005 per
share.
|
On
December 31, 2008, the registrant entered into one year employment agreements
with Sam Klepfish. The agreement provides for, among other things,
(i) average annual salary of $130,000; (ii) bonuses (payable one-half
in cash and one-half in stock) in the range of 7%-50% of salary based upon the
registrant meeting certain revenue and gross margin milestones; (iii)
four month severance upon termination, and (iv) restrictions on confidentiality,
competition and solicitation.
On
January 6, 2010, the registrant entered into a new agreement with Mr. Klepfish
(note 16).
JUSTIN
WIERNASZ
In 2008,
Mr. Wiernasz was under an employment agreement dated May 18, 2007
that expired on September 13, 2008 pursuant to which he was compensated at an
annual rate of $120,000. The agreement also provided for the earning of a bonus
of 10% of his salary, up to 50%, for each $100,000 of incremental profits we
make over the previous year.
On
January 22, 2008, our Board approved the grant of an aggregate of 3 restricted
million shares and 5 million in options exercisable for five years at an
exercise price of $0.007 per share to Mr. Wiernasz, upon his appointment as
President of Innovative Food Holdings, all of which vested on December 31,
2008.
On
December 31, 2008, the registrant entered into one year employment agreements
with Justin Wiernasz . The agreement provide for, among other things, (i)
average annual salary of $130,000; (ii) bonuses (payable one-half in cash and
one-half in stock) in the range of 7%-50% of salary based upon the registrant
meeting certain revenue and gross margin milestones; (iii) four month severance
upon termination; and (iv) restrictions on confidentiality, competition and
solicitation.
On
January 6, 2010, the registrant entered into a new agreement with Mr. Wiernasz
(note 16).
14.
COMMITMENTS AND CONTINGENCIES
On
October 17, 2008, we entered into a three-year lease with Grand Cypress
Communities, Inc. for new premises consisting of 4,000 square feet at 3845 Beck
Blvd., Naples, Florida. The commencement date of the lease
is January 1, 2009. The annual rent and fees under the lease is
approximately $54,000. The lease provides for a buyout option at the
end of the lease with credit towards the purchase price received for the rental
payments made during the term of the lease.
At
December 31, 2009, commitments for minimum rental payments were as
follows:
|
For the twelve months
ended:
|
||||
|
December
31, 2010
|
$
|
54,000
|
||
|
December
31, 2011
|
54,000
|
|||
|
Thereafter
|
-
|
|||
|
Total
|
$
|
108,000
|
||
15. MAJOR
CUSTOMER
The
Company’s largest customer, US Foodservice, Inc. and its affiliates,
accounted for approximately 96% and 97% of total sales in the
years ended December 31, 2009 and 2008, respectively. A contract
between our subsidiary, Food Innovations, and USF expires in December
2012. We believe that although a significant portion of our sales
occur through USF and it’s affiliates, the success of the program is less
contingent on a contract then on the actual performance and quality of our
products.
16.
SUBSEQUENT EVENTS
The
Company has evaluated events subsequent to December 31, 2009 to assess the need
for potential recognition or disclosure in this report. Such events were
evaluated through March 26, 2010, the date these financial statements were
issued and has disclosed such items in Note 16, “Subsequent Events”
herein.
On
January 6, 2010, the Company entered into employment agreements with each of Sam
Klepfish, its Chief Executive Officer, and Justin Wiernasz, its
President. The agreements are effective as of January 1, 2010 and
have a term of three years. The annual salary under the agreements
range from a base of $151,000 in 2010 and can increase to a maximum of $181,000
in 2012, provided certain revenue targets are met. The agreements
also provide for an annual bonus (payable one-half in cash and one-half in
shares of the Company’s common stock) ranging from 7% to 50% of the base salary
depending upon the amount of incremental year-over-year increase in
revenues. The agreements contain provisions permitting the Company to
terminate the executives for “cause” as defined in the agreements as well as
restrictions with respect to confidentiality, competition, and
solicitation.
The
Company’s board of directors, in recognition of the performance of Justin
Wiernasz, the Company’s President, awarded him a bonus as follows: eight million
stock options, with each option having the right to purchase one share of common
stock. The options, which are exercisable for five years from the
date of vesting, vest at a rate of two million options per quarter, on the last
day of each quarter of 2010, provided Mr. Wiernasz is still an executive officer
of the Company on such date. The exercise price of each option is an
amount equal to a 20% premium to the closing price of the Company’s common stock
on the primary market upon which it trades or is quoted on the last trading day
of each quarter, but no lower than a price of $0.005 per share. These options
will be charged to expense over the vested period.
