THIS
ANNUAL REPORT ON FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND
INFORMATION RELATING TO US THAT ARE BASED ON THE BELIEFS OF MANAGEMENT, AS WELL
AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO US. WHEN USED IN
THIS DOCUMENT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," “SHOULD,” AND
"EXPECT" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO US, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT OUR CURRENT VIEWS WITH
RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS, INCLUDING THOSE DESCRIBED IN THIS ANNUAL REPORT ON FORM 10-KSB.
SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM
THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED OR EXPECTED. WE DO
NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
PART
I
ITEM 1. Description of Business
Our
History
We were
initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation.
From June 1979 through February 2003, we were either inactive or involved in
discontinued business ventures. We changed our name to Fiber Application Systems
Technology, Ltd. in February 2003. In January 2004, we changed our state of
incorporation by merging into Innovative Food Holdings, Inc. (IVFH), a Florida
corporation formed for that purpose. As a result of the merger we changed our
name to that of Innovative Food Holdings, Inc. In January 2004 we also acquired
Food Innovations, Inc., a Delaware corporation, for 25,000,000 shares
(post-reverse split) of our common stock.
Our
Operations
Our
business is currently conducted by our subsidiary, Food Innovations, Inc.
(“FII”), which was incorporated in the state of Delaware on January 9, 2002.
Since its incorporation our subsidiary has been in the business of providing
premium restaurants with the freshest origin-specific perishables and specialty
products shipped directly from our network of vendors within 24 –
48 hours. Our customers include restaurants, hotels, country clubs,
national chain accounts, casinos, and catering houses. In our
business model, we take orders from our customers and then forward the orders to
our various suppliers for fulfillment. In order to preserve
freshness, we do not warehouse or store our products, thereby significantly
reducing our overhead. Rather, we carefully select our suppliers
based upon, among other factors, their reliability and access to overnight
courier services.
Our
Products
We
distribute over 3,000 perishable and specialty food products, including
origin-specific seafood, domestic and imported meats, exotic game and poultry,
artisanal cheeses, caviar, wild and cultivated mushrooms, micro-greens, heirloom
and baby produce, organic farmed and manufactured food products, estate-bottled
olive oils and aged vinegars. We are constantly adding other products that food
distributors cannot effectively warehouse, including organic products and
specialty grocery items. We offer our customers access to the best food products
available nationwide, quickly and cost-effectively. Some of our best-selling
items include:
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Seafood - Alaskan wild
king salmon, Hawaiian sashimi-grade ahi tuna, Gulf of Mexico day-boat
snapper, Chesapeake Bay soft shell crabs, New England live lobsters,
Japanese hamachi
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Meat & Game - Prime
rib of American kurobuta pork, dry-aged buffalo tenderloin, domestic lamb,
Cervena venison, elk tenderloin
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Produce - White
asparagus, baby carrot tri-color mix, Oregon wild ramps, heirloom
tomatoes
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Poultry - Grade A foie
gras, Hudson Valley quail, free range and organic chicken, airline breast
of pheasant
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Specialty - Truffle
oils, fennel pollen, prosciutto di Parma, wild boar
sausage
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Mushrooms - Fresh morels,
Trumpet Royale, porcini powder, wild golden
chanterelles
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Cheese - Maytag blue,
buffalo mozzarella, Spanish manchego, Italian gorgonzola
dolce
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In 2006
seafood accounted for 24% of sales, meat and game accounted for 28% of sales,
specialty items accounted for 25% of sales, produce accounted for 8% of sales,
cheese accounted for 10% of sales, and poultry accounted for 5% of
sales.
Customer
Service and Logistics
Our
“live” chef-driven customer service department is available by telephone every
weekday, from 7 a.m. to 7 p.m., Florida time. The team is made up of four chefs
who
are full-time employees of the Company, and who are experienced in all
aspects of perishable and specialty products. By employing chefs to handle
customer service, we are able to provide our customers with extensive
information about our products, including:
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Flavor
profile and eating qualities
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Origin,
seasonality, and availability
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Cross
utilization ideas and complementary uses of
products
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Our
logistics team tracks every package to ensure timely delivery of products to our
customers. The logistics manager receives tracking information on all products
ordered, and packages are monitored from origin to delivery. In the event that
delivery service is interrupted, our logistics department begins the process of
expediting the package to its destination. The customer is then contacted before
the expected delivery commitment time allowing the customer ample time to make
arrangements for product replacement or menu changes. Our logistics manager
works directly with our vendors to ensure our strict packaging requirements are
in place at all times.
Chef
Advisory Board
In addition to our
in-house chefs, we rely upon the assistance of our Chef Advisory Board.
The Chief
Advisory Board provides the Company with “on the ground” industry information
and information on the latest food trends. The Chief Advisory Board
was not compensated in 2006.
Chef
Joseph Amendola
Chef Joe
Amendola was the American Culinary Federation Chef of the Year for 2002. With
over sixty years of experience, Chef Amendola is world renowned as more than a
culinary professional. He is the author of The Bakers Manual,
Understanding
Baking, Ice
Carving Made Easy, Professional Baking and
Practical Cooking, and Baking for Schools and
Institutions, all of which are used in culinary institutes around the
world. For over forty years he served as senior vice president, acting
president, director of development, dean of students, and baking instructor at
the Culinary Institute of America in Hyde Park, NY. During that period more than
25,000 persons were graduated from that chef training institute. He has served
the Culinary Institute of America as ambassador since 1989.
Chef
Don Pintabona
Chef
Pintabona graduated from the Culinary Institute of America in 1982. He worked
under such chefs as Nishitani in Osaka, Japan; Georges Blanc in Vonnes, France;
and Charles Palmer in New York. He sought out the most unusual local foodstuffs
and then developed his own style of contemporary American cuisine. Last year,
Chef Pintabona published his own book entitled The Tribeca Grill Cookbook:
Celebrating Ten Years of Taste. He currently teaches a special course at
the Cornell School of Hotel Management. He has been a frequent guest Chef on
ABC's “Good Morning America,” he also has been on the Food Network's “Cooking
Live” television shows and has been featured in Bon Appéti , Gourmet, GQ, Nation's Restaurant
News, and the New York
Times.
Chef
Bob Ambrose
Chef
Ambrose is a graduate of the Culinary Institute of America and has been employed
in the hospitality industry for over 20 years. During his career Chef Ambrose
received invitations to cook at many James Beard functions, including The World
Gourmet Summit in Singapore. Following his career in hospitality, Chef Ambrose
served as a Sales Manager for LaBelle Farms, one of our preferred vendors. He
now owns Bella Bella Gourmet Foods.
Relationship
with U.S. Foodservice
In 2003,
Next Day Gourmet, L.P., a subsidiary of USF, a $20 Billion broadline distributor
owned by Dutch grocer Royal Ahold, contracted FII to handle the distribution of
over 3,000 perishable and specialty products. Under the current terms of the
contract FII is the exclusive supplier of overnight delivered, perishable sea
foods, fresh produce, and other exotic fresh foods. Such products are difficult
for broadline food distributors to manage profitably and keep in warehouse stock
due to their perishable nature and
high-end limited customer base. Through USF’s sales associates, FII’s
products are available to USF accounts nationwide, ensuring superior freshness
and extended shelf life to their customers. While the current contract with USF
expires in September 2006 the extension negotiations are currently underway. We
expect to reach an agreement with USF but we can give no assurances that we will
do so. During the years ended December 31, 2006, 2005, and 2004, Next
Day Gourmet L.P. accounted for 97%, 94%, and 94% of total
sales respectively. Other than our business arrangements with
USF, we are not affiliated with either USF or Next Day Gourmet, L.P.
Growth
Strategy
Restaurant
food sales continue to grow, both in total dollars spent (from $295 billion in
1995 to over $511 billion projected for 2006) and in share of the food dollar
spent in the United States (from 25% in 1955 to 47% projected for 2006),
according to the National Restaurant Association website
(www.restaurant.org).
For our
continued growth within the food industry we rely heavily on the availability to
our customers of our chefs' culinary skills and sales available through our
relationship with USF.
In
addition to attempting to grow our current business, we are also looking to grow
laterally in the food industry generally and are looking into the possibility of
acquiring a food manufacturer and/or a restaurant. We have no specific plans at
this point, nor do we know how we would finance any such acquisition. We
anticipate that, given our current cash flow situation, any acquisition would
involve the issuance of additional shares of our common stock. No acquisition
will be consummated without thorough due diligence. No assurance can be given
that we will be able to identify and successfully conclude negotiations with any
potential target.
Competition
While we
face intense competition in the marketing of our products and services, it is
our belief that there is no other single company in the United States that
offers such a broad range of customer
service oriented quality chef driven perishables for delivery in 24 to 48
hours. Our primary competition is from local meat and seafood purveyors that
supply a limited local market and have a limited range of products. However,
many of our competitors are well established, have reputations for success in
the development and marketing of these types of products and services and have
significantly greater financial, marketing, distribution, personnel and other
resources. These financial and other capabilities permit such companies to
implement extensive advertising and promotional campaigns, both generally and in
response to efforts by additional competitors such as us, to enter into new
markets and introduce new products and services.
Insurance
We
maintain a general liability insurance policy with a per occurrence limit of
$1,000,000 and aggregate policy covering $2,000,000 of liability. In addition,
we have non-owned automobile personal injury coverage with a limit of
$1,000,000. Such insurance may not be sufficient to cover all potential claims
against us and additional insurance may not be available in the future at
reasonable costs.
Government
Regulation
Various
federal and state laws currently exist, and more are sure to be adopted,
regulating the delivery of fresh food products. However, our business plan does
not require us to deliver fresh food products directly, as third-party vendors
ship the products directly to our customers. We require all third-party vendors
to maintain $2,000,000 liability insurance coverage and compliance with Hazard
Analysis and Critical Control Point (HACCP), an FDA- and USDA-mandated food
safety program. Any changes in the government regulation of delivering of fresh
food products that hinders our current ability and/or cost to deliver fresh
products, could adversely impact our net revenues and gross margins and,
therefore, our profitability and cash flows could also be adversely
affected.
Employees
We
currently employ 13 full-time employees, including 5 chefs and 2 executive
officers. We believe that our relations with our employees are satisfactory.
None of our employees are represented by a union.
Transactions
with Major Customers
Transactions
with major customers and related economic dependence information is set forth
under the heading Transactions with Major Customers in Note 15 to the
Consolidated Financial Statements included in the Financial Statements section
hereof and is incorporated herein by reference.
