10-Q 1 innovativefood10q093011.htm innovativefood10q093011.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
 

 
FORM 10-Q
 

 
x  Quarterly report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
For the quarterly period ended September 30, 2011

o  Transition report pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to _________.

Commission File Number: 0-9376

INNOVATIVE FOOD HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)

Florida
(State of or Other Jurisdiction of Incorporation or Organization)
20-1167761
(IRS Employer I.D. No.)

3845 Beck Blvd., Suite 805
Naples, Florida 34114
(Address of Principal Executive Offices)

(239) 596-0204
(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant : (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x  NO o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES x  NO o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
(Check One):
Large Accelerated filer o
Accelerated filer                   o
Non-accelerated filer    o
(Do not check if a smaller reporting company)
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Regulation 12b-2 of the Exchange Act):   YES o  NO x
 
State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  240,039,549 Common Shares outstanding at November 4, 2011.
 
 
INNOVATIVE FOOD HOLDINGS, INC.
TABLE OF CONTENTS TO FORM 10-Q

 
 
ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Innovative Food Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
ASSETS
 
(Unaudited)
       
Current assets
           
    Cash and cash equivalents
 
$
554,073
   
$
518,082
 
    Accounts receivable, net
   
400,324
     
427,559
 
    Loan receivable, net
   
-
     
138,050
 
    Inventory
   
28,742
     
52,657
 
    Other current assets
   
8,601
     
5,420
 
Total current assets
   
991,740
     
1,141,768
 
                 
Property and equipment, net
   
21,318
     
23,788
 
Total assets
 
$
1,013,058
   
$
1,165,556
 
                 
LIABILITIES AND  STOCKHOLDERS' DEFICIENCY
               
                 
Current liabilities
               
     Accounts payable and accrued liabilities
 
$
843,483
   
$
815,161
 
     Accrued liabilities - related parties
   
109,781
     
244,645
 
     Accrued interest, net
   
681,097
     
646,876
 
     Accrued interest - related parties, net
   
38,822
     
197,786
 
     Notes payable, net of discount
   
1,098,791
     
1,022,061
 
     Notes payable - related parties
   
130,500
     
345,500
 
     Warrant liability
   
819,675
     
1,183,175
 
     Options liability
   
259,059
     
336,719
 
     Conversion option liability
   
1,748,541
     
2,465,565
 
          Total current liabilities
   
5,729,749
     
7,257,488
 
                 
 Stockholders’ deficiency
               
   Common stock, $0.0001 par value; 500,000,000 shares authorized;
       240,039,549 issued and outstanding as of September 30, 2011
      and 216,385,103 shares issued and outstanding as of December 31, 2010
   
24,004
     
21,639
 
  Additional paid-in capital
   
3,269,918
     
2,584,146
 
  Common stock subscribed
   
96,117
     
-
 
  Treasury stock, 15,200 and no shares as of September 30, 2011 and December 31, 2010, respectively
   
(99
)
   
-
 
  Accumulated deficit
   
(8,106,631
)
   
(8,697,717
)
      Total  stockholders’ deficiency
   
(4,716,691
)
   
(6,091,932
)
                 
  Total liabilities and stockholders’ deficiency
 
$
1,013,058
   
$
1,165,556
 
 
 See notes to these unaudited condensed consolidated financial statements.
 
 
Innovative Food Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(UNAUDITED)
 
   
For the Three
   
For the Three
   
For the Nine
   
For the Nine
 
   
Months Ended
   
Months Ended
   
Months Ended
   
Months Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
                         
Revenue
 
$
2,892,204
   
$
2,361,192
   
$
8,140,010
   
$
6,958,099
 
                                 
Cost of goods sold
   
2,404,888
     
1,867,714
     
6,335,738
     
5,452,502
 
Gross margin     
487,316
     
493,478
     
1,804,272
     
1,505,597
 
                                 
Selling, general and administrative expenses
   
573,798
     
459,843
     
1,502,517
     
1,553,481
 
      Total operating expenses
   
573,798
     
459,843
     
1,502,517
     
1,553,481
 
                                 
Operating profit (loss)
   
(86,482
   
33,635
     
301,755
     
(47,884
)
                                 
Other (income) expense:
                               
  Interest expense
   
117,427
     
104,374
     
503,526
     
276,271
 
  Fair value of warrants issued in excess of discount on notes
   
-
     
-
     
-
     
948,040
 
  Gain from the extinguishment of debt
   
-
     
-
     
(165,325
)
   
-
 
 Gain from change in fair value of warrant liability
   
(64,032
)
   
(274,879
   
(363,500
)
   
(117,215
  (Gain) loss from change in fair value of conversion option liability
   
1,769
     
(140,630
   
(264,032
)
   
1,186,706
 
      Total other (income) expense
   
55,164
     
(311,135
   
(289,331
)
   
2,293,802
 
                                 
 Income (Loss) before income taxes
   
(141,646
   
344,770
     
591,086
     
(2,341,686
)
                                 
 Income tax expense
   
-
     
-
     
-
     
-
 
                                 
Net income (loss)
 
$
(141,646
 
$
344,770
   
$
591,086
   
$
(2,341,686
)
                                 
Net income (loss) per share - basic
 
$
(0.001
 
$
0.002
   
$
0.003
   
$
(0.012
)
                                 
Net income (loss) per share - diluted
 
$
(0.001
 
$
0.000
   
$
0.001
   
$
(0.012
)
                                 
Weighted average shares outstanding - basic
   
221,059,624
     
199,615,538
     
209,673,892
     
194,750,711
 
                                 
Weighted average shares outstanding - diluted
   
221,059,624
     
706,607,190
     
746,738,746
     
194,750,711
 

See notes to these unaudited condensed consolidated financial statements.
 