Subsequent
to December 31, 2009, the Company issued an aggregate 4,750,000 shares of common
stock for the conversion of notes payable.
None.
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Under the
supervision and with the participation of our principal executive officer and
principal financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act). Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
an issuer in the reports that it files or submits under the Act is accumulated
and communicated to the issuer’s management, including its principal executive
and principal financial officers, or persons performing similar functions as
appropriate to allow timely decisions regarding required
disclosure. We concluded that our disclosure controls and procedures
as defined in Rule 13a-15(e) under the Exchange Act were effective as of
December 31, 2009 to ensure that information required to be disclosed in
reports we file or submit under the Exchange Act is recorded, processed, and
summarized and reported within the time periods specified in SEC rules and
forms.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) and 15d-(f) under
the Exchange Act. Our internal control over financial reporting are designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for external purposes
in accordance with U.S. generally accepted accounting principles. Our internal
control over financial reporting includes those policies and procedures
that:
(i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
(ii) provide
reasonable assurance that transactions are recorded as necessary to permit the
preparation of our consolidated financial statements in accordance with U.S.
generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and
directors; and
(iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the consolidated financial statements.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009. In making this assessment, management
used the criteria set forth in Internal Control Over Financial Reporting —
Guidance for Smaller Public Companies issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Subject
to the inherent limitations described in the following paragraph, our management
has concluded that our internal control over financial reporting was effective
as December 31, 2009 at the reasonable assurance level.
Inherent
Limitations Over Internal Controls
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations, including
the possibility of human error and circumvention by collusion or overriding of
controls. Accordingly, even an effective internal control system may not prevent
or detect material misstatements on a timely basis. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the
degree of compliance with the policies or procedures may
deteriorate. Accordingly, our internal controls and procedures are
designed to provide reasonable assurance of achieving their
objectives.
Changes
in Internal Control over Financial Reporting
We have
made no change in our internal control over financial reporting during the last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Attestation
Report of the Registered Public Accounting Firm
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our independent
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this annual report on Form
10-K.
None.
PART
III
Set forth
below are the directors and executive officers of our Company, their respective
names and ages, positions with our Company, principal occupations and business
experiences during at least the past five years.
|
Name
|
Age
|
Position
|
||||
|
Sam
Klepfish
|
39
|
Chief
Executive Officer
|
||||
|
Justin
Wiernesz
|
44
|
President
|
||||
|
Michael
Ferrone
|
63
|
Director
|
||||
|
Joel
Gold
|
69
|
Director
|
||||
Directors
Sam
Klepfish
From
November 2007 to present Mr. Klepfish is the CEO of Innovative Food Holdings and
it’s subsidiary Food Innovations. Since March 2006 Mr. Klepfish was
the interim president of the Company and it’s subsidiary.
Since February 2005 Mr. Klepfish was also a Managing Partner
at ISG Capital, a merchant bank. From May 2004 through February
2005 Mr. Klepfish served as a Managing Director of Technoprises,
Ltd. From January 2001 to May 2004 he was a corporate finance
analyst and consultant at Phillips Nizer, a New York law firm. Since
January 2001 Mr. Klepfish has been a member of the steering committee of
Tri-State Ventures, a New York investment group. From 1998 to December 2000, Mr.
Klepfish was an asset manager for several investors in small-cap
entities
Joel
Gold, Director
Joel Gold
is currently head of investment banking of Andrew Garrett, Inc., an
investment-banking firm located in New York City, a position he has held since
October 2004. From January 2000 until September 2004, he served as
Executive Vice President of Investment Banking of Berry Shino Securities, Inc.,
an investment banking firm also located in New York City. From January 1999
until December 1999, he was an Executive Vice President of Solid Capital
Markets, an investment-banking firm also located in New York City. From
September 1997 to January 1999, he served as a Senior Managing Director of
Interbank Capital Group, LLC, an investment banking firm also located in New
York City. From April 1996 to September 1997, Mr. Gold was an Executive
Vice President of LT Lawrence & Co., and from March 1995 to April 1996, a
Managing Director of Fechtor Detwiler & Co., Inc., a representative of the
underwriters for the Company’s initial public offering. Mr. Gold was a
Managing Director of Furman Selz Incorporated from January 1992 until March
1995. From April 1990 until January 1992, Mr. Gold was a Managing Director
of Bear Stearns and Co., Inc. (“Bear Stearns”). For approximately 20 years
before he became affiliated with Bear Stearns, he held various positions with
Drexel Burnham Lambert, Inc. He is currently a director, and serves on the
Audit and Compensation Committees, of Geneva Financial Corp., a publicly held
specialty, consumer finance company.