How
to Contact Us
Our
executive offices are located at 1923 Trade Center Way, Suite One, Naples,
Florida 34109; our Internet address is www.foodinno.com; and
our telephone number is (239)596-0204.
Risk
Factors
Risks Relating to Our
Business:
We
Have a History Of Losses Which May Continue, Requiring Us To Seek Additional
Sources of Capital Which May Not Be Available, Requiring Us To Curtail Or Cease
Operations.
We earned
net income of $12,137,413 for the year ended December 31, 2006. However, this
income did not derive from operations but from changes in the fair value
of warrant and option liabilities and a mark to market liability. We
cannot assure you that we can achieve or sustain profitability on a quarterly or
annual basis in the future. If revenues grow more slowly than we anticipate, or
if operating expenses exceed our expectations or cannot be adjusted accordingly,
we will incur losses. We will also incur losses if the
fair value of warrants, options, etc changes unfavorably. We will incur
operating losses until we are able to establish significant sales.
Our possible success is dependent upon the successful development and marketing
of our services and products, as to which we can give no assurance. Any future
success that we might enjoy will depend upon many factors, including factors out
of our control or which cannot be predicted at this time. These factors may
include changes in or increased levels of competition, including the entry of
additional competitors and increased success by existing competitors, changes in
general economic conditions, increases in operating costs, including costs of
supplies, personnel, marketing and promotions, reduced margins caused by
competitive pressures and other factors. These conditions may have a materially
adverse effect upon us or may force us to reduce or curtail operations. In
addition, we will require additional funds to sustain and expand our sales and
marketing activities, particularly if a well-financed competitor emerges. We
anticipate that we will require up to approximately $250,000 in additional funds
with no repayment of existing debt of 2007 maturities and maturities in default.
to fund our continued operations for the next twelve months, depending on
revenue from our operations. We can give no assurance that financing will be
available in amounts or on terms acceptable to us, if at all. In Our inability
to obtain sufficient funds from our operations or external sources would require
us to curtail or cease operations. `
If
We Are Unable to Obtain Additional Funding Our Business Operations Will be
Harmed and If We Do Obtain Additional Financing Our Then Existing Shareholders
May Suffer Substantial Dilution.
Additional
capital will be required to effectively support our operations and to otherwise
implement our overall business strategy. However, we can give no assurance that
financing will be available when needed on terms that are acceptable to us. Our
inability to obtain additional capital will restrict our ability to grow and may
reduce our ability to continue to conduct business operations. If we are unable
to obtain additional financing, we will likely be required to curtail our
marketing and development plans and possibly cease our operations. Any
additional equity financing (or equity
related financing such as convertible debt financing) may involve
substantial dilution to our then existing shareholders.
Our
Independent Auditors Have Expressed Substantial Doubt About Our Ability to
Continue As a Going Concern, and We Concur With This Assessment
In their
report dated April 14, 2008, our independent auditors stated that our financial
statements for the year ended December 31, 2006 were prepared assuming that we
would continue as a going concern. Our ability to continue as a going concern is
an issue raised as a result of our significant losses from operations since
inception and our working capital deficiency. We continue to experience net
operating losses. Our ability to continue as a going concern is subject to our
ability to generate a profit and/or obtain necessary funding from outside
sources, including obtaining additional funding from the sale of our securities,
increasing sales or obtaining loans and grants from various financial
institutions where possible. Our continued net operating losses increase the
difficulty in our meeting such goals and we can give no assurance that such
methods will prove successful.
We
Have Historically Derived Substantially All of Our Revenue From One Client and
if We Were to Lose Such Client We Will Be Unable to Generate New Sales to Offset
Such Loss, We May Be Forced to Cease or Curtail Our Operations.
In 2003,
Next Day Gourmet, L.P. contracted with our subsidiary to handle the distribution
of over 3,000 perishable and specialty food products to USF’s customers.
Our contract with USF expires in September 2006. Our sales through
USF’s sales force generated gross revenues for us of $6,915,550 in
the year ended December 31, 2006, $5,253,040 in the year
ended December 31, 2005, and and $3,873,318 in the year ended
December 31, 2004. Those amounts contributed 97%, 94%,
and 94%, respectively of our total sales in those periods. Our sales
efforts are for the most part dependant upon the efforts of the U.S.
Sales associates. Although we have generated revenues from
additional customers other than USF, if we do not renew our contract with USF in
September 2006 or if the contract is terminated for any reason and we are unable
to generate new sales or offset such loss, we may be forced to cease or curtail
our operations. While we have begun discussions with USF to extend the
agreement, we can give no assurance that we will be successful and if the
agreement terminates in September it will adversely effect our sales in a
material fashion to the extent that we may be forced to cease
operations.
We
May Be Unable to Manage Our Growth Which Could Result in Our Being Unable to
Maintain Our Operations.
Our
strategy for growth is focused on continued enhancements to our existing
business model, offering a broader range of services and products and
affiliating with additional vendors and through possible joint ventures.
Pursuing this strategy presents a variety of challenges. We may not experience
an increase in our services to our existing customers, and we may not be able to
achieve the economies of scale, or provide the business, administrative and
financial services, required to sustain profitability from servicing our
existing and future customer base. Should we be successful in our expansion
efforts, the expansion of our business would place further demands on our
management, operational capacity and financial resources. To a significant
extent, our future success will be dependent upon our ability to maintain
adequate financial controls and reporting systems to manage a larger operation
and to obtain additional capital upon favorable terms. We can give no assurance
that we will be able to successfully implement our planned expansion, finance
its growth, or manage the resulting larger operations. In addition, we can give
no assurance that our current systems, procedures or controls will be adequate
to support any expansion of our operations. Our failure to manage our growth
effectively could have a material adverse effect on our business, financial
condition and results of our operations.
The
Foodservice Industry is Very Competitive, Which May Result in Decreased Revenue
for Us as Well as Increased Expenses Associated With Marketing Our Services and
Products.
We
compete against other providers of quality foods, some of which sell their
services globally, and some of these providers have considerably greater
resources and abilities than we have. These competitors may have greater
marketing and sales capacity, established distribution networks, significant
goodwill and global name recognition. Furthermore, it may become necessary for
us to reduce our prices in response to competition. This could impact our
ability to be profitable.
Our
Success Depends on Our Acceptance by the Chef Community and if the Chef
Community Does Not Accept Our Products Then Our Revenue Will be Severely
Limited.
The chef
community may not embrace our products. Acceptance of our services will depend
on several factors, including: cost, product freshness, convenience, timeliness,
strategic partnerships and reliability. Any of these factors could have a
material adverse effect on our business, results of operations and financial
condition. We also cannot be sure that our business model will gain wide
acceptance among chefs. If the market fails to continue to develop, or develops
more slowly than we expect, our business, results of operations and financial
condition will be adversely affected.
We
Rely Upon Outside Vendors and Shippers for Our Specialty Food Products and
Interruption in the Supply of Our Products May Negatively Impact Our
Revenues.
Shortages
in supplies of the food products we sell may impair our ability to provide our
services. Our vendors are independent and we cannot guarantee their future
ability to source the products that we sell. Many of our products are
wild-caught, and we cannot guarantee their availability in the future.
Unforeseen strikes and labor disputes may result in our inability to deliver our
products in a timely manner. Since our customers rely on us to deliver their
orders within 48 hours, delivery delays could significantly harm our
business.
We
Are and May Be Subject to Regulatory Compliance and Legal
Uncertainties.
Changes
in government regulation and supervision or proposed Department of Agriculture
reforms could impair our sources of revenue and limit our ability to expand our
business. In the event any future laws or regulations are enacted which apply to
us, we may have to expend funds and/or alter our operations to insure
compliance.
Health
Concerns Could Affect Our Success.
We
require our vendors to produce current certification that the vendor is
H.A.C.C.P. compliant, and a current copy of their certificate of liability
insurance. However, unforeseen health issues concerning food may adversely
affect our sales and our ability to continue operating our
business.
The
Issuance of Shares Upon Conversion of Convertible Notes and Exercise
of Outstanding Warrants May Cause Immediate and Substantial Dilution to Our
Existing Stockholders.
The
issuance of shares upon conversion of convertible notes and exercise of warrants
may result in substantial dilution to the interests of other stockholders since
the note/warrant holders may ultimately convert or exercise and sell the full
amount of shares issuable on conversion / exercise. Although, for the most part,
such note/warrant holders may not convert their convertible notes and/or
exercise their warrants if such conversion or exercise would cause them to own
more than 4.99% of our outstanding common stock unless
waived in writing by the investor with 60 day notice to the Company, this
restriction does not prevent them from converting and/or exercising some of
their holdings, selling off those shares, and then converting the rest of their
holdings. In this way, they could sell more than this limit while never holding
more than this limit. We anticipate that eventually, over time, the full amount
of the convertible notes will be converted into shares of our common stock, in
accordance with the terms of the secured convertible notes.
If
We Are Required for any Reason to Repay Our Outstanding Convertible Notes or if
We Elect to Make Monthly Payments in Cash as Opposed to Stock, We Would Be
Required to Deplete Our Working Capital, If Available, or Raise Additional
Funds.
We are
required to repay our convertible notes commencing in August 2005 with respect
to the convertible notes issued in connection with the February 2005 Securities
Purchase Agreement and in February 2006 in connection with the August 2005
Securities Purchase at the rate of 1/18th of the outstanding principal on the
convertible note on a monthly basis. We may make such monthly payment in either
cash or shares of common stock that are registered under the Securities Act of
1933, as amended. If we are required to repay the secured convertible notes, we
would be required to use our limited working capital and/or raise additional
funds (which may be unavailable) which would have the effect of causing further
dilution and lowering shareholder value.
We
Are Currently In default Under Certain Convertible Notes Which Could Result in
Legal Action Against Us, Which Could Require the Sale of Substantial
Assets.
We are
currently in default under certain of our outstanding convertible notes which
could require the early repayment of the convertible notes, including a default
interest rate of 15% on the outstanding principal balance of the notes if the
default is acted upon by the note holders and not cured within the specified
grace period. If we were unable to repay the notes when required, the note
holders could commence legal action against us and foreclose on all of our
assets to recover the amounts due. Any such action would require us to curtail
or cease operations.