 
Innovative Food Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(UNAUDITED)
 
   
For the Nine
   
For the Nine
 
   
Months Ended
   
Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
   Net income (loss)
 
$
591,086
   
$
(2,341,686
  Adjustments to reconcile net income (loss) to net
   cash provided by  operating activities:
               
   Depreciation and amortization
   
10,938
     
20,674
 
   Fair value of common stock issued to consultants
   
-
     
6,000
 
   Fair value of extension in term of warrants issued to noteholders
   
-
     
948,040
 
   Fair value of stock options vested by officers and directors
   
-
     
125,862
 
   Amortization of discount on notes payable
   
292,546
     
66,247
 
   Amortization of discounts on accrued convertible interest
   
118,764
     
95,707
 
   Gain on extinguishment of debt
   
(165,325
)
   
-
 
   Allowance for bad debt
   
136,550
     
22,165
 
   Change in fair value of warrant liability
   
(363,500
   
(117,215
   Change in fair value of option liability
   
(77,660
   
81,541
 
   Change in fair value of conversion option liability
   
(264,032
   
1,186,706
 
   Changes in assets and liabilities:
               
        Accounts receivable
   
27,235
     
(23,605
)
        Inventory and other current assets, net
   
20,734
     
(21,088
)
        Accrued liability and accrued interest - related party, net
   
(128,522
   
33,777
 
        Accounts payable and accrued interest
   
71,356
     
214,044
 
   Net cash provided by operating activities
   
270,170
     
297,169
 
                 
Cash flows from investing activities:
               
  Principal received on loan, net
   
1,500
     
5,000
 
  Purchase of treasury stock
   
(99
)
   
-
 
   Acquisition of property and equipment
   
(8,468
)
   
(8,078
)
   Net cash used in investing activities
   
(7,067
)
   
(3,078
)
                 
Cash flows from financing activities:
               
  Principal payments on debt – related parties
   
(50,000)
     
  -
 
    Principal payments on debt
   
(177,112
)
   
(60,376
)
   Net cash used in financing activities
   
(227,112
)
   
(60,376
)
                 
Net increase  in cash and cash equivalents
   
35,991
     
233,715
 
                 
Cash and cash equivalents at beginning of period
   
518,082
     
144,765
 
                 
Cash and cash equivalents at end of period
 
$
554,073
   
$
378,480
 
 
See notes to these unaudited condensed consolidated financial statements.
 
 
Innovative Food Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(UNAUDITED) (continued)
 
   
For the Nine
Months Ended
September 30,
2011
   
For the Nine
Months Ended
September 30,
2010
 
Supplemental disclosure of cash flow information:
           
             
Cash paid during the period for:
           
Interest
 
$
31,501
   
$
675
 
                 
Taxes
 
$
-
   
$
-
 
                 
Conversion of notes payable and accrued interest to common stock
 
$
32,355
   
$
84,982
 
                 
Conversion of notes payable and accrued interest to common stock subscribed
 
$
210,494
   
$
-
 
                 
Issuance of common stock previously subscribed   $ 114,377     $ -  


 
 
See notes to these unaudited condensed consolidated financial statements.
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
 
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS
 
Basis of Presentation
 
The accompanying unaudited interim condensed consolidated financial statements of Innovative Food Holdings, Inc., and its wholly owned subsidiaries, Food Innovations, Inc. (“FII”), Food New Media Group, Inc. (“FNM”), Gourmet Foodservice Group, Inc. (“GFG”),  and 4 The Gourmet, Inc (d/b/a For The Gourmet, Inc.) (“Gourmet”) (collectively, the “Company, or “IVFH”),  have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  FNM currently holds the Company’s intellectual property rights related to it’s private label brand. 
 
The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company, in accordance with generally accepted accounting principles pursuant to Regulation S-X of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Accordingly, these interim financial statements should be read in conjunction with the Company’s financial statements and related notes as contained in Form 10-K for the year ended December 31, 2010. In the opinion of management, the interim unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, necessary for fair presentation of the interim periods presented. The results of the operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results of operations to be expected for the full year.
 
2. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
 
Business Activity
 
FII is in the business of providing premium white tablecloth restaurants with the freshest origin-specific perishables and specialty food products direct from its network of vendors to the end users (restaurants, hotels, country clubs, national chain accounts, casinos, and catering houses) within 24 - 72 hours.  During the three and nine months ended September 30, 2011, approximately 94% and 93%, respectively, of our products were sold through a distributor relationship with US Foodservice, Inc. and its affiliates (“USF”), a $20 Billion broadline distributor, as compared to approximately 94% during the third quarter of 2010.
 
Gourmet, through its website, and through additional sales channels, provides the highest quality gourmet food products to the retail consumer market under the For The Gourmet line and to the professional chef market under the For The Gourmet Pro line.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.
 