Michael
Ferrone, Director
Michael
Ferrone was Executive Producer and Producer, Bob Vila TV Productions, Inc from
its founding in 1989 to 2000. Michael co-created and developed the T.V. show,
"Bob Vila's Home Again". As Executive Producer, Michael managed all aspects of
creation, production, and distribution of the Show. By integrating brand
extension and sponsor relations, Michael managed the interrelationships between
Bob Vila and business partners including senior executives at Sears, NBC, CBS,
A&E, HGTV, General Motors, and Hearst Publications. In 2002 he co-founded
Building Media, Inc., (BMI) a multimedia education, marketing and
production company committed to promoting best building practices through better
understanding of building science principles. As of 2005, BMI operates as an
independently managed, wholly owned subsidiary of DuPont™.
Executive
Officers
Justin
Wiernasz, President
Effective
on July 31, 2008, Mr. Justin Wiernasz, age 42, was promoted to the position of
President of Innovative Food Holdings, Inc. Prior thereto he
was the Executive Vice President of Marketing and Sales and Chief Marketing
Officer of our operating subsidiary, Food Innovations, Inc. since May 2007 and
the President of Food Innovations and our Chief Marketing Officer since December
2007. Prior thereto, he was at U.S. Foodservice, our largest
customer, for 13 years. From 2005 to 2007 he was the Vice President of Sales
& Marketing, U.S. Foodservice, Boston, and prior thereto, from 2003 to 2005
he was a National Sales Trainer at U.S. Foodservice, Charleston SC, from 1996 to
2003 he was the District Sales Manager at U.S. Foodservice, Western
Massachusetts and from 1993 to 1996 he was Territory Manager, U.S. Foodservice,
Northampton, Easthampton & Amherst, MA. Prior to that from 1989 to 1993 he
was the owner and operator J.J.’s food and spirit, a 110 seat restaurant.
Key
Employees
John
McDonald
Mr.
McDonald, age 47, has been the Chief Information Officer of IVFH
since November 2007. From 2004 through 2007, Mr. McDonald
worked as a consultant with Softrim Corporation of Estero, Florida where he
created custom applications for a variety of different industries and assisted
in building interfaces to accounting applications. Since 1999 he has also been
President of McDonald Consulting Group, Inc. which provide consulting on
accounts receivable, systems and accounting services.
Z.
Zackary Ziakas
Mr.
Ziakas was the Chief Operating Officer of Innovative Food Holdings and our
subsidiary, Food Innovations, Inc., and held that position from September 2004
through July 2008. From November 2001 through September 2004 Mr.
Ziakas was the V.P. of Logistics of our subsidiary Food Innovations.
Prior to that Mr. Ziakas was a manager at Mail Boxes Etc.
Effective
July 31, 2008, Mr. Ziakas resigned his position as our Chief Operating Officer
and assumed the non-executive officer position of Vice President of
Procurement. Mr. Ziakas’ existing employment agreement has been
terminated and he will continue working for us as an employee-at–will with an
annual salary of $105,000.
THE COMMITTEES
The Board
of Directors does not currently have an Audit Committee, a Compensation
Committee, a Nominating Committee or a Governance Committee. The usual functions
of such committees are performed by the entire Board of Directors. We
are currently having difficulties attracting additional qualified directors,
specifically to act as the audit committee financial expert, inasmuch as
we have only limited resources to purchase D & O
insurance. However, we believe that at least a majority of our
directors are familiar with the contents of financial statements.
Attendance
at Meetings
During
2009 the Board of Directors met one time and all Directors attended the meeting
and the Board also took action through written consent another three
times.
We are
not currently subject to the requirements of any stock exchange with respect to
having a majority of “independent directors” although we believe that we meet
that standard inasmuch as Messrs. Gold and Ferrone are “independent” and only
Mr. Klepfish, by virtue of being our Chief Executive Officer, is not
independent.
Code
of Ethics
We have
adopted a Code of Ethics that applies to each of our employees, including our
principal executive officer and our principal financial officer, as well as
members of our Board of Directors. A copy of such Code has been publicly filed
with, and is available for free from, the Securities and Exchange
Commission.