Risks Relating to Our Common
Stock:
Our
Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading
Market in Our Securities is Limited, Which Makes Transactions in Our Stock
Cumbersome and May Reduce the Value of an Investment in Our Stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share (post-reverse
split) or with an exercise price of less than $5.00 per share (post-reverse
split), subject to certain exceptions. For any transaction involving a penny
stock, unless exempt, the rules require:
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that
a broker or dealer approve a person's account for transactions in penny
stocks; and
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the
broker or dealer receives from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
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In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
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obtain
financial information and investment experience objectives of the person;
and
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make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
ITEM 2. Description of Property
We lease
approximately 2,800 square feet of space at 1923-1925 Trade Center Way, Naples,
Florida, all of which is currently used for our principal executive offices and
sales operations. The lease for these premises expires in September 2008 and is
with a non-affiliated landlord. The aggregate base rent is $4,257 per month for
the remainder of the term of the lease. We intend to negotiate an extension of
that lease; however, if we are unable to do so, we expect that we will be able
to lease or acquire other similar space in close proximity to our
existing space. We believe that appropriate space is and will be available if
needed at acceptable prices
ITEM 3. Legal Proceedings
Defaults
Upon Senior Securities
In
September 2006 we commenced an action in New York Supreme Court, Nassau County,
against Pasta Italiana, Robert Yandolino and Lloyd Braider to collect on
outstanding promissory notes totaling $345,000 (plus interest and collection
expenses) of which $65,000 were personally guaranteed by the two individual
defendants. The defendants have counterclaimed for an unspecified
amount of damages due to our alleged breach of an agreement to purchase the
corporate defendant. As of December 31, 2006 the action had barely
commenced and its outcome is too speculative to predict. However, we
think it unlikely at this time that we will suffer a net material loss on our
loan.
ITEM 4. Submission of Matters to a Vote of Security
Holders
None.
PART
II
ITEM 5. Market For Common Equity, Related Stockholder Matters and
Small Business Issuer Purchases of Equity Securities
Market
Information
Prices
for our common stock are quoted in the Pink Sheets. Since March 2004, our common
stock has traded under the symbol "IVFH". Prior thereto, our common stock traded
under the symbol "FBSN". 151,310,796 shares (post-reverse split) of common stock
were outstanding as of December 31, 2006. The following table sets forth the
high and low sales prices of our common stock as reported in the Pink Sheets for
each full quarterly period within the three most recent fiscal
years.
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HIGH
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LOW
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Fiscal
Year Ending December 31, 2006
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First
Quarter
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$ |
0.055
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$ |
0.0314 |
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Second
Quarter
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0.07 |
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0.04 |
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Third
Quarter
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0.037 |
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0.008 |
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Fourth
Quarter
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0.008 |
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0.003 |
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Fiscal Year Ended
December 31, 2005
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First
Quarter
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$ |
0.026 |
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$ |
0.010 |
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Second
Quarter
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0.11 |
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0.021 |
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Third
Quarter
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0.14 |
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0.022 |
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Fourth
Quarter
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0.084 |
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0.028 |
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Fiscal Year Ended December 31,
2004
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|
|
|
|
|
|
|
First
Quarter
|
|
$ |
3.800 |
|
|
$ |
0.42 |
|
|
Second
Quarter
|
|
|
1.050 |
|
|
|
0.250 |
|
|
Third
Quarter
|
|
|
0.540 |
|
|
|
0.025 |
|
|
Fourth
Quarter
|
|
|
0.055 |
|
|
|
0.004 |
|
The
quotations listed above reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. They have
also been adjusted to reflect the effect of historical reverse splits. see
spreadsheet
We were
inactive for many years until the first quarter of 2003 when we absorbed a new
business, received new management and underwent a significant reverse
split. Unfortunately, this new business venture was unsuccessful and
has unwound clearing the way for our current business which we absorbed during
the first quarter of 2004, along with new management and another significant
reverse split of our common stock. We believe that these activities
contributed to the large fluctuations in the price of our stock during 2003 and
2004.
Security
Holders
On
December 31, 2006, there were approximately 5,262 record
holders of our common stock. In addition, we believe there are numerous
beneficial owners of our common stock whose shares are held in "street
name."
Dividends
We have
not paid dividends during the three most recently completed fiscal years, and
have no current plans to pay dividends on our common stock. We currently intend
to retain all earnings, if any, for use in our business.
Recent
Sales and Other Issuances of Our Equity Securities
On
January 26, 2004, through a share exchange, the shareholders of FII converted
10,000 shares (post-reverse split) of FII common stock outstanding into
25,000,000 shares (post-reverse split) of IVFH. On January 29, 2004, in a
transaction known as a reverse acquisition, the shareholders of IVFH exchanged
25,000,000 shares (post-reverse split) of IVFH for 25,000,000 shares
(post-reverse split) of Fiber Application Systems Technology, Ltd. (formerly
known as Alpha Solarco) (“Fiber”), a publicly-traded
company. The shareholders of IVFH thus assumed control of
Fiber, and Fiber changed its name to Innovative Food Holdings,
Inc. The 25,000,000 shares (post-reverse split) of Innovative Food
Holdings are shown on the Company’s balance sheet at December 31, 2003 as the
shares outstanding. The par value of the 25,000,000 shares
(post-reverse split), or $2,500, was charged to additional paid-in
capital. There were 157,037 shares (post-reverse split)
outstanding of Fiber at the time of the reverse acquisition; the par value of
these shares, or $16, was charged to additional paid-in capital at
the time of the reverse acquisition.
The
Company had a 1-for-200 reverse split of its common stock effective March 8,
2004. There were a total of 30,011,706 shares issued and outstanding
immeditately before the reverse split, and 157,037 shares issued and outstanding
immediately after the reverse split.
During
the twelve months ended December 31, 2004, the Company also had the following
transactions:
The
Company issued 15,000,000 shares (post-reverse split) of common stock with a
fair value of $320,225 to consultants for services performed.
The
Company issued 4,910,000 shares (post-reverse split) of common stock for
conversion of notes payable and current liabilities in the mount
of $788,176.
The
Company issued 18,700,000 shares (post-reverse split) of common stock with a
fair value of $2,420,000 to consultants for services performed.
The
Company issued 1,300,000 shares (post-reverse split) of common stock
for conversion of current liabilities in the amount of $339,750.
The
Company issued 7,925,000 shares (post-reverse split) of common stock with a fair
value of $204,500 to employees and board members for services
performed.
During
the twelve months ended December 31, 2005, the Company had the
following transactions:
The
Company issued 5,000,000 shares (post-reverse split) of common stock pursuant to
the conversion of a note payable.
The
Company issued 750,000 shares (post-reverse split) of common stock with a fair
value of $9,000 to board members for services performed.
The
Company issued 300,000 shares (post-reverse split) of common stock with a fair
value of $3,900 to consultants for services performed.
The
Company issued 2,500,000 shares (post-reverse split) of common stock with a fair
value of $32,500 to employees for services performed.
The
Company issued 13,400,000 shares (post-reverse split) of common stock for
$67,000 cash.
The
Company issued 8,800,000 shares (post-reverse split) of common
stock pursuant to the conversion of a note payable in the amount of
$44,000.
The
Company issued 1,000,000 shares (post-reverse split) of common stock pursuant to
the conversion of a note payable in the amount
of $5,000.
The
Company accrued the issuance of 600,000 shares (post-reverse split) of common
stock with a fair value of $36,000 as employee bonuses for services. The amount
of $36,000 was charged to common stock subscribed during the year ended December
31, 2006.
During
the twelve months ended December 31, 2006, the Company had the following
transactions:
The
Company issued 600,000 shares (post-reverse split) of common stock with a fair
value of $36,000 to employees for services performed. Said amount of
$36,000 was charged to operations during the prior year ended December 31, 2005,
and this amount was charged against common stock subscribed when the shares were
issued during the year ended December 31, 2006.
The
Company issued 34,718,759 shares of common stock pursuant to the conversion of
notes payable in the aggregate amount of $145,728.
The
Company issued 10,000,000 shares (post-reverse split) of common stock for an
potential acquisition. This acquisition was never consummated, and
these shares were subsequently cancelled. The Company charged the par
value of these shares of $1,000 to additional paid-in capital during the year
ended December 31, 2006.
The
Company issued 900,000 shares (post reverse-split) with a fair value of $32,400
to an employee as a bonus.
The
Company issued 350,000 shares (post reverse-split) with a fair value of $17,500
to an officer as a bonus.
All of
the issuances described above were exempt from registration pursuant to
Section 4(2)
of the Securities Act of 1933 for the following reasons: (1) none of
the issuances involved a public offering or public advertising of the payment of
any commissions or fees; (2) the issuances for cash were to “accredited
investors”; (3) the issuances upon conversion of notes were for notes held at
least 12 months and did not involve the payment of any other considerations; and
(4) all issuances to affiliates and to non-affiliates holding the securities for
less than 2 years carried restrictive legends.
Derivative
Securities Currently Outstanding
The
Company has issued convertible notes payable in the aggregate
principal amount of $1,072,000 with and accrued interest of $257,355
which if converted to common stock , will result in our issuance
of approximately 252,080,120 shares (post-reverse split)
of common stock at a conversion rates ranging from $0.005 to $0.010
per share (post-reverse split). The Company has warrants to purchase an
additional 189,000,000 shares (post-reverse split) of common stock at
December 31, 2006. The Company has also committed to issue, pursuant
to a penalty calculation regarding the registration of shares of our common
stock, an additional 87,520,000 shares (post-reverse split) of common
stock. The Company also has outstanding at December 31, 2006
options to purchase 15,500,000 shares (post-reverse split) of common stock. In
addition, accrued salary in the amount of $9,000 to the Company’s interim
President is convertible into 1,800,000 shares of common stock at December 31,
2006. The total number of additional shares of common stock issuable
at December 31, 2006 is 545,900,120. The company does not
currently have sufficient shares of common stock authorized to satisfy these
additional issuances of shares.
Securities
Authorized for Issuance Under Equity Compensation Plans
We do not
currently have any equity compensation plans.
ITEM 6. Management's Discussion and Analysis
The
following discussion should be read in conjunction with the consolidated
financial statements and the related notes thereto, as well as all other related
notes, and financial and operational references, appearing elsewhere in this
document.