Principles of Consolidation
 
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned operating subsidiary, Food Innovations, Inc. and its other wholly-owned subsidiaries FNM, GFG and Gourmet. All material intercompany transactions have been eliminated upon consolidation of these entities.
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

Revenue Recognition
 
The Company recognizes revenue upon product delivery. We ship all our products either overnight shipping terms or up to three day shipping terms to the customer and the customer takes title to product and assumes risk and ownership of the product when it is delivered. Shipping charges to customers and sales taxes collectible from customers, if any, are included in revenues.

For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board “FASB” Accounting Standards Codification “ASC” 605-15-05. ASC 605-15-05 requires that four basic criteria must be met before revenue can be recognized:  (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling   price is fixed and   determinable; and (4) collectability is reasonably assured.  Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.  Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.  The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.  ASC 605-15-05 incorporates ASC 605-25-05 "Multiple-Deliverable Revenue Arrangements".   ASC 605-25-05 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. 
 
This issue addresses determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the arrangement consideration should be measured and allocated to the separate units of accounting.  ASC 605-25-05 became effective for revenue arrangements entered into in periods beginning after June 15, 2003.  For revenue arrangements occurring on or after August 1, 2003, the Company revised its revenue recognition policy to comply with the provisions of ASC 605-25-05. The effect of implementing ASC 605-25-05 on the Company's consolidated financial position and results of operations was not significant.
 
 
Cost of Goods Sold
 
We have included in cost of goods sold all costs which are directly related to the generation of revenue. These costs include primarily the cost of the product plus the shipping costs.
 
Selling, General, and Administrative Expenses

We have included in selling, general, and administrative expenses all other costs which support the Company’s operations but which are not includable as a cost of sales. These include primarily payroll, facility costs such as rent and utilities, selling expenses such as commissions and advertising, and other administrative costs including professional fees.  Advertising costs are expensed as incurred.
 
Cash and Cash Equivalents
 
Cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations.
 
Accounts Receivable
 
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts.  The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable.  It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change.  Accounts receivable are presented net of an allowance for doubtful accounts of $5,091 and $22,061 at September 30, 2011 and December 31, 2010, respectively.
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
  
Property and Equipment
 
Property and equipment are valued at cost.  Depreciation is provided over the estimated useful lives up to five years using the straight-line method.  Leasehold improvements are depreciated on a straight-line basis over the term of the lease.
 
The estimated service lives of property and equipment are as follows:
 
Computer Equipment
                             3 years
Office Furniture and Fixtures 
                             5 years
 
Inventories
 
Inventory is valued at the lower of cost or market and is determined by the first-in, first-out method.
 
Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics.  Realization of the deferred tax asset is dependent on generating sufficient taxable income in future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
 
Fair Value of Financial Instruments

The carrying amount of the Company’s cash and cash equivalents, accounts receivable, notes payable, line of credit, accounts payable and accrued expenses, none of which is held for trading, approximates their estimated fair values due to the short-term maturities of those financial instruments.

The Company adopted ASC 820-10, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP.  ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  ASC 820-10 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. 

Long-Lived Assets
 
The Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
 
As of September 30, 2011, the Company’s management believes there is no impairment of its long-lived assets.  There can be no assurance, however, that market conditions will not change which could result in impairment of long-lived assets in the future.
 
Comprehensive Income

ASC 220-10-15 “Reporting Comprehensive Income,” establishes standards for reporting and displaying of comprehensive income, its components and accumulated balances.  Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.  Among other disclosures, ASC 220-10-15 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements.  The Company does not have any items of comprehensive income in any of the periods presented.
 
Advertising

The Company follows the policy of charging the costs of advertising to expenses incurred. The Company incurred advertising costs in the amount of $8,467 and $8,727 for the three and $25,949 and $18,293 for the nine months ended September 30, 2011 and 2010, respectively.

Basic and Diluted Income (Loss) Per Share

Basic net earnings per share is based on the weighted average number of shares outstanding during the period, while fully-diluted net earnings per share is based on the weighted average number of shares of common stock and potentially dilutive securities assumed to be outstanding during the period using the treasury stock method. Potentially dilutive securities consist of options, warrants, and convertible notes to purchase common stock. Basic and diluted net loss per share is computed based on the weighted average number of shares of common stock outstanding during the period.
 
The Company uses the treasury stock method to calculate the impact of outstanding stock options and warrants. Stock options and warrants for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on earnings per common share and, accordingly, are excluded from the calculation. For the three and nine months ended September 30, 2011, diluted net loss per share does not include potential common shares derived from convertible notes payable, stock options and warrants because as a result of the Company incurring losses, their effect would have been anti-dilutive.
 
Diluted earnings per shares was computed as follows for the nine months ended September 30, 2011:

   
Income
   
Shares
   
Per-Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
Basic earnings per share
 
$
591,086
     
  240,039,549
   
$
         0.0025
 
                         
Effect of  Dilutive Securities:
                       
    Warrants and options
           
   79,244,355
         
Conversion of  notes and interest to common stock:
                       
Additional shares reserved for convertible principal and interest
           
390,886,000
         
Decrease in interest expense due to assured conversion
   
483,332
                 
Remove gain on revaluation of conversion option liability
   
(974,669
)
               
   Shares accrued, not yet issued
           
36,568,842
         
                         
Diluted earnings per share
 
$
99,749
     
746,738,746
   
$
0.0001
 
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
  
Anti-dilutive shares for the nine months ended September 30, 2011:
 
For the nine months ended September 30, 2011, the Company excluded warrants to purchase 93,500,000 shares because the warrant exercise prices were greater than the average market price of the common shares.  In addition, the Company also excluded 19,875,000 shares issuable upon the exercise of options at $0.009-$0.0096 per share.