Section
16(a) Beneficial Ownership Reporting Compliance
During
2009, Mr. Klepfish did not file 3 Forms 4 to report the issuance of three
convertible notes received in lieu of salary. In addition, Mr.
Weirnasz did not file one Form 4 to report the issuance of options to purchase
8,000,000 shares of common stock; Mr. Gold and Mr. Ferrone did not file two Form
4’s each to report the issuance of options to purchase 8,000,000 shares and
1,000,000 shares of common stock.
The
following table sets forth information concerning the compensation for services
in all capacities rendered to us for the year ended December 31, 2009, of our
Chief Executive Officer and our other executive officers whose annual
compensation exceeded $100,000 in the fiscal year ended December 31, 2009, if
any. We refer to the Chief Executive Officer and these other officers as the
named executive officers.
SUMMARY
COMPENSATION TABLE
|
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||
|
Sam
Klepfish
|
2009
|
$
|
143,500
|
(a)
|
$
|
9,100
|
(b)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
8,642
|
(c)
|
$
|
161,242
|
||||||||||||||
|
CEO
|
2008
|
$
|
184,000
|
(d)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
184,000
|
||||||||||||||||
|
2007
|
$
|
172,577
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
172,577
|
||||||||||||||||||
|
Justin
Wiernesz
|
2009
|
$
|
135,000
|
$
|
9,660
|
(e)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
144,660
|
||||||||||||||||
|
President
|
2008
|
$
|
114,000
|
$
|
-
|
$
|
24,000
|
(f)
|
$
|
10,000
|
(g)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
148,000
|
|||||||||||||||
|
2007
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||
|
(a)
|
Consists
of $130,000 cash salary paid and an additional $13,500 salary accrued,
which is convertible into shares of common stock at the election of Mr.
Klepfish at a rate of $0.005 per share.
|
|
(b)
|
Consists
of cash portion of $4,550 and 910,000 shares of common stock valued at
$0.005 per share.
|
|
(c)
|
Consists
of cash payments for health care benefits.
|
|
(d)
|
Consists
of $130,000 cash salary paid and an additional $54,000 salary accrued,
which is convertible into shares of common stock at the election of Mr.
Klepfish at a rate of $0.005 per share.
|
|
(e)
|
Consists
of a cash portion of $4,830 and 966,000 shares of common stock valued at a
price of $0.005 per share.
|
|
(f)
|
Consists
of 3,000,000 shares of common stock to be issued pursuant to an employment
agreement. .
|
|
(g)
|
Consists
of options to purchase 5,000,000 shares of the Company's common stock at a
price of $0.007 per
share.
|
Outstanding
Equity Awards at Fiscal Year-End as of December 31, 2009
| Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||
|
Name
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
(#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
($)
|
||||||||||||||||||||||||||||||
|
Justin
Wiernesz
|
- | 8,000,000 | (a) | 8,000,000 | - | (b) | - | (c) | - | - | - | - | |||||||||||||||||||||||||||
|
(a)
|
Options
vest at the rate of 25% each quarter beginning March 31,
2010.
|
|
(b)
|
Exercise
price is a 20% premium to the closing price of the Company’s common stock
on the date of vesting, but no lower than a price of $0.005 per
share.
|
|
(c)
|
Option
term is 5 years from the date of
vesting.
|
Director
Compensation
|
Name
|
Fees
Earned
or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
|
Joel
Gold
|
-
|
4,000
|
(a)
|
3,997
|
(b)
|
-
|
-
|
-
|
7,997
|
|||||||||||||||||||
|
Michael
Ferrone
|
-
|
4,000
|
(a)
|
3,997
|
(b)
|
-
|
-
|
-
|
7,997
|
|||||||||||||||||||
|
Sam
Klepfish
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
|
(a)
|
Consists
of 1,000,000 shares of common stock valued at a price of $0.004 per
share.
|
|
(b)
|
Consists
of 1,000,000 options to purchase shares of common stock at a price of
$0.007 per share. These options expire on December 31,
2014.
|
Employment
Agreements
Our
subsidiary, Food Innovations, has employment agreements with certain
officers and certain employees. The employment agreements
provide for salaries and benefits, including stock grants and extend up to five
years. In addition to salary and benefit provisions, the agreements
include defined commitments should the employer terminate the employee with or
without cause.
SAM
KLEPFISH
In 2008,
the Company and its Chief Executive Officer Sam Klepfish were parties
to an oral agreement which provided, among other things:
|
●
|
Mr.
Klepfish is to receive a monthly salary in the amount of
$10,028
|
|
●
|
Mr.