Certain
information contained in this discussion and elsewhere in this report may
include "forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, and is subject to the safe harbor
created by that act. The safe harbor created by the Securities Litigation Reform
Act will not apply to certain "forward looking statements” because we
issued "penny stock" (as defined in Section 3(a)(51) of the
Securities Exchange Act of 1934 and
Rule 3a51-1 under
the Exchange Act) during the
three year period preceding the date(s) on which those
forward looking statements were first made, except to the
extent otherwise specifically provided by
rule, regulation or order of the Securities and Exchange
Commission. We caution readers that certain important factors may affect our
actual results and could cause such results to differ materially from any
forward-looking statements which may be deemed to have been made in this Report
or which are otherwise made by or on behalf of us. For this purpose, any
statements contained in this report that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the generality
of the foregoing, words such as "may", "will", "expect",
"believe", "explore", "consider", "anticipate", "intend",
"could", "estimate", "plan", "propose" or "continue" or the negative
variations of those words or comparable terminology are intended to identify
forward-looking statements. Factors that may affect our results include, but are
not limited to, the risks and uncertainties associated with:
|
·
|
Our
ability to raise capital necessary to sustain our anticipated operations
and implement our business plan,
|
|
·
|
Our
ability to implement our business
plan,
|
|
·
|
Our
ability to generate sufficient cash to pay our lenders and other
creditors,
|
|
·
|
Our
ability to identify and complete acquisitions and successfully integrate
the businesses we acquire, if any,
|
|
·
|
Our
ability to employ and retain qualified management and
employees,
|
|
·
|
Our
dependence on the efforts and abilities of our current employees and
executive officers,
|
|
·
|
Changes
in government regulations that are applicable to our anticipated
business,
|
|
·
|
Changes
in the demand for our services,
|
|
·
|
The
degree and nature of our
competition,
|
|
·
|
The
lack of diversification of our business
plan,
|
|
·
|
The
general volatility of the capital markets and the establishment of a
market for our shares, and
|
|
·
|
Disruption
in the economic and financial conditions primarily from the impact of past
terrorist attacks in the United States, threats of future attacks, police
and military activities overseas and other disruptive worldwide political
and economic events.
|
We are
also subject to other risks detailed from time to time in our other Securities
and Exchange Commission filings and elsewhere in this report. Any one or more of
these uncertainties, risks and other influences could materially affect our
results of operations and whether forward-looking statements made by us
ultimately prove to be accurate. Our actual results, performance and
achievements could differ materially from those expressed or implied in these
forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether from new information,
future events or otherwise.
Critical Accounting Policy
and Estimates
Our
Management’s Discussion and Analysis of Financial Condition and Plan of
Operations section discusses our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an
on-going basis, management evaluates its estimates and judgments, including
those related to revenue recognition,
accrued expenses, financing operations, and
contingencies and litigation. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions. There are no significant accounting estimates inherent in the
preparation of our financial statements.
Background
We were
initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation.
From June 1979 through February 2003, we were either inactive or involved in
discontinued business ventures. In February 2003 we changed our name to Fiber
Application Systems Technology, Ltd.
In
January 2004, we changed our state of incorporation by merging into Innovative
Food Holdings, Inc. (“IVFH”), a Florida shell corporation. As a result of the
merger we changed our name to that of Innovative Food Holdings, Inc. In February
2004 we also acquired Food Innovations, Inc. (“FII”) a Delaware corporation
incorporated on January 9, 2002 and through FII we are in the business of
national food distribution using third-party shippers.
Transactions
With a Major Customer
Transactions
with a major customer and related economic dependence information is set forth
(1) following our discussion of Liquidity and Capital Resources, (2) under the
heading Transactions with Major Customers in Note 12 to the Consolidated
Financial Statements, and (3) as the fourth item under Risk Factors.
RESULTS
OF OPERATIONS
The
following is a discussion of our financial condition and results of operations
for the years ended December 31, 2006 and 2005, respectively. This discussion
may contain forward looking-statements that involve risks and uncertainties. Our
actual results could differ materially from the forward looking-statements
discussed in this report. This discussion should be read in conjunction with our
consolidated financial statements, the notes thereto and other financial
information included elsewhere in the report.
Year
Ended December 31, 2006 Compared to Year Ended December 31, 2005
Revenue
Revenue
increased by $1,521,323, or approximately 27%, to $7,074,088 for the year ended
December 31, 2006 from $5,552,765 in the prior year. A substantial portion
of the increase was attributable to an increase of $ 1,307,405 in specialty
seafood products. Additionally, sales of meats and game increased by
$227,727 and sales in cheese products increased by $218,332. However,
sales of non-specialty seafood products decreased by $154,841. Our
expansion of product line offerings was responsible for a majority of our sales
growth. The decrease in non-specialty seafood sales was due to increased
competition in this product line. We expect seafood, meats and games and
specialty to continue to represent a substantial part of our revenue in the
future. Nevertheless, we continue to assess the potential of new revenue
sources from the manufacture and sale of proprietary food products and will
implement that strategy if we deem it beneficial to us.
Any
changes in the food distribution operating landscape that materially hinders our
current ability and/or cost to deliver our fresh produce to our customers could
potentially cause a material impact on our net revenue and gross margin and,
therefore, our profitability and cash flows could be adversely
affected.
See
"Transactions with Major Customers" and the Securities and Exchange Commission's
("SEC") mandated FR-60 disclosures following the "Liquidity and Capital
Resources" section for a further discussion of the significant customer
concentrations, loss of significant customer, critical accounting policies and
estimates, and other factors that could affect future results.
Cost of
sales
Our cost
of sales for the year ended December 31, 2006 was
$5,372,349, an increase of $1,054,353 or approximately 24% compared to cost of
sales of $4,317,996 for the year ended December 31, 2005. The
primary reason for the increase in the cost of sales was an increase in sales
volume. Gross profit as a percentage of sales was 24% for the year ended
December 31, 2006 compared to 22% for the year ended December 31, 2005. This increase in gross profit
percentage is due to better
pricing and cost controls as a result of volume.
Selling, general, and
administrative expenses
Selling,
general, and administrative expenses increased by $241,563 or
approximately 13%, from $1,847,027 during the year ended December 31,
2005 to $2,088,590 for the year ended December 31, 2006.
The increase was
attributable primarily to corporate overhead, with such cost increases including
(i) professional fees incurred, primarily with respect to addressing matters
relating to our past compliance with corporate and securities laws and
regulations, and (ii) other non-allocable SG&A. The
primary components of selling, general, and administrative expenses for the
twelve months ended December 31, 2006 were payroll and related costs of
$952,275; consulting and professional fees of $562,262; facilities
costs of $90,557; non-cash compensation to employees and consultants of $84,894;
insurance of $75,841; amortization and depreciation of $54,298;
and public relations of $24,894.
Penalty for Late
Registration of Shares
During
the twelve months ended December 31, 2006, the Company accrued a liability for
the issuance of 58,560,000 shares (the “Penalty Shares”) of the
Company’s common stock pursuant to a penalty calculation with regard
to the late registration of common stock underlying convertible notes
payable. The Company charged to operations the amount
of $1,668,792, during the twelve months ended December 31, 2006,
representing the fair value of the Penalty Shares. The Company
accrued the issuance of an additional 28,870,000 Penalty Shares during prior
periods for a total of 87,520,000 Penalty Shares
issuable. During the year ended December 31, 2006,
the Company revalued the 87,520,000 Penalty Shares using the
Black-Scholes valuation method, and at December 31, 2006 the Company had a total
liability for the issuance of Penalty Shares in the amount of
$262,560. This revaluation resulted in a gain of $2,332,952 which the
Company recorded in operations during the year ended December 31, 2006.
Change in Fair Value of
Warrant and
Option Liability
At
December 31, 2006, the Company has outstanding warrants and options to purchase
an aggregate 204,200,000 shares of the Company’s common stock. The
Company valued this warrant liability at December 31, 2006 at
$521,606. This revaluation resulted in a gain of $5,579,541 which the
Company included in operations for the year ended December 31,
2006. This is an increase of $1,232,828 or approximately 28% compared
to a gain of $4,346,713 from the revaluation of the warrant and option liability
which the Company recorded during the twelve months ended December 31,
2005.
Change in Fair Value of Conversion Option
Liability
At
December 31, 2006, the Company had outstanding a liability to issue an aggregate
of 245,145,320 shares of the Company’s common stock pursuant to convertible
notes payable. The Company revalued this liability at December 31,
2006 at $521,606. This revaluation resulted in a gain of $6,666,068
which the Company included in operations for the year ended December 31,
2006. This is an increase of $1,304,110 or approximately 24% compared
to a gain of $5,361,958 from the revaluation of the conversion option liability
which the Company recorded during the twelve months ended December 31,
2005.
Interest (income)
expense
Interest
(income) expense decreased by $366,278 or approximately 49% to
$385,505 during the twelve months ended December 31, 2006, compared to $751,783
during the twelve months ended December 31, 2005. The primary reason
for the decrease was a decrease in the amortization of the beneficial
conversion features associated with convertible notes payable.
Net Income
For the
reasons above, the Company had a net income for the period ended December 31,
2006 of $12,137,413, an increase of by $4,719,503 or approximately
64% to compared net income of $7,417,910 during the twelve months
ended December 31, 2005.
As
explained above, this net income is primarily the result of non-operational,
non-cash items. During 2006, the Company reduced its operating loss by $225,407
or approximately 37% from $612,258 in 2005 to an operating loss of $386,851 in
2006.
Year
Ended December 31, 2005 Compared to Year Ended December 31, 2004
Revenue
Revenue
increased by $883,532, or approximately 19%, to $5,552,765 for the
year ended December 31, 2005 from $4,669,233 in the prior year. The increase was
primarily attributable to an increase of approximately $300,000 in sales of
meats and game, and an increase of approximately $500,000 in sales of specialty
food products, and an
incease of approximately $250,000 in cheese products; these increases were
partially offset by a decrease in seafood of approximately $170,000. We
expect seafood and meat sales to continue to represent a substantial part of our
revenue in the future. Nevertheless, we continue to assess the potential of new
revenue sources from the manufacture and sale of proprietary food products and
will implement that strategy if we deem it beneficial to us.
Any
changes in the food distribution operating landscape that materially hinders our
current ability and/or cost to deliver our fresh produce to our customers could
potentially cause a material impact on our net revenue and gross margin and,
therefore, our profitability and cash flows could be adversely
affected.
See
"Transactions with Major Customers" and the Securities and Exchange Commission's
("SEC") mandated FR-60 disclosures following the "Liquidity and Capital
Resources" section for a further discussion of the significant customer
concentrations, loss of significant customer, critical accounting policies and
estimates, and other factors that could affect future results.
Cost of
sales
Our cost
of sales for the year ended December 31, 2005 was
$4,317,996, an increase of $448,201 or approximately 12% compared to cost of
sales of $3,869,795 for the year ended December 31, 2004. The
primary reason for the increase in the cost of sales was an increase in sales
volume. Gross profit as a percentage of sales was 22% for the year ended
December 31, 2005 compared to 17% for the year ended December 31, 2004. The
reason for the increase in the gross profit margin of 5% was better pricing due
to improved purchasing efficiencies resulting from higher sales
volume.