Going Concern

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern.  The Company’s current liabilities exceeded its current assets by $4,738,009 and $6,115,720 as of September 30, 2011 and December 31, 2010, respectively.   However, the Company has reported a net loss for the three and a net income for the nine months ended September 30, 2011, and a net loss for the year ended December 31, 2010.  The net loss for the twelve months ended December 31, 2010 was due to non-cash charges primarily related to issuance of common stock warrants and changes in fair values of conversion features of debt.

The Company is working to manage its current liabilities while it continues to make changes in operations to further improve its cash flow and liquidity position. Management believes the Company will generate sufficient capital from operations and from debt and equity financing in order to satisfy current liabilities in the succeeding twelve months.  Management’s belief is based on the Company’s operating plans, which in turn is based on assumptions that may prove to be incorrect.

If the Company’s the cash flow from operations is insufficient, the Company may require additional financing in order to execute its operating plan and continue as a going concern.  The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all.  In any of these events, the Company may be unable to implement its current plans for expansion, repay its debt obligations as they become due or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations. The Company has not made any adjustments to the financial statements which would be necessary should the Company not be able to continue as a going concern.

Concentrations of Credit Risk
 
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash in investments with credit quality institutions. At times, such investments may be in excess of applicable government mandated insurance limit. At September 30, 2011 and 2010, trade receivables from the Company’s largest customer amounted to 94% and 97%, respectively, of total trade receivables.   
 
Stock-Based Compensation

Effective January 1, 2006, the Company adopted FASB ASC 718-40. This statement requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.  That cost is recognized over the period in which the employee is required to provide service in exchange for the award, which is usually the vesting period.

In August 2005, the Company’s commitments to issue shares of common stock first exceeded its authorized common stock. At this time, the Company began to value its stock options via the liability method of accounting. Pursuant to guidance in ASC 718-40 the cost of these options are valued via the Black-Scholes valuation method when issued, and re-valued at each reporting period.  The gain or loss from this revaluation is charged to operations during the period.  Options expense and gain or loss on revaluation during the three and nine months ended September 30, 2011 and 2010 are summarized in the table below: 

   
For the three months
   
For the Nine Months
 
   
ended
   
ended
 
   
9/30/2011
   
9/30/2010
   
9/30/2011
   
9/30/2010
 
                         
Option expense
 
$
-
   
$
46,420
   
$
-
   
$
125,862
 
                                 
(Gain) loss on revaluation of options
 
$
(13,087
)
 
$
(42,817
 
$
(77,660
)
 
$
81,541
 
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

Significant Recent Accounting Pronouncements
 
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

3. ACCOUNTS RECEIVABLE
 
At September 30, 2011 and December 31, 2010, accounts receivable consists of:
 
   
September 30,
2011
   
December 31,
2010
 
Accounts receivable from customers
 
$
405,415
   
$
449,620
 
Allowance for doubtful accounts
   
(5,091
)
   
(22,061
)
Accounts receivable, net
 
$
400,324
   
$
427,559
 
 
4.  LOAN RECEIVABLE

The balance of loan receivable consisted of a loan to Pasta Italiana, Inc. (“Pasta”) in the net carrying amount of $0 at September 30, 2011 and $138,050 at December 31, 2010, respectively.  This note bears interest at the rate of 15% per annum, payable in shares of Pasta stock.  The company has not received a  payment on this loan since March, 2011; the entire amount of this loan is currently past due. During the three months ended September 30, 2011, the Company reserved the remaining amount of the loan receivable to Pasta Italiana, Inc. in the amount of $136,550. The Company increased its reserve for this loan in order to maintain a conservative financial statement presentation.   We intend to vigorously pursue collection activities and we will re-evaluate our reserve in future periods; any receipt of funds from Pasta will result in a credit to operations in the period received.  
 
5. INVENTORY

Inventory consists of molecular gastronomy products and other products which are warehoused in Naples, Florida; and prepaid products held by our vendors. At September 30, 2011 and December 31, 2010, finished goods inventory was $28,742 and $52,657, respectively.
  
6. PROPERTY AND EQUIPMENT

A summary of property and equipment at September 30, 2011 and December 31, 2010, is as follows:

   
September 30,
2011
   
December 31,
2010
 
Computer equipment
 
$
321,716
   
$
320,800
 
Furniture and fixtures
   
74,850
     
67,298
 
     
396,566
     
388,098
 
Less accumulated depreciation and amortization
   
(375,248
   
(364,310
Total
 
$
21,318
   
$
23,788
 
 
Depreciation and amortization expense amounted to $3,086 and $4,970 for the three months ended September 30, 2011 and 2010, respectively. Depreciation and amortization expense amounted to $10,938 and $20,674 for the nine months ended September 30, 2011 and 2010, respectively.
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
Accounts payable and accrued liabilities at September 30, 2011 and December 31, 2010 are as follows:
 
   
September 30,
2011
   
December 31,
2010
 
Trade payables
 
$
836,647
   
$
788,137
 
Accrued payroll and commissions
   
6,836
     
27,024
 
Total accounts payable and accrued liabilities  - non-related parties
 
$
843,483
   
$
815,161
 
 
At September 30, 2011 and December 31, 2010, accrued liabilities to related parties in the amounts of $109,781 and $244,645, respectively, consisted of accrued payroll and payroll related benefits.
 