Klepfish received an additional monthly salary of $4,500
which is not paid in cash, but is recorded on a monthly basis as a
convertible note payable. These notes payable are convertible into common
stock of the Company at a rate of $0.005 per
share.
|
On
December 31, 2008, the registrant entered into one year employment agreements
with Sam Klepfish. The agreement provides for, among other things,
(i) average annual salary of $130,000; (ii) bonuses (payable one-half
in cash and one-half in stock) in the range of 7%-50% of salary based upon the
registrant meeting certain revenue and gross margin milestones; (iii)
four month severance upon termination, and (iv) restrictions on confidentiality,
competition and solicitation.
OnJanuary
6, 2010 (with an effective date of January 1, 2010), we entered into a three
year employment agreement with Sam Klepfish. The agreement provides
for, among other things, (i) average annual salary of $151,000 from January 1,
2010 through December 31, 2010, of which $6,500 shall be accrued until June 20,
2010, and then payable in equal weekly installments until said $6,500 is paid in
full by December 31, 2010; (ii) $165,000 per annum from January 1,
2011 through December 31, 2011, provided, however that the increase of $14,000
shall only take affect if the Company’s gross annual sales for 2010 are at least
$7.5 million; and (iii) the lesser of a 10% increase in salary above the salary
in 2011 or $181,000 per annum from January 1, 2012 through December 31, 2012,
provide, however the increase in 2012 shall only take effect if the Company’s
gross annual sales for 2011 are at least $7.5 million.
Mr.
Klepfish is also entitled to receive an annual bonus based upon the consolidated
aggregate incremental revenues of the Company (payable one-half in cash and
one-half in stock) in the range of 7%-50% of salary based upon the registrant
meeting certain revenue and gross margin milestones.
JUSTIN
WIERNASZ
In 2008,
Mr. Wiernasz was under an employment agreement dated May 18, 2007
that expired on September 13, 2008 pursuant to which he was compensated at an
annual rate of $120,000. The agreement also provided for the earning of a bonus
of 10% of his salary, up to 50%, for each $100,000 of incremental profits we
make over the previous year.
On
January 22, 2008, our Board approved the grant of an aggregate of 3 restricted
million shares and 5 million in options exercisable for five years at an
exercise price of $0.007 per share to Mr. Wiernasz, upon his appointment as
President of Innovative Food Holdings, all of which vested on December 31,
2008.
On
December 31, 2008, the registrant entered into one year employment agreements
with Justin Wiernasz . The agreement provide for, among other things, (i)
average annual salary of $130,000; (ii) bonuses (payable one-half in cash and
one-half in stock) in the range of 7%-50% of salary based upon the registrant
meeting certain revenue and gross margin milestones; (iii) four month severance
upon termination; and (iv) restrictions on confidentiality, competition and
solicitation.
On
January 6, 2010 (with an effective date of January 1, 2010 we entered
into a three year employment agreement with Mr. Wiernasz. The
agreement provides for, among other things, (i) average annual salary of
$151,000 from January 1, 2010 through December 31, 2010, of which $6,500 shall
be accrued until June 20, 2010, and then payable in equal weekly installments
until the $6,500 is paid in full by December 31, 2010; (ii) $165,000
per annum from January 1, 2011 through December 31, 2011, provided, however that
the increase of $14,000 shall only take affect if the Company’s gross annual
sales for 2010 are at least $7.5 million; and (iii) the lesser of a 10% increase
in salary above the salary in 2011 or $181,000 per annum from January 1, 2012
through December 31, 2012, provided, however, the increase in 2012 shall only
take effect if the Company’s gross annual sales for 2011 are at least $7.5
million.
Mr.
Wiernasz is also entitled to receive an annual bonus based upon the consolidated
aggregate incremental revenues of the Company (payable one-half in cash and
one-half in stock) in the range of 7%-50% of salary based upon the registrant
meeting certain revenue and gross margin milestones.