Selling, general, and
administrative expenses
Selling,
general, and administrative expenses decreased by $2,790,971 or
approximately 60%, from $4,637,998 during the year
ended December 31, 2005 to $1,847,027 for the year ended
December 31, 2005. The primary components of selling, general, and
administrative expenses for the year ended December 31, 2005 payroll and related
costs of $906,819; consulting
and professional fees of $330,285; facilities costs of $82,641; bad debt expense
of $75,000; food show expenses of $70,487; insurance costs of $58,128; public
relations of $59,627; and amortization and depreciation of
$54,184.
The
increase was attributable primarily to non-cash compensation, increase in
professional fees and food show related expenses.
Interest
expense
Interest
expense increased by $60,982 or approximately 9% to $751,783 during the twelve
months ended December 31, 2005, compared to $690,801 during the twelve months
ended December 31, 2004. The primary reasons for the increase were an
increase in interest on convertible notes payable during 2005, along with the
amortization of the beneficial conversion features associated with those
convertible notes payable which is a non-cash charge.
Cost of penalty for
late registration of shares
During
the twelve months ended December 31, 2005, the Company accrued a liability for
the issuance of 28,960,000 shares (“Penalty Shares”) of the Company’s
stock pursuant to a penalty calculation with regard to the late registration of
shares underlying convertible notes payable. The Company charged to
operations $2,162,560 during the twelve months ended December 31, 2005,
representing the fair value of the Penalty Shares. During the year
ended December 31, 2005, the Company revalued the Penalty Shares using
the Black-Scholes valuation method, and at December 31, 2005 the
Company had a total liability for the issuance of Penalty Shares of
$926,720. This revaluation resulted in a gain of $1,235,840 which the
Company recorded in operations during the year ended December 31,
2005.
Change in Fair Value of
Warrant and
Option Liability
At
December 31, 2005, the Company has outstanding warrants and options to purchase
an aggregate 188,700,000 shares of the Company’s common stock. The
Company valued this warrant liability at December 31, 2005 at
$6,016,252. This revaluation resulted in a gain of $4,346,713
which the Company included in operations during the year ended December 31,
2005. There was no such gain or loss during the prior year.
Change in Fair Value of Conversion Option
Liability
At
December 31, 2005, the Company had outstanding a liability to issue an aggregate
of 242,291,720 shares of the Company’s common stock pursuant to convertible
notes payable. The Company revalued this liability at December 31,
2005 to $7,103,275. This revaluation resulted in a gain of $5,361,958
which the Company included in operations for the year ended December 31, 2005.
There was no such gain or loss during the prior year.
Net Income (Loss)
For the
reasons above the Company’s net income for the period
ended December 31, 2005 increased by $11,947,271 or approximately 264% to
$7,417,910, compared to a net loss of ($4,529,361) during the twelve months
ended December 31, 2004. The net income of $7,417,910 the twelve months
ended December 31, 2005 includes the following non-cash (income) and
expenses: stock issued for services of $45,400 and stock issued as bonuses to
employees of $36,000; depreciation and amortization of $54,183; cost of penalty
due to late registration of shares of $2,162,560; change in fair value of
warrant liability $4,346,713; change in fair value of conversion option
liability $5,361,958; change in fair value of penalty shares of
($1,235,840); amortization of discount on notes payable and
convertible interest of $667,069 ; and reserve for bad debt expense of
$75,000.
Liquidity
and Capital Resources at December 31, 2006
As of
December 31, 2006, the Company had current assets of $741,873, consisting of
cash of $118,518, loans receivable of $ 285,000, interest receivable of $7,147,
other current assets of $15,509, and trade accounts receivable of
$315,699. Also, at December 31, 2006, the Company had current
liabilities of $3,721,355, consisting of accounts payable and accrued
liabilities of $886,145, accrued interest of $172,590 (net of discount of
$21,387); accrued interest – related parties of $105,194 (net of discount of
$0); amount due under bank credit line of $24,272, current portion of
notes payable of $927,421; current portion of notes payable – related parties of
$384,000; warrant liability of $521,606; conversion option liability of
$437,207; and penalty for late registration of shares of
$262,560. This resulted in a working capital deficit of
$2,979,482.
During
the twelve months ended December 31, 2006, the Company had cash provided by
operating activates of $178,775. The Company charged to operations $49,901 for
stock issued to employees for services performed, $84,895 for the value of
options and warrants issued, and $54,298 for depreciation and
amortization. The Company generated net cash from financing
activities of $145,985, through the proceeds of issuing debt of $160,000, and
the principal payments of debt of $14,015. The Company used cash of
$216,445 in investing activities, which included the purchase of property and
equipment of $26,445 and a loan in the amount of $190,000.
Liquidity
and Capital Resources at December 31, 2005
As of
December 31, 2005, the Company had current assets of $552,967, consisting of
cash of $10,203, loans receivable of $95,000, interest receivable of $7,147,
other current assets of $1,507, and trade accounts receivable of
$439,110. Also, at December 31, 2005, the Company had current
liabilities of $16,004,022, consisting of accounts payable and
accrued liabilities of $654,331, accrued interest of $28,260 (net of discount of
$42,710); accrued interest – related parties of $41,937 (net of discount of
$16,093); amount due under bank credit line of $24,247, current
portion of notes payable of $784,000; current portion of notes payable – related
parties of $425,000; warrant liability of $6,016,252; conversion option
liability of $7,103,275; and penalty for late registration of shares of
$926,720. This resulted in a working capital deficit of
$15,451,055.
During
the twelve months ended December 31, 2005, the Company had cash used in
operating activates of $474,479. The Company charged to operations $36,000 and
$45,400 for stock issued to employees and consultants, respectively, for
services performed, and $54,183 for depreciation and
amortization. The Company generated net cash from financing
activities of $671,727, through the proceeds of issuing debt of
$605,000, principal payments of debt of $273, and the sale of stock
for cash of $67,000. The Company used cash of $215,056 in
investing activities, which included the purchase of property and equipment of
$45,056 and a loan in the amount of $170,000.
Liquidity
and Capital Resources at December 31, 2004
As of
December 31, 2004, the Company had current assets of $353,509, consisting of
cash of $28,011 and trade accounts receivable of $325,498. Also, at
December 31, 2004, the Company had current liabilities of $767,800,
consisting of accounts payable and accrued liabilities of $618,915, accrued
interest of $1,743 (net of discount of $5,978); accrued interest – related
parties of $7,622 (net of discount of $16,093); amount due under bank credit
line of $24,520, and current portion of notes payable –
related parties of $115,000. This resulted in a working capital
deficit of $414,291.
During
the twelve months ended December 31, 2004, the Company had cash used in
operating activates of $974,004. The Company charged to operations $68,500 and
$136,000 for stock issued to employees and directors, respectively, for services
performed, $2,420,000 for the value of stock issued to consultants for services
performed; and $52,049 for depreciation and amortization. The Company
generated net cash from financing activities of $1,036,527 consisting of
$715,920 from the issuance of notes, $382 from a bank credit line, and $320,225
from the sale of common stock for cash. The Company used cash of $78,644 in
investing activities, for the purchase of property and equipment.
Historically,
our primary cash requirements have been used to fund the cost of operations,
with additional funds having been used in promotion and advertising and in
connection with the exploration of new business lines.
The
Company’s cash on hand may be insufficient to fund its planned operating
needs. Management is continuing to pursue new debt and/or equity
financing and is continually evaluating the Company’s cash and capital
needs.
The
Company expects that any sale of additional equity securities or convertible
debt will result in additional dilution to our stockholders. The
Company can give no assurance that it will be able to generate adequate funds
from operations, that funds will be available, or the Company will be able to
obtain such funds on favorable terms and conditions. It the Company
cannot secure additional funds it will not be able to continue as a going
concern.
By
adjusting its operation and development to the level of available
resources, management believes it has sufficient capital resources to
meet projected cash flow through the next twelve months. The
Company also intends to increase market share and cash flow from operations by
focusing its sales activities on specific market segments. However, if
thereafter, the Company is not successful in generating sufficient liquidity
from operations or in raising sufficient capital resources, on terms acceptable
to us, this could have a material adverse effect on our business, results of
operations, liquidity and financial condition. Currently, we do not
have any material long-term obligations other than those described in Note 8 to
the financial statements included in this report, nor have we identified any
long-term obligations that we contemplate incurring in the near future. As we
seek to increase our sales of perishables, as well as identify new and other
consumer oriented products and services, we may use existing cash reserves,
long-term financing, or other means to finance such
diversification.
The
independent auditors report on our December 31, 2006 financial statements state
that our recurring losses raise substantial doubts about our ability as a going
concern.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues, or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
Inflation
In the
opinion of management, inflation has not had a material effect on the Company’s
financial condition or results of its operations.
New
Accounting Pronouncements
In April
2003, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (SFAS) No. 149, Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends SFAS No. 133 to
provide clarification on the
financial accounting and reporting of derivative
instruments and hedging activities and requires that contracts with similar
characteristics be accounted for on a comparable basis. The provisions of SFAS
149 are effective for contracts entered into or modified after June 30, 2003,
and for hedging relationships designated after June 30, 2003. The adoption of
SFAS 149 did not have a material impact on the Company's results of operations
or financial position.
In May
2003, the FASB issued SFAS
No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both liabilities and
Equity. SFAS 150 establishes standards on
the classification and measurement of
certain financial instruments with characteristics of both
liabilities and equity. The provisions of SFAS 150 are effective for
financial instruments entered into or
modified after May 31, 2003 and to all
other instruments that exist as of the beginning of the
first interim financial reporting period beginning after
June 15, 2003. The adoption of
SFAS 150 did not have
a material impact on the Company's results of
operations or financial position.
In December 2003, the FASB issued a revision of
SFAS No. 132, "Employers' Disclosures About Pensions And
Other Postretirement Benefits." This pronouncement, SFAS
No.
132-R, expands employers' disclosures about
pension plans and other post-retirement benefits, but does not change the
measurement or recognition of such plans required by SFAS No. 87, No. 88, and
No. 106. SFAS No. 132-R retains the existing disclosure requirements of SFAS No.