8. ACCRUED INTEREST

Accrued interest on the Company’s convertible notes payable is convertible at the option of the note holders into the Company’s common stock at price ranging from of $0.005 to $0.010 per share.  There is a beneficial conversion feature embedded in the convertible accrued interest, which can be exercised at any time by the note holders. The Company is amortizing this beneficial conversion feature over the life of the related notes payable.  Certain of the notes payable have exceeded their stated terms, and are still outstanding; in those instances, the Company expenses the value of the beneficial conversion feature on the accrued interest immediately.

During the three months ended September 30, 2011 and 2010, the amounts of $25,297 and $33,492, respectively, were credited to additional paid-in capital as a discount on convertible interest. The aggregate amount of discounts on convertible interest charged to operations during the three months ended September 30, 2011 and 2010 was $35,964 and $33,482, respectively.

During the nine months ended September 30, 2011 and 2010, the amounts of $86,080 and $101,344, respectively, were credited to additional paid-in capital as a discount on convertible interest. The aggregate amount of amortization of discounts on accrued convertible interest charged to operations during the nine months ended September 30, 2011 and 2010 was $118,764 and $95,707, respectively.

At September 30, 2011 and December 31, 2010, the Company has the following accrued interest on its balance sheet:

September 30, 2011:
 
Gross
   
Discount
   
Net
 
Non-related parties
 
$
686,317
   
$
(5,220
 
$
681,097
 
Related parties
   
38,822
     
-
     
38,822
 
Total
 
$
725,139
   
$
(5,220
 
$
719,919
 

December 31, 2010:
 
Gross
   
Discount
   
Net
 
Non-related parties
 
$
685,448
   
(38,572
)
 
$
646,876
 
Related parties
   
197,786
     
-
     
197,786
 
Total
 
$
883,234
   
$
38,572
   
$
844,662
 
 
Certain of the accrued interest is convertible in to shares of the Company’s common stock at $0.005 per share. At September 30, 2011, convertible accrued interest was $725,139 which is convertible into 145,027,800 shares of common stock; at December 31, 2010, convertible accrued interest was $844,662 which was convertible into 165,053,920 shares of common stock.
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

9. NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES

   
September 30,
2011
   
December 31,
2010
 
Convertible secured note payable in the original amount of $350,000 originally payable to Alpha Capital Aktiengesselschaft (“Alpha Capital”), dated February 25, 2005. This note consists of $100,000 outstanding under a previous note payable which was cancelled on February 25, 2005, and $250,000 of new borrowings. We did not meet certain of our obligations under the loan documents relating to this issuance.  These lapses include not reserving the requisite number of treasury shares, selling subsequent securities without offering a right of first refusal, not complying with reporting obligations, not having our common shares quoted on the OTC:BB and not timely registering certain securities.  This note entered technical default status on May 16, 2005.  The note originally carried interest at the rate of 8% per annum, and was due in full on February 24, 2007.  Upon default, the note’s interest rate increased to 15% per annum, and the note became immediately due. This note contains a cross default provision. The note is convertible into common stock of the Company at a conversion price of $0.005 per share. A beneficial conversion feature in the amount of $250,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2005. Accrued interest is convertible into common stock of the Company at a conversion price of $0.005 per share. Interest in the amount of $6,532 and $6,956 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $19,996 and $20,641 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the twelve months ended December 31, 2006 the note holder converted $5,000 into shares of common stock. During the twelve months ended December 31, 2006 the holder of the note converted $27,865 of accrued interest into common stock. During the nine months ended September 30, 2011, the note holder converted $21,000 of principal and $11,355 of accrued interest into 6,471,033 shares of common stock. This note was initially past due at December 31, 2008. This note was previously extended until January 1, 2010. During the three months ended June 30, 2010, the noteholder agreed to further extend the maturity date of this note until April 15, 2011. This note is past due as of September 30, 2011.
 
 $
 324,000 
   
 $
 345,000
 
             
Convertible note payable in the original amount of $100,000 originally payable to Joel Gold, a board member and related party, dated October 12, 2004. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was due in full on October 12, 2006. The note is convertible by the holder into common stock of the Company at a conversion price of $0.005 per share.  A beneficial conversion feature in the amount of $100,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2004 and 2005. Accrued interest is convertible by the holder into common stock of the Company at maturity of the note at a price of $0.005 per share. Interest in the amount of $0 and $504 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $810 and $1,495 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the twelve months ended December 31, 2006, $75,000 of the principal amount was converted into common stock. During the three months ended June 30, 2011, the Company entered into an agreement with the noteholder whereby the Company, committed to issue 4,635,682 shares of common stock for the conversion of $23,298 of convertible accrued interest, and the noteholder forgave the principal of the note in the amount of $25,000.  This resulted in a gain on the extinguishment of debt in the amount of $25,120.
   