The
following table sets forth certain information as of March 8, 2010 with respect
to the beneficial ownership of our common stock by (1) each person known by us
to own beneficially more than 5% of the outstanding shares of our common stock,
(2) each of our directors, (3) each Named Officer, and (4) all our directors and
executive officers as a group. Unless otherwise stated, each person
listed below uses the Company’s address. Pursuant to SEC rules,
includes shares that the person has the right to receive within 60 days from
March 8, 2010.
|
Name
and Address of
|
Number
of Shares
|
Percent
of
|
||
|
Beneficial
Owners
|
Beneficially
Owned
|
Class
|
||
|
Sam
Klepfish
|
(1)
|
40,935,677
|
18.2%
|
|
|
Michael
Ferrone
|
(2)
|
81,595,674
|
36.7%
|
|
|
Joel
Gold
|
(3)
|
40,299,519
|
18.1%
|
|
|
Justin
Wiernasz
|
(4)
|
7,000,000
|
3.7%
|
|
|
Joseph
DiMaggio Jr.
|
(5)
|
14,800,000
|
8.0%
|
|
|
Christopher
Brown
|
(6)
|
15,000,000
|
8.1%
|
|
|
Wally
Giakas
|
(7)
|
23,676,359
|
11.4%
|
|
|
All
officers and directors as a whole (4
persons)
|
(8) |
169,830,870
|
55.1%
|
|
(1)
|
Includes
350,000 shares of common stock held by Mr. Klepfish; options to
purchase 10,000,000 shares of the Company's common stock, 26,100,000
shares issuable upon the conversion of notes payable; 4,485,677 shares
issuable upon the conversion of accrued interest. Does not
include 910,000 shares issuable as of December 31, 2009 as Compensation
for services performed in 2009, but not yet issued. Upon the
issuance of these shares, as well as an additional 5,966,000 shares
committed by the Company to be issued, Mr. Klepfish will beneficially own
18.0% of the outstanding shares.
|
||||||||||
|
(2)
|
Includes
44,020,000 shares of common stock held by Mr. Ferrone; 15,000,000 shares
issuable upon conversion of notes held by of Mr. Ferrone; 9,575,674
shares issuable upon conversion of
accrued interest; and options to purchase 13,000,000 shares
of the Company's common stock held by Mr. Ferrone. Does not
include 1,000,000 shares to be issued to Mr. Ferrone for services as
a board member in 2009, but not yet issued. Upon the issuance
of these shares, as well as an additional 5,876,000 shares committed by
the Company to be issued, Mr. Ferrone will beneficially own 36.1% of the
outstanding shares.
|
||||||||||
|
(3)
|
Includes
1,920,000 shares of common stock held by Mr. Gold; options to
purchase 13,000,000 shares of common stock; 16,000,000 shares issuable
upon conversion of notes payable held by Mr.Gold, and an additional
9,379,519 shares issuable upon conversion of accrued interest on
notes payable. Also includes 920,000 shares of common stock held by Mr.
Gold's spouse. Does not include 1,000,000 shares to be issued to Mr. Gold
for services as a board member in 2009, but not yet
issued. Upon the issuance of these shares, as well as an
additional 5,876,000 shares committed by the Company to be issued, Mr.
Gold will beneficially own 18.0% of the outstanding
shares.
|
||||||||||
|
(4)
|
Includes
options to purchase 7,000,000 shares of common stock. Does not
include 3,000,000 shares to be issued for services performed in 2008, and
966,000 shares to be issued for services performed in 2009. Upon the
issuance of these shares, as well as an additional 3,966,000 shares
committed by the Company to be issued, Mr. Wiernasz will beneficially own
5.5% of the outstanding shares.
|
||||||||||
|
(5)
|
Includes
14,800,000 shares of common stock held by Mr. DiMaggio.
|
||||||||||
|
(6)
|
Includes
15,000,000 shares of common stock held by Mr. Brown.
|
||||||||||
| (7) | Includes 16,000,000 shares issuable upon conversion of notes payable, and 7,676,359 shares issuable upon conversion of accrued interest on notes payable. | ||||||||||
| (8) | Includes 123,540,870 shares underlying options, convertible notes or shares issuable as accrued interest upon outstanding notes. Does not include an aggregate of an additional 6,876,000 shares committed by the Company to be issued. Upon issuance of such shares the group will beneficially own 56.1% of the outstanding shares. | ||||||||||
We have
outstanding certain note payable agreements with certain related parties. The
information concerning those notes is set forth below:
|
Note
Holder
|
Relationship
|
Consideration
|
Interest
Rate
|
Conversion
Price
|
Principal
Balance
December
31, 2009
|
Principal
Balance
December
31, 2008
|
|||||||||||||
|
Michael
Ferrone
|
Director
|
Cash
|
8
|
%
|
$
|
0.005
|
75,000
|
75,000
|
|||||||||||
|
Joel
Gold
|
Director
|
Cash
|
8
|
%
|
$
|
0.005
|
50,000
|
50,000
|
|||||||||||
|
Joel
Gold
|
Director
|
Cash
|
8
|
%
|
$
|
0.005
|
25,000
|
25,000
|
|||||||||||
|
Joel
Gold
|
Director
|
Cash
|
8
|
%
|
$
|
0.005
|
25,000
|
25,000
|
|||||||||||
|
Lauren
M. Ferrone (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
8
|
%
|
$
|
0.005
|
10,000
|
10,000
|
|||||||||||
|
Richard
D. Ferrone (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
8
|
%
|
$
|
0.005
|
10,000
|
10,000
|
|||||||||||
|
Christian
D. Ferrone (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
8
|
%
|
$
|
0.005
|
10,000
|
10,000
|
|||||||||||
|
Andrew
I. Ferrone (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
8
|
%
|
$
|
0.005
|
10,000
|
10,000
|
|||||||||||
Audit
Fees
The
aggregate fees billed for each of the last two fiscal years for
professional services rendered by Bernstein & Pinchuk LLP
(“Accountant”) for the audit of our annual consolidated financial
statements included in our Forms 10-K: 2009: $36,000; and
2008: $36,501.