132, and requires
certain additional disclosures about defined
benefit post-retirement plans. Except as described in the
following sentence, SFAS No. 132-R is effective for
foreign plans for fiscal years ending after June 15,
2004; after the effective date, restatement for some of the new
disclosures is required for earlier annual periods. Some of the interim-period
disclosures mandated by SFAS No. 132-R (such as the components of net periodic
benefit cost, and certain key assumptions) are effective for
foreign plans for
quarters beginning after December 15, 2003;
other interim-period disclosures will not be required for the Company
until the first quarter of 2005. Since
the Company does not have
any defined benefit
post-retirement plans, the adoption of
this pronouncement did not have any impact on the
Company's results of operations or financial condition.
In
November 2004, the FASB issued SFAS
151, Inventory Costs-- an amendment of ARB No. 43, Chapter
4. This Statement amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and
wasted material (spoilage). Paragraph 5 of ARB 43, Chapter
4, previously stated that ". . . under
some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as
current period charges. . . ." This
Statement requires that those items be
recognized as current-period charges
regardless of whether they meet the criterion of
"so abnormal." In addition, this
Statement requires that allocation of
fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This Statement is effective for
inventory costs incurred during
fiscal years beginning after June 15,
2005. Management does not believe the
adoption of this Statement will have
any immediate material impact on the
Company. In December 2004, the FASB issued SFAS
No.152, "Accounting for RealEstate Time-Sharing
Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS 152)
The amendments made by Statement 152
This Statement amends FASB
Statement No. 66, Accounting for Sales
of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in
AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing Transactions. This Statement also amends
FASB Statement No. 67, Accounting for Costs and
Initial Rental Operations of Real Estate
Projects, to state that the guidance for (a)
incidental operations and (b)
costs incurred to
sell real estate projects does not
apply to real estate time-sharing transactions. The accounting for
those operations and costs is subject to
the guidance in SOP
04-2. This Statement is effective for
financial statements for
fiscal years beginning after June
15, 2005. with
earlier application encouraged. The Company does not anticipate that
the implementation of this standard will have a
material impact on its financial position, results
of operations or cash flows.
On December 16, 2004, the
FASB published Statement of Financial Accounting Standards No. 123 (Revised
2004), Share-Based Payment ("SFAS 123R"). SFAS
123R requires that compensation cost related to share-based
payment transactions be recognized in
the financial statements. Share-based
payment transactions within the scope of
SFAS 123R include stock options,
restricted stock plans, performance-based awards, stock appreciation rights, and
employee share purchase plans. The provisions of SFAS 123R
are effective as of the first interim period that
begins after June
15, 2005. Accordingly, the Company has
implemented the revised standard in the third quarter of
fiscal year 2005. Previously, the Company accounted
for its share-based payment transactions
under the provisions of
APB 25, which does not necessarily require the
recognition of compensation cost in the
financial statements.
On
December 16, 2004, FASB issued Statement of Financial Accounting Standards No.
153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No.
29, Accounting for Nonmonetary Transactions (" SFAS
153"). This statement amends APB Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Under SFAS
153, if a nonmonetary exchange of similar productive assets meets a
commercial-substance criterion and fair value is determinable, the
transaction must be accounted for at
fair value resulting in recognition of
any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods
that begin after June 15, 2005. The
Company does not anticipate that
the implementation of this standard will have
a material impact on
its financial position, results of operations
or cash flows.
In May
2005, the FASB issued FASB Statement No. 154, ("FAS 154"), "Accounting Changes
and Error Corrections." FAS 154 establishes retrospective application as the
required method for reporting a change in accounting principle in the absence of
explicit transition requirements specific to the newly adopted accounting
principle. FAS 154 also provides guidance for determining whether retrospective
application of a change in accounting principle is impracticable and for
reporting a change when retrospective application is impracticable. FAS 154
becomes effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005
In
February 2006, the FASB issued SFAS No. 155. “Accounting for certain Hybrid
Financial Instruments an amendment of FASB Statements No. 133 and 140,”
or SFAS No. 155. SFAS No. 155 permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of Statement No. 133, establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for all financial instruments acquired or
issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006. We do not expect the adoption of SFAS 155 to have a material
impact on our consolidated financial position, results of operations or cash
flows.
In March
2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
Financial Assets - an amendment to FASB Statement No. 140. Statement 156
requires that an entity recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into a
service contract under certain situations. The new standard is effective for
fiscal years beginning after September 15, 2006. The adoption of SFAS No.156 did
not have a material impact on the Company's financial position and results of
operations.
In July
2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting for uncertainty in Income
Taxes”. FIN 48 clarifies the accounting for Income Taxes by prescribing
the minimum recognition threshold a tax position is required to meet before
being recognized in the financial statements. It also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition and clearly scopes income taxes
out of SFAS 5, “Accounting for
Contingencies”. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company does not expect adoption of this standard will
have a material impact on its financial position, operations or cash
flows.
In
September 2006 the FASB issued its Statement of Financial Accounting Standards
157, Fair Value Measurements. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
However, for some entities, the application of this Statement will change
current practice. FAS 157 effective date is for fiscal years beginning after
November 15, 2007. The Company does not expect adoption of this standard will
have a material impact on its financial position, operations or cash
flows.
In
September 2006 the FASB issued its Statement of Financial Accounting Standards
158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans”. This Statement improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. This Statement also improves financial reporting by requiring an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. The effective date for
an employer with publicly traded equity securities is as of the end of the
fiscal year ending after December 15, 2006. The Company does not expect adoption
of this standard will have a material impact on its financial position,
operations or cash flows
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS 159 applies to reporting periods beginning after November 15, 2007. The
adoption of SFAS 159 is not expected to have a material impact on the Company’s
financial condition or results of operations.
Transactions
With Major Customers
The
Company’s largest customer, US Foodservice, Inc. and its affiliates,
accounted for approximately 97%, 94%, and 94% of total sales in the
years ended December 31, 2006, 2005, and 2004,
respectively. A contract with Next Day Gourmet, LP, a subsidiary of
U.S. Foodservice, expires September 11, 2008. Negotiations are underway to
extend the existing contract or to sign a new contract , and the company has
continued to have US Foodservice, Inc. as a customer. Of our remaining
approximately 24 active customers in the year ended December 31, 2006, no other
single customer contributed 1% or more to our net revenue.
We
continue to conduct business with U.S. Food Services.
Critical
Accounting Policy and Accounting Estimate Discussion
Use
of Estimates in the Preparation of Financial Statements
The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. These estimates include certain assumptions related to
doubtful accounts receivable, stock-based services, valuation of financial
instruments, and income taxes. On an on-going basis, we evaluate
these estimates, including those related to revenue recognition and
concentration of credit risk. We base our estimates on historical experience and
on various other assumptions that is believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We believe our estimates have not been
materially inaccurate in past years, and our assumptions are not likely to
change in the foreseeable future.
Stock-Based
Compensation
In December 2002, the
FASB issued SFAS No. 148
- Accounting for Stock-Based Compensation - Transition and
Disclosure. This statement amends SFAS No. 123 - Accounting for Stock-Based
Compensation, providing alternative methods of voluntarily transitioning to the
fair market value based method of accounting for stock based
employee compensation. SFAS 148 also requires disclosure
of the method used to account for
stock-based employee compensation and the effect of the
method in both the annual and interim
financial statements. The provisions of this
statement related to transition methods are effective for
fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for
interim periods beginning after December 31, 2003.
We
elected to continue to account
for stock-based compensation plans using the
intrinsic value-based method of accounting prescribed by
APB No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Under the provisions of APB No.
25, compensation expense is measured at the grant date for the difference
between the fair value of the stock and the exercise price.
From
its inception, the
Company has incurred significant costs
in connection with the issuance of equity-
based compensation, which is comprised
primarily of our common stock
and warrants to acquire our
common stock, to non-employees. The Company
anticipates continuing to incur such costs in order
to conserve its limited financial resources. The determination of the
volatility, expected term and other assumptions used to determine the fair value
of equity based compensation issued
to non-employees under SFAS 123 involves subjective
judgment and the consideration of a variety of factors, including our
historical stock price, option exercise activity to
date and the review of assumptions used by comparable enterprises.
We
account for equity based compensation, issued
to non-employees in exchange for goods or services, in
accordance with the provisions of SFAS No.123 and EITF No.
96-18, "Accounting for Equity Instruments That
are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or
Services".
ITEM 7. Financial Statements
The
financial statements required by this item are included in this report after
Part III Item 14, beginning after page 21.
ITEM 8. Changes in and
Disagreements With Accountants on Accounting and Financial
Disclosure
None.
ITEM 8A. Controls and Procedures
Evaluation
of disclosure controls and procedures.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our principal
executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.
As of the
end of the period covered by this Annual Report, we conducted an evaluation,
under the supervision and with the participation of our Chief Executive Officer
and Principal Accounting Officer, of our disclosure controls and procedures (as
defined in Rules 13a-15(e) of the Exchange Act). Based on that evaluation, our
Chief Executive Officer and Principal Accounting Officer concluded that our
disclosure controls and procedures were not effective in enabling the Company to
record, process, summarize and report information required to be included in the
Company's periodic SEC filings within the required time
period. We are currently completing a review of our personnel,
systems, and procedures, and have hired an accounting consultant to help us
improve our controls. We have also hired a Principal Accounting Officer /
Chief Information Officer with significant experience in
accounting systems. We expect to have these deficiencies resolved for
the filing of our Form 10-KSB for the period ended December 31,
2007.
ITEM 8B. Other Information
Information
regarding the sale of equity and debt securities during the fourth quarter of
2004 is disclosed in the “Table of Securities Issued during 2004”, in Part II,
Item 5.
PART
III
ITEM 9. Directors, Executive Officers, Promoters and control Persons;
Compliance with Section 16(a) of the Exchange Act
Set forth
below are the directors and executive officers of our Company, their respective
names and ages, positions with our Company, principal occupations and business
experiences during at least the past five years.
|
Sam
Klepfish
|
36
|
Interim
President
|
|
|
Z.