  -
     
  25,000
 
             
Convertible note in the amount of $85,000 originally payable to Briolette Investments, Ltd, dated March 11, 2004. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was due in full on March 11, 2006. The note is convertible into common stock of the Company at a conversion price of  $0.005 per share. A beneficial conversion feature in the amount of $85,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2004, 2005, and 2006. On December 21, 2006, this note was transferred to Whalehaven Capital Fund, Ltd. (“Whalehaven”). Accrued interest is convertible by the holder into common stock of the Company at a price of $0.005 per share. Interest in the amount of $766 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $2,273 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the twelve months ended December 31, 2005, the note holder converted $44,000 of the note payable into common stock. During the twelve months ended December 31, 2006, the Company made a $3,000 cash payment on the principal amount of the note. During the year ended December 31, 2009, the noteholder agreed to extend the maturity date to February 15, 2010.  During the three months ended June 30, 2010, the noteholder agreed to extend the maturity date of this note until April 15, 2011. This note is past due as of September 30, 2011.
   
 38,000  
     
 38,000  
 
 
 
 INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
 
   
September 30,
2011
   
December 31,
2010
 
Convertible note payable in the amount of $80,000 originally payable to Brown Door, Inc., dated March 11, 2004. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was due in full on March 11, 2006. The note is convertible into common stock of the Company at a conversion price of $0.005 per share. A beneficial conversion feature in the amount of $80,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2004, 2005, and 2006. Accrued interest is convertible by the holder into common stock of the Company at maturity of the note at a price of $0.005 per share. Interest in the amount of $0 and $1,614 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $2,263 and $4,789 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the three months ended June 30, 2011, the Company entered into an agreement with the note holder for the extinguishment of the debt, whereby the Company made a cash payment of $90,875, which represented a payment of $68,000 of principal and $22,875 of accrued interest.  This transaction resulted in a gain on the extinguishment of debt in the amount of $34,998.     -        80,000  
                 
Convertible note payable in the amount of $50,000 originally payable to Whalehaven dated February 25, 2005. We did not meet certain of our obligations under the loan documents relating to this issuance.  These lapses include not reserving the requisite numbers of treasury shares, selling subsequent securities without offering a right of first refusal, not complying with reporting obligations, not having our common shares quoted on the OTC:BB and not timely registering certain securities.  This note was technical default as of May 16, 2005.  The note originally carried interest at the rate of 8% per annum, and was due in full on February 24, 2007. Upon default, the note’s interest rate increased to 15% per annum, and the note became due immediately. This note contains a cross default provision. The note is convertible into common stock of the Company at a conversion price of $0.005 per share.  A beneficial conversion feature in the amount of $50,000 was recorded as a discount to the note, and was amortized to interest expense when the note entered default status in May, 2005.  Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $807 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $2,394 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the twelve months ended December 31, 2006, $10,000 of principal and $589 of accrued interest was converted into common stock. This note was initially past due at December 31, 2008. During the year ended December 31, 2009, the noteholder agreed to extend the maturity date to February 15, 2010. During the three months ended June 30, 2010, the noteholder agreed to extend the maturity date to April 15, 2011. This note is past due as of September 30, 2011.
   
40,000
     
40,000
 
                 
Convertible note payable in the amount of $50,000 originally payable to Oppenheimer & Co., / Custodian for Joel Gold IRA, a related party, dated March 14, 2004. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was due in full on October 12, 2006. The note is convertible into common stock of the Company at a conversion price of $0.005 per share. A beneficial conversion feature in the amount of $50,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2004, 2005, and 2006.  Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $0 and $1,009 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $1,353 and $2,994 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively.   During the three months ended June 30, 2011, the Company committed to issue 15,728,964 shares of common stock for the conversion of $50,000 of principal and $28,645 of accrued interest.
   
  -
     
 50,000 
 
                 
Convertible note payable in the original amount of $30,000 originally payable to Huo Hua dated May 9, 2005. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was due in full on October 12, 2006.  The note is convertible into common stock of the Company at a conversion price of $0.005 per share. A beneficial conversion feature in the amount of $30,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2005 and 2006. Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $404 was accrued on this note during the three months ended September 30, 2011 and 2010. Interest in the amount of $1,189 and $1,199 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the twelve months ended December 31, 2006, the note holder converted $10,000 of principal into common stock. This note is past due as of September 30, 2011 and December 31, 2010.
   
 20,000 
     
 20,000 
 
 

INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

   
September 30,
2011
   
December 31,
2010
 
Convertible note payable in the amount of $25,000 originally payable to Joel Gold, a board member and related party, dated January 25, 2005. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was due in full on January 25, 2007.  The note is convertible into common stock of the Company at a conversion price of $0.005 per share. A beneficial conversion feature in the amount of $25,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2005, 2006, and 2007. Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $0 and $504 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively.  Interest in the amount of $810 and $1,119 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the three months ended June 30, 2011, the Company committed to issue 502,136 shares of common stock for the conversion of $25,000 of principal and $12,673 of accrued interest. This resulted in a gain of $120 on the conversion.
   
  -
     
 25,000
 
             
Convertible note payable in the amount of $25,000 originally payable to The Jay & Kathleen Morren Trust dated January 25, 2005. The note bears interest at the rate of 6% per annum, has no provisions for a default or past due rate and was due in full on January 25, 2007.  The note is convertible into common stock of the Company at a conversion price of $0.005 per share. A beneficial conversion feature in the amount of $25,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2005, 2006, and 2007. Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $0 and $377 was accrued on this note during the three months ended September 30, 2011 and 2010 respectively. Interest in the amount of $529 and $1,119 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the three months ended June 30, 2011, the Company entered into an agreement with the note holder for the extinguishment of the debt. The Company made a cash payment of $25,938, which represented a payment of $21,250 of principal and $4,716 of accrued interest.  This transaction resulted in a gain on the extinguishment of debt in the amount of $8,466.
   