Audit-Related
Fees
The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by Accountant that are reasonably related to the
performance of the audit or review of our consolidated financial statements
including our quarterly interim reviews on Form 10-Q and are not reported under
Audit Fees above: 2009: $22,500; and 2008: 26,890.
Tax Fees
The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by Accountant: $1,500 for each year, 2009 and
2008.
All
Other Fees
The
aggregate fees billed in each of the last two fiscal years for products and
services provided by Bernstein & Pinchuck, other than the services reported
above: $0.
| EXHIBIT NUMBER | |||
| 3.1 | Articles of Incorporation (incorporated by reference to exhibit 3.1 of the Company’s annual report on Form 10-KSB for the year ended December 31, 2004 filed with the Securities and Exchange Commission on September 28, 2005). | ||
| 3.2 | Bylaws of the Company (incorporated by reference to exhibit 3.2 of the Company’s annual report on Form 10-KSB for the year ended December 31, 2006 filed with the Securities and Exchange Commission on April 18, 2008). | ||
| 4.1 | Form of Convertible Note (incorporated by reference to exhibit 4.1 of the Company’s annual report on Form 10-KSB for the year ended December 31, 2004 filed with the Securities and Exchange Commission on September 28, 2005). | ||
| 4.2 | Form of Convertible Note (incorporated by reference to exhibit 4.2 of the Company’s annual report on Form 10-KSB for the year ended December 31, 2004 filed with the Securities and Exchange Commission on September 28, 2005). | ||
| 4.3 | Form of Warrant - Class A (incorporated by reference to exhibit 4.3 of the Company’s annual report on Form 10-KSB for the year ended December 31, 2004 filed with the Securities and Exchange Commission on September 28, 2005). | ||
| 4.4 | Form of Warrant - Class B (incorporated by reference to exhibit 4.4 of the Company’s annual report on Form 10-KSB for the year ended December 31, 2004 filed with the Securities and Exchange Commission on September 28, 2005). | ||
| 4.5 | Form of Warrant - Class C (incorporated by reference to exhibit 4.5 of the Company’s annual report on Form 10-KSB for the year ended December 31, 2004 filed with the Securities and Exchange Commission on September 28, 2005). | ||
|
4.6
|
Secured
Convertible Promissory Note dated December 31, 2008 in favor of Alpha
Capital Anstalt (incorporated by reference to exhibit 10.1 of the
Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 7, 2009).
|
||
|
4.7
|
Class
B Common Stock Purchase Warrant dated December 31, 2008 in favor of Alpha
Capital Anstalt (incorporated by reference to exhibit 10.2 of the
Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 7, 2009).
|
||
|
4.8
|
Subscription
Agreement between the Registrant and Alpha Capital
Anstalt dated December 31, 2008 (incorporated by reference to
exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 7, 2009).
|
||
|
4.9
|
Amendment,
Waiver, and Consent Agreement effective January 1, 2009 between the
Registrant and Alpha Capital Anstalt (incorporated by reference to exhibit
10.4 of the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 7,
2009).
|
||
|
10.1
|
Lease
of the Company's offices at Naples, Florida (incorporated by
reference to exhibit 10.1 of the Company’s current report on Form 8-K
filed with the Securities and Exchange Commission on October
23, 2008).
|
||
|
10.2
|
Security
and Pledge Agreement – IVFH (incorporated by reference to exhibit 10.2 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
||
|
10.3
|
Security
and Pledge Agreement – FII (incorporated by reference to exhibit 10.3 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
||
|
10.4
|
Supply
Agreement with Next Day Gourmet, L.P. with Next Day Gourmet, L.P.