Zackary Ziakas
|
46
|
Chief
Operating Officer
|
|
|
Michael
Ferrone
|
60
|
Director
|
|
|
Joel
Gold
|
66
|
Director
|
|
Directors
Sam
Klepfish
Since
March 2006 Mr. Klepfish was the interim president of the Company and
it’s subsidiary. Since February 2005 Mr. Klepfish was also
a Managing Partner at ISG Capital, a merchant bank. From May
2004 through February 2005 Mr. Klepfish served as a Managing
Director of Technoprises, Ltd. From January 2001 to May 2004 he was a
corporate finance analyst and consultant at Phillips Nizer, a New York law
firm. Since January 2001 Mr. Klepfish has been a member of the steering
committee of Tri-State Ventures, a New York investment group. From 1998 to
December 2000, Mr. Klepfish was an asset manager for several investors in
small-cap entities
Joel
Gold, Director
Joel Gold
is currently head of investment banking of Andrew Garrett, Inc., an
investment-banking firm located in New York City, a position he has held since
October 2004. From January 2000 until September 2004, he served as
Executive Vice President of Investment Banking of Berry Shino Securities, Inc.,
an investment banking firm also located in New York City. From January 1999
until December 1999, he was an Executive Vice President of Solid Capital
Markets, an investment-banking firm also located in New York City. From
September 1997 to January 1999, he served as a Senior Managing Director of
Interbank Capital Group, LLC, an investment banking firm also located in New
York City. From April 1996 to September 1997, Mr. Gold was an Executive
Vice President of LT Lawrence & Co., and from March 1995 to April 1996, a
Managing Director of Fechtor Detwiler & Co., Inc., a representative of the
underwriters for the Company’s initial public offering. Mr. Gold was a
Managing Director of Furman Selz Incorporated from January 1992 until March
1995. From April 1990 until January 1992, Mr. Gold was a Managing Director
of Bear Stearns and Co., Inc. (“Bear Stearns”). For approximately 20 years
before he became affiliated with Bear Stearns, he held various positions with
Drexel Burnham Lambert, Inc. He is currently a director, and serves on the
Audit and Compensation Committees, of Geneva Financial Corp., a publicly held
specialty, consumer finance company.
Michael
Ferrone, Director
Michael
Ferrone was Executive Producer and Producer, Bob Vila TV Productions, Inc from
its founding in 1989 to 2000. Michael co-created and developed the T.V. show,
"Bob Vila's Home Again". As Executive Producer, Michael managed all aspects of
creation, production, and distribution of the Show. By integrating brand
extension and sponsor relations, Michael managed the interrelationships between
Bob Vila and business partners including senior executives at Sears, NBC, CBS,
A&E, HGTV, General Motors, and Hearst Publications. In 2002 he co-founded
Building Media, Inc., (BMI) a multimedia education, marketing and
production company committed to promoting best building practices through better
understanding of building science principles. As of 2005, BMI operates as an
independently managed, wholly owned subsidiary of DuPont™.
Executive
Officers
Sam
Klepfish
Z.
Zackary Ziakas, COO
Mr.Ziakas
is the Chief Operating Officer of Innovative Food Holdings and our subsidiary,
Food Innovations, Inc. and has held that position since September 2004. From
November 2001 through September 2004 Mr.
Ziakas was the V.P. of Logistics of our subsidiary Food
Innovations. Prior to that Mr. Ziakas was a manager at Mail Boxes
Etc.
THE
COMMITTEES
The Board
of Directors does not currently have an Audit Committee, a Compensation
Committee, a Nominating Committee or a Governance Committee. The usual functions
of such committees are performed by the entire Board of Directors. We
are currently having difficulties attracting additional qualified directors,
specifically to act as the audit committee financial expert, inasmuch as we are
not current in our public filings and have only limited resources to purchase D
& O insurance. However, we believe that at least a majority of
our directors are familiar with the contents of financial
statements.
Attendance
at Meetings
From
February, 2004 through December 31, 2004, during
2005 and during 2006, the Board of Directors met or acted without a
meeting pursuant to unanimous written consent fourteen times, five times,
and seven times, respectively. No director attended less than 75% of all
scheduled meetings.
We are
not currently subject to the requirements of any stock exchange with respect to
having a majority of “independent directors” although we believe that we meet
that standard inasmuch as Messrs. Gold and Ferrone are “independent” and only
Mr. Klepfish, by virtue of being our Interim President, is not
independent.
Code
of Ethics
We have
adopted a Code of Ethics that applies to each of our employees, including our
principal executive officer and our principal financial officer, as well as
members of our Board of Directors. We have filed a copy of such Code as an
exhibit to this annual report.
Section
16(a) Beneficial Ownership Reporting Compliance
From
February 17, 2004, the date when current management obtained control of the
Company through the fiscal year end at December 31, 2004, none of our officers
and directors filed any Forms 3 or 4. This is due to the fact that they were
unaware of their filing obligations having not been so advised by their then
retained corporate counsel. The SEC's public records reflect that on October 15,
2004, acting under direction of previous counsel, a Form 15 was filed by the
Company indicating that the Company was no longer subject to the filing
requirements of the Exchange Act. We have recently determined that this filing
was in error as we have had, for at least the last three years, more than 45,000
shareholders of record. The Form 15 was withdrawn on June 6,
2006. Each of the persons subject to the reporting requirements of
Section 16(a) have now been advised of their filing obligations and they have
indicated their intention to file the necessary reports. To our knowledge, based
upon responses to questions we directed to such filing persons, none of said
filing persons have made any “short-swing” sales under the provisions of Section
16(b) of the Exchange Act.
ITEM 10. Executive Compensation
The
following table sets forth information concerning the compensation for services
in all capacities rendered to us for the year ended December 31, 2006, of our
Chief Executive Officer and our other executive officers whose annual
compensation exceeded $100,000 in the fiscal year ended December 31, 2006, if
any. We refer to the Chief Executive Officer and these other officers as the
named executive officers. In 2005 and 2004, we had only one named
executive officer, Joe DiMaggio Jr., our CEO. During those years he
received $128,400 and $120,000 in salary, respectively, and in 2004 he also
received 41,800 shares of restricted stock.
SUMMARY
COMPENSATION TABLE
|
Name
and
Principal
Position
|
|
Year
|
|
|
Salary
($)
|
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
|
Option
Awards
($)
|
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Sam
Klepfish
Interim
President
|
|
2006
|
(a)
|
|
$ |
115,697 |
|
(b)
|
|
|
-- |
|
|
$ |
17,500
|
|
(c)
|
|
|
22,500 |
|
(d)
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
155,697 |
|
|
Joe
DiMaggio, Jr.
|
|
2006
|
(e)
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Mr.
Klepfish became an executive officer in March 2006 and was the principal
executive officer since August 14, 2006.
(b)
Consists of $115,697 of salary. $9,000 of this amount has been accrued, and is
convertible into shares of common stock at the election of Mr. Klepfish at a
rate of $0.005 per share (post-reverse split).
(c)
Consists of 350,000 shares (post-reverse split) of common stock.
(d)
Consists of options to purchase 5,000,000 shares (post-reverse split) of the
Company’s common stock at a price of $0.005 per share (post-reverse
split).
(e) Mr.
DiMaggio was CEO until August 14, 2006.
Outstanding
Equity Awards at Fiscal Year-End as of December 31, 2006
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
Name
|
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
|
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
|
Option
Exercise Price
($)
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
(#)
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
($)
|
|
Sam
Klepfish
|
|
5,000,000
|
|
--
|
|
--
|
|
$0.005
|
|
11/20/2011
|
|
--
|
|
--
|
|
--
|
|
--
|
Director
Compensation
|
Name
|
|
Fees
Earned
or
Paid in
Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
(a)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Sam
Klepfish
|
|
|
-- |
|
|
|
-- |
|
|
$ |
22,500 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
22,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Ferrone
|
|
|
-- |
|
|
|
-- |
|
|
$ |
22,500 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
22,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joel
Gold
|
|
|
-- |
|
|
|
-- |
|
|
$ |
22,500 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
22,500 |
|
(a)
consists of options to purchase 5,000,000 shares (post-reverse split) of the
Company’s common stock at an exercise price of $0.005 per share.
Employment
Agreements
Food Innovations,
Inc. has employment agreements with certain officers and
certain employees. The employment agreements provide for
salaries and benefits, including stock grants and extend up to five
years. In addition to salary and benefit provisions, the agreements
include defined commitments should the employer terminate the employee with or
without cause.
SAM
KLEPFISH
The
Company and its Chief Executive Officer Sam Klepfish are parties to an oral
which provides, among other things:
· Mr.
Klepfish is to receive a cash monthly salary in the amount of $10,028
· Mr.
Klepfish’s receives an additional monthly salary of $4500 which is
not paid in cash, but is recorded on a monthly basis as a convertible note
payable. These notes payable are convertible into common stock of the Company at
a rate of $0.005 per share.
Food
Innovations, Inc. and Joe DiMaggio, Jr. were parties to an employment agreement
that was terminated by mutual agreement on August 14, 2006 which, among other
things:
· That Joe
DiMaggio will serve as the company’s CEO
· For a
term of five (5) years, commencing July 15, 2002, subject to earlier
termination by either party in accordance with the Employment
Agreement,
· The Mr.
DiMaggios salary shall be $100,000 per annum, payable by the Company
in regular installments in accordance with the Company’s general payroll
practices,
· Salary
will increase if the Company has weekly revenues of more than
$250,000
Z.
ZACKARY ZIAKAS
Food
Innovations, Inc. and Z. Zackary Ziakas are parties to an employment agreement
which provides, among other things:
· That Mr.
Ziakas will serve as the Company’s Chief Operating Officer,
· For a
term of five (5) years, commencing May 17, 2004, subject to earlier termination
by either party in accordance with the Employment Agreement,
· The Mr.
Ziakas’ salary shall be $95,00 per annum, payable by the Company in regular
installments in accordance with the Company’s general payroll practices,
· Salary
will automatically increase by 10% on a yearly basis.
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Unless
otherwise stated, each person listed below uses the Company’s
address. Pursuant to SEC rules, includes shares that the person has
the right to receive within 60 days.
|
Name
and Address of
|
|
Number
of Shares
|
|
Percent
of
|
|
|
Beneficial
Owners
|
|
Beneficially
Owned
|
|
Class
|
|
|
|
|
|
|
|
|
|
|
Sam
Klepfish
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
|
|
20,650,000 |
(1 |
) |
|
11.7 |
% |
|
Michael
Ferrone
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
|
|
62,424,778 |
(2 |
) |
|
34.5 |
% |
|
Joel
Gold
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
|
|
28,886,141 |
(3 |
) |
|
14.4 |
% |
|
Z
Ziakas
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
|
|
4,100,000 |
(4 |
) |
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Joseph
DiMaggio Jr.