  -
     
 25,000 
 
                 
Convertible note payable in the amount of $10,000 originally payable to Lauren M. Ferrone, a relative of a board member and related party, dated October 12, 2004. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was originally due in full on October 12, 2005. On February 25, 2005, an amendment to the convertible notes was signed which extended the term, which resulted in a new maturity date of October 12, 2006. The note is convertible into common stock of the Company at a conversion of $0.01 per share. A beneficial conversion feature in the amount of $10,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2004, 2005, and 2006. Accrued interest is convertible into common stock of the Company at a price of $0.01 per share. Interest in the amount of $0 and $202 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $366 and $599 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively.  During the three months ended June 30, 2011, the Company committed to issue 1,525,916 shares of common stock for the conversion of $10,000 of principal and $5,349 of accrued interest.  This resulted in a gain of $90 on the conversion.
   
-
     
10,000
 
 

INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

   
September 30,
2011
   
December 31,
2010
 
Convertible note payable in the amount of $10,000 originally payable to Richard D. Ferrone, a relative of a board member and related party, dated October 12, 2004. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was originally due in full on October 12, 2005. On February 25, 2005, an amendment to the convertible notes was signed which extended the term, which resulted in a new maturity date of October 12, 2006. The note is convertible into common stock of the Company at a conversion of $0.01 per share. A beneficial conversion feature in the amount of $10,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2004, 2005, and 2006. Accrued interest is convertible into common stock of the Company at a price of $0.01 per share. Interest in the amount of $0 and $202 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $366 and $599 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively.  During the three months ended June 30, 2011, the Company committed to issue 1,525,916 shares of common stock for the conversion of $10,000 of principal and $5,349 of accrued interest. This resulted in a gain of $90 on the conversion.
   
  -
     
 10,000
 
             
Convertible note payable in the amount of $10,000 originally payable to Christian D. Ferrone, a relative of a board member and related party, dated October 12, 2004. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was originally due in full on October 12, 2005. On February 25, 2005, an amendment to the convertible notes was signed which extended the term, which resulted in a new maturity date of October 12, 2006. The note is convertible into common stock of the Company at a conversion of $0.01 per share. A beneficial conversion feature in the amount of $10,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2004, 2005, and 2006. Accrued interest is convertible into common stock of the Company at a price of $0.01 per share. Interest in the amount of $0 and $202 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $366 and $599 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively.  During the three months ended June 30, 2011, the Company committed to issue 1,525,916 shares of common stock for the conversion of $10,000 of principal and $5,349 of accrued interest. This resulted in a gain of $90 on the conversion.
   
  -
     
 10,000 
 
                 
Convertible note payable in the amount of $10,000 originally payable to Andrew I. Ferrone, a relative of a board member and related party, dated October 12, 2004. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was originally due in full on October 12, 2005. On February 25, 2005, an amendment to the convertible notes was signed which extended the term, which resulted in a new maturity date of October 12, 2006. The note is convertible into common stock of the Company at a conversion of $0.01 per share. A beneficial conversion feature in the amount of $10,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2004, 2005, and 2006. Accrued interest is convertible into common stock of the Company at a price of $0.01 per share. Interest in the amount of $0 and $202 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $366 and $599 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively.  During the three months ended June 30, 2011, the Company committed to issue 1,525,916 shares of common stock for the conversion of $10,000 of principal and $5,349 of accrued interest. This resulted in a gain of $90 on the conversion.
   
  -
     
 10,000
 
 

INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

   
September 30,
2011
   
December 31,
2010
 
Convertible note payable in the amount of $8,000 originally payable to Adrian Neilan dated March 11, 2004. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and is due in full on October 12, 2006. The note is convertible into common stock of the Company at a conversion of $0.005 per share. A beneficial conversion feature in the amount of $8,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2004, 2005, and 2006. Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $0 and $161 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively.  Interest in the amount of $257 and $478 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the three months ended June 30, 2011, the Company entered into an agreement with the note holder for the extinguishment of the debt. The Company made a cash payment of $9,099, which represented a payment of $6,800 of principal and $2,311 of accrued interest.  This transaction resulted in a gain on the extinguishment of debt in the amount of $3,511.
   
  -
     
 8,000
 
             
Convertible note payable in the amount of $5,000 originally payable to Matthias Mueller dated March 11, 2004. The note bears interest at the rate of 8% per annum, has no provisions for a default or past due rate and was due in full on October 12, 2006. The note is convertible into common stock of the Company at a conversion of $0.005 per share. A beneficial conversion feature in the amount of $5,000 was recorded as a discount to the note, and was amortized to interest expense during the twelve months ended December 31, 2004, 2005, and 2006. Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $0 and $101 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively.  Interest in the amount of $174 and $300 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively.  During the three months ended June 30, 2011, the Company entered into an agreement with the note holder for the extinguishment of the debt. The Company made a cash payment of $5,692, which represented a payment of $4,250 of principal and $1,463 of accrued interest.  This transaction resulted in a gain on the extinguishment of debt in the amount of $2,213.
   