(incorporated by reference to exhibit 10.4 of the Company’s annual report
on Form 10-KSB for the year ended December 31, 2004 filed with the
Securities and Exchange Commission on September 28,
2005).
|
||
|
10.5
|
Subscription
Agreement (incorporated by reference to exhibit 10.5 of the Company’s
annual report on Form 10-KSB for the year ended December 31, 2004 filed
with the Securities and Exchange Commission on September 28,
2005).
|
||
|
10.6
|
Management
contract between the Company and Joseph DiMaggio,
Jr. (incorporated by reference to exhibit 10.2 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2005 filed with the Securities and Exchange Commission on April 17,
2006).
|
||
|
10.7
|
Management
contract between the Company and Z. Zackary Ziakas (incorporated by
reference to exhibit 10.3 of the Company’s annual report on Form
10-KSB for the year ended December 31, 2005 filed with the Securities
and Exchange Commission on April 17, 2006).
|
||
|
10.8
|
Agreement
and Plan of Reorganization between IVFH and FII. (incorporated by
reference to exhibit 10.6 of the Company’s annual report on Form
10-KSB for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28, 2005).
|
||
| 10.9 | Employment Agreement with Sam Klepfish dated as of December 31, 2008 ((incorporated by reference to exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 7, 2009). | ||
| 10.10 | Employment Agreement with Justin Wiernasz dated as of December 31, 2008 (incorporated by reference to exhibit 10.6 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 7, 2009). | ||
| 10.11 | Employment Agreement with Sam Klepfish dated as of January 6, 2010 (incorporated by reference to exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 7, 2010). | ||
| 10.12 | Employment Agreement with Justin Wiernasz dated as of January 6, 2010 (incorporated by reference to exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 7, 2010). | ||
| 14 | Code of Ethics (incorporated by reference to exhibit 14 of the Company’s Form 10-KSB/A for the year ended December 31, 2006, filed with the Securities and Exchange Commission on July 31, 2008). | ||
| 21 | Subsidiaries of the Company | ||
| 31.1 | Rule 13a-14(a) Certification of Chief Executive Officer | ||
| 31.2 | Rule 13a-14(a) Certification of Principal Accounting Officer | ||
| 32.1 | Rule 1350 Certification of Chief Executive Officer | ||
| 32.2 | Rule 1350 Certification of Principal Accounting Officer |
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INNOVATIVE
FOOD HOLDINGS, INC.
By: /s/ Sam
Klepfish
Sam
Klepfish,
Chief
Executive Officer and Director
Dated: March
26, 2010
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
Name
|
Title
|
Date
|
||
|
/s/ Sam
Klepfish
|
CEO
and
Director
|
March
26, 2010
|
||
|
Sam
Klepfish
|
(Chief
Executive Officer)
|
|||
|
/s/ John
McDonald
|
Principal
Accounting
Officer
|
March
26, 2010
|
||
|
John
McDonald
|
(Principal
Financial Officer)
|
|||
|
/s/ Joel
Gold
|
Director
|
March
26, 2010
|
||
|
Joel
Gold
|
||||
|
/s/
Michael Ferrone
|
Director
|
March
26, 2010
|
||
|
Michael
Ferrone
|
Exhibit
21
INNOVATIVE
FOOD HOLDINGS, INC.
SCHEDULE
OF SUBSIDIARIES
1. Food
Innovations, Inc.
2. Food
New Media Group, Inc.
3. 4
The Gourmet, Inc.
EXHIBIT 31.1
Certifications
I, Sam Klepfish, certify that:
1. I have reviewed this annual report on Form 10-K 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 controls 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 vase 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. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control 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: March 26, 2010
/s/ Sam Klepfish
Sam Klepfish, Chief Executive Officer
EXHIBIT 31.2
Certifications
I, John McDonald, certify that:
1. I have reviewed this annual report on Form 10-K 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 controls 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 vase 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. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control 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: March 26, 2010
/s/ John McDonald
John McDonald, Principle Accounting Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
In connection with the Annual Report of Innovative Food Holdings, Inc. (the "Company") on Form 10-K for the year ended December 31, 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
March 26, 2010
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
In connection with the Annual Report of Innovative Food Holdings, Inc. (the "Company") on Form 10-K for the year ended December 31, 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 Accounting Officer
March 26, 2010