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
|
|
14,800,000 |
|
|
|
8.6 |
% |
|
Christopher
Brown
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
|
|
15,000,000 |
|
|
|
8.7 |
% |
|
Wally
Giakas
1923
Trade Center Way, Suite One
Naples,
Florida 34109
|
|
|
20,262,501 |
(5 |
) |
|
10.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
All
officers and directors as
|
|
|
|
|
|
|
|
|
|
a
whole (4 persons)
|
|
|
116,060,919 |
|
|
|
48.8 |
% |
|
(1)
|
Includes
350,000 shares (post-reverse
split) of common stock held by Mr. Klepfish. Also includes options
to purchase 5,000,000 shares (post reverse-split) of the Company’s common
stock,
and 15,300,000 shares issuable upon conversion of convertible notes
payable.
|
|
(2)
|
Includes
43,600,000 shares (post-reverse
split) of common stock held by Mr. Ferrone, and an aggregate of
420,000 shares (post reverse-split) held by
relatives of Mr. Ferrone. Also includes 4,000,000 shares (post-reverse
split) issuable upon conversion of notes held by children of Mr.
Ferrone; Also includes 8,521,002 shares (post-reverse
split) issuable upon conversion of accrued interest on notes
payable held by Mr. Ferrone, and 883,776 shares (post-reverse
split) issuable upon conversion of accrued interest on notes held
by children of Mr. Ferrone. Also includes options to
purchase 5,000,000 shares (post-reverse
split) of the Company's common stock held by Mr.
Ferrone.
|
|
(3)
|
Includes
1,000,000 shares (post-reverse
split) of common stock held by Mr. Gold, and options to purchase
5,000,000 shares (post-reverse
split) of common stock.
|
|
|
Also
includes 6,000,000 shares (post-reverse
split) issuable upon conversion of notes held by Mr. Gold, and
3,301,503 shares(post-reverse
split) issuable upon conversion of accrued interest on notes held
by Mr. Gold. Also includes 10,000,000 shares (post-reverse
split) issuable upon conversion of notes held by Mr.
Gold 2,664,638 shares (post-reverse
split) issuable upon conversion of accrued interest on notes held
by Mr. Gold. Also includes 920,000 shares (post-reverse
split) of common stock held by Mr. Gold's spouse.
|
|
(4)
|
Includes
3,800,000 shares (post-reverse
split) of common stock held by Mr. Ziakas, and options to purchase
500,000 shares (post-reverse
split) of common stock.
|
|
(5)
|
Includes
125,000,000 shares (post-reverse
split) issuable upon conversion of notes payable, and 32,622,529
shares (post-reverse
split) issuable upon conversion of accrued interest on notes
payable. Also includes 92,000,000 shares (post-reverse
split) issuable as a penalty for late registration of shares of
common stock underlying convertible notes payable, and warrants
to purchase an additional 148,200,000 shares (post-reverse
split) of common stock. Also includes 100,000 shares (post-reverse
split) of common stock held by the children of Mr.
Giakas.
|
ITEM 12. Certain Relationships and Related Transactions
At
various times in 2004, 2005, and 2006, we entered into note payable agreements
with certain related parties. The information concerning those notes is set
forth below:
|
Note
Holder
|
Relationship
|
Consideration
|
|
Interest
Rate
|
|
|
|
Conversion
Price
|
|
|
Principal
Balance December 31, 2004
|
|
|
Principal
Balance December 31, 2005
|
|
|
Principal
Balance December 31, 2006
|
|
|
Michael
Ferrone
|
Director
|
Cash
|
|
|
8 |
% |
|
|
$ |
0.005 |
|
|
$ |
160,000 |
|
|
$ |
160,000 |
|
|
$ |
160,000 |
|
|
Michael
Ferrone
|
Director
|
Cash
|
|
|
8 |
% |
(a)
|
|
$ |
0.005 |
|
|
|
75,000 |
|
|
|
75,000 |
|
|
|
75,000 |
|
|
Joel
Gold
|
Director
|
Cash
|
|
|
8 |
% |
|
|
$ |
0.005 |
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
50,000 |
|
|
Joel
Gold
|
Director
|
Cash
|
|
|
8 |
% |
|
|
$ |
0.005 |
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
25,000 |
|
|
Joel
Gold
|
Director
|
Cash
|
|
|
8 |
% |
|
|
$ |
0.005 |
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
Lauren
M. Ferrone (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
|
|
8 |
% |
(a)
|
|
$ |
0.005 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
Richard
D. (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
|
|
8 |
% |
(a)
|
|
$ |
0.005 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
Christian
D. (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
|
|
8 |
% |
(a)
|
|
$ |
0.005 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
Andrew
I. Ferrone (child of Michael Ferrone)
|
Child
of Director
|
Cash
|
|
|
8 |
% |
(a)
|
|
$ |
0.005 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
Sam
Klepfish
|
Director
and Interim President
|
Services
|
|
|
8 |
% |
|
|
$ |
0.005 |
|
|
|
- |
|
|
|
- |
|
|
|
9,000 |
|
(a) In
default at December 31, 2004, 2005, and 2006.
During
the year ended December 31, 2004, the Company had the following transactions
with related parties:
The
Company received loans in the amount of $160,000 and $75,000 from
Michael Ferrone, and in the amount of $10,000 from each of four children of Mr.
Ferrone.
The
Company received loans in the amount of $50,000 and $100,000 from Joel
Gold.
During
the year ended December 31, 2005, the Company had the following transactions
with related parties:
The
Company received a loan in the amount of $25,000 from Joel Gold.
During
the year ended December 31, 2006, the Company had the following transactions
with related parties:
In June
2006, the Company converted $75,000 of the note payable to Joel Gold to
15,000,000 shares (post-reverse split) of common stock.
In May
2006, the Company issued 450,000 shares (post-reverse split) of common stock
with a fair value of $16,200 to each of its Chief Operating Officer and acting
Chief Financial Officer.
In May
2006, the Company issued 350,000 shares (post-reverse split) of commons stock
with a fair value of $17,500 to its Chief Executive Officer.
In
November 2006, the Company issued options to purchase 5,000,000 shares of common
stock at a price of $0.005 per share to each of its board members: Joel Gold,
Michael Ferrone, and Sam Klepfish.
|
3.1
|
Articles
of Incorporation (incorporated by reference to exhibit 3.1 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
|
|
|
3.2
|
Bylaws
of the Company
|
|
|
|
|
4.1
|
Form
of Convertible Note (incorporated by reference to exhibit 4.1 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
|
|
|
4.2
|
Form
of Convertible Note (incorporated by reference to exhibit 4.2 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
|
|
|
4.3
|
Form
of Warrant - Class A (incorporated by reference to exhibit 4.3 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
|
|
|
4.4
|
Form
of Warrant - Class B (incorporated by reference to exhibit 4.4 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
|
|
|
4.5
|
Form
of Warrant - Class C (incorporated by reference to exhibit 4.5 of the
Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
|
|
|
10.1
|
Lease
of the Company's offices at Naples, Florida (incorporated by reference to
exhibit 10.1 of the Company’s annual report on Form 10-KSB for the year
ended December 31, 2004 filed with the Securities and Exchange Commission
on September 28, 2005).
|
|
|
|
|
10.2
|
Security
and Pledge Agreement – IVFH (incorporated by reference to exhibit 10.2 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
|
|
|
10.3
|
Security
and Pledge Agreement – FII (incorporated by reference to exhibit 10.3 of
the Company’s annual report on Form 10-KSB for the year ended December 31,
2004 filed with the Securities and Exchange Commission on September 28,
2005).
|
|
|
|
|
10.4
|
Supply
Agreement with Next Day Gourmet, L.P. (incorporated by
reference to exhibit 10.4 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28, 2005).
|
|
|
|
|
10.5
|
Subscription
Agreement (incorporated by reference to exhibit 10.5 of the Company’s
annual report on Form 10-KSB for the year ended December 31, 2004 filed
with the Securities and Exchange Commission on September 28,
2005).
|
|
|
|
|
10.6
|
Management
contract between the Company and Joseph DiMaggio,
Jr. (incorporated by reference to exhibit 10.2 of the Company’s
annual report on Form 10-KSB for the year ended December 31, 2005 filed
with the Securities and Exchange Commission on April 17,
2006).
|
|
|
|
|
10.7
|
Management
contract between the Company and Z. Zackary Ziakas (incorporated by
reference to exhibit 10.3 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2005 filed with the Securities and
Exchange Commission on April 17, 2006).
|
|
|
|
|
10.8
|
Agreement
and Plan of Reorganization between IVFH and FII. (incorporated by
reference to exhibit 10.6 of the Company’s annual report on Form 10-KSB
for the year ended December 31, 2004 filed with the Securities and
Exchange Commission on September 28, 2005).
|
|
|
|
|
14
|
Code
of Ethics
|
|
|
|
|
21
|
Subsidiaries
of the Company
|
|
|
|
|
31.1
|
Rule
13a-14(a) Certification of President
|
|
|
|
|
31.2
|
Rule
13a-14(a) Certification of Principal Financial Officer
|
|
|
|
|
32.1
|
Rule
1350 Certification of President
|
|
|
|
|
32.2
|
Rule
1350 Certification of Principal Financial
Officer
|
ITEM 14. Principal Accountant Fees and Services
Audit
Fees
The
aggregate fees billed for each of the last three fiscal years for professional
services rendered by Bernstein & Pinchuk LLP (“Accountant”) for
the audit of our annual financial statements, and review of financial statements
included in our Form 10-QSB's: 2006:
$75,000; 2005: $75,000 and 2004: $65,000
Audit-Related
Fees
The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by Accountant that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported under Audit Fees above: $0
Tax Fees
The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by Accountant: $0.
All Other
Fees
The
aggregate fees billed in each of the last two fiscal years for products and
services provided by Bernstein & Pinchuck, other than the
services reported above: $0.
Report of Independent
Registered Public Accounting Firm
To the
Board of Directors and Shareholders of
Innovative
Food Holdings, Inc.
Naples,
Florida
We have
audited the accompanying balance sheets of Innovative Food Holdings, Inc and
subsidiary (“the Company”) as of December 31, 2006, 2005 and 2004 and the
related statements of operations, stockholders' deficiency, and cash flows for
each of the three years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have nor were we engaged to perform, an audit of its Internal
Control over financial reporting. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2006, 2005 and 2004 and the results of its operations and its cash flows for
each of the three years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1,
the Company has incurred significant losses from operations since its inception
and has a working capital deficiency. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note
1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As more
fully described in Note 17, subsequent to the issuance of the Company’s 2004
financial statements and our report thereon dated April 27, 2005 and the
Company’s 2005 financial statements and our report dated March 03, 2006, except
for Note 7, for which the date is April 10, 2006, the Company restated those
financial statements, expanded certain disclosures and added new ones. In our
original reports we expressed unqualified opinions on the 2004 and 2005
financial statements, and our opinion on the revised financial statements, as
expressed herein, remains unqualified.
/s/
Bernstein & Pinchuk LLP
New York,
New York
August
24, 2007