  -
     
 5,000 
 
                 
Convertible secured note payable in the amount of $120,000 originally payable to Alpha Capital dated August 25, 2005. We did not meet certain of our obligations under the loan documents relating to this issuance.  These lapses include not reserving the requisite number of treasury shares, selling subsequent securities without offering a right of first refusal, not complying with reporting obligations, not having our common shares quoted on the OTC:BB and not timely registering certain securities.  This note was technical default as of November 13, 2005.  The note originally carried interest at the rate of 8% per annum, and was due in full on August 25, 2007. Upon default, the note’s interest rate increased to 15% per annum and the note became immediately due. This note contains a cross default provision. The note is convertible into common stock of the Company at a conversion price of $0.005 per share. A beneficial conversion feature in the amount of $120,000 was recorded as a discount to the note, and was amortized to interest expense when the note entered default status in November 2005. Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $2,016 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $5,983 and $6,320 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the three months ended March 31, 2010, the noteholder converted principal in the amount of $20,000 into common stock.  During the twelve months ended December 31, 2009, the  noteholder  agreed to extend the maturity date of this note until January 1, 2010.  In April 2010, the noteholder agreed to extend the maturity date of this note until June 15, 2010. This note is past due as of September 30, 2011 and December 31, 2010.
   
 100,000 
     
 100,000 
 
 

 INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

   
September 30,
2011
   
December 31,
2010
 
Convertible secured note payable in the amount of $30,000 originally payable to Whalehaven Capital dated August 25, 2005.  We did not meet certain of our obligations under the loan documents relating to this issuance.  These lapses include not reserving the requisite number of treasury shares, selling subsequent securities without offering a right of first refusal, not complying with reporting obligations, not having our common shares quoted on the OTC:BB and not timely registering certain securities.  This note was in technical default as of November 13, 2005.  The note originally carried interest at the rate of 8% per annum, and was due in full on August 25, 2007. Upon default, the note’s interest rate increased to 15% per annum and the note became immediately due. This note contains a cross default provision. The note is convertible into common stock of the Company at a conversion price of $0.005 per share. A beneficial conversion feature in the amount of $30,000 was recorded as a discount to the note, and was amortized to interest expense when the note entered default status in November 2005. Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $546 and $576 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $1,620 and $1,766 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the three months ended September 30, 2010, the Company issued 4,400,000 shares of common stock for the conversion of $19,047 of accrued interest and $2,953 of principal.  During the year ended December 31, 2009, the noteholder agreed to extend the maturity date until February 15, 2010. In April, 2010, the noteholder agreed to extend the maturity date of this note until June 15, 2010. This note is past due as of September 30, 2011 and December 31, 2010.
   
 27,047
     
 27,047
 
             
Convertible secured note payable in the original amount of $25,000 originally payable to Asher Brand, dated August 25, 2005. We did not meet certain of our obligations under the loan documents relating to this issuance.  These lapses include not reserving the requisite number of treasury shares, selling subsequent securities without offering a right of first refusal, not complying with reporting obligations, not having our common shares quoted on the OTC:BB and not timely registering certain securities.  This note was in technical default as of November 13, 2005.  The note originally carried interest at the rate of 8% per annum, and was due in full on August 25, 2007. Upon default, the note’s interest rate increased to 15% per annum and the note became immediately due. This note contains a cross default provision.  The note is convertible into common stock of the Company at a conversion price of $0.005 per share. A beneficial conversion feature in the amount of $25,000 was recorded as a discount to the note, and was amortized to interest expense when the note entered default status in November, 2005. Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $297 and $303 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $893 and $949 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the twelve months ended December 31, 2006, the holder of the note converted $2,000 of principal and $3,667 of accrued interest into common stock, and during the twelve months ended December 31, 2008, the holder of the note converted an additional $3,000 of principal into common stock. During the twelve months ended December 31, 2009, the holder converted $2,000 of principal and $1,058 of accrued interest into common stock.  During the three months ended March 31, 2010, the holder converted $3,000 of principal and $1,043 of accrued interest into common stock. The noteholder agreed to extend the maturity date of this note until January 1, 2010.   During the three months ended June 30, 2010, the noteholder agreed to extend the maturity date of this note until April 15, 2011. This note is past due as of September 30, 2011.
   
 15,000
     
 15,000 
 
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
 
 
September 30,
2011
December 31,
2010
Convertible secured note payable in the original amount of $25,000 originally payable to Momona Capital, dated August 25, 2005. We did not meet certain of our obligations under the loan documents relating to this issuance.  These lapses include not reserving the requisite number of treasury shares, selling subsequent securities without offering a right of first refusal, not complying with reporting obligations, not having our common shares quoted on the OTC:BB and not timely registering certain securities.  This note was in technical default at November 13, 2005.  The note originally carried interest at the rate of 8% per annum, and was due in full on August 25, 2007. Upon default, the note’s interest rate increased to 15% per annum and the note became immediately due. This note contains a cross default provision.  The note is convertible into common stock of the Company at a conversion of $0.005 per share. A beneficial conversion feature in the amount of $25,000 was recorded as a discount to the note, and was amortized to interest expense when the note entered default status in November 2005. Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $161 and $213 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively.  Interest in the amount of $478 and $810 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively.  During the twelve months ended December 31, 2006, the holder of the note converted $2,000 of principal and $3,667 of accrued interest into common stock, and during the twelve months need December 31, 2008, the holder of the note converted an additional $5,000 principal into common stock.  During the three months ended March 31, 2010, the holder of the note converted $5,000 of principal into common stock. During the three months ended September 30, 2010, the Company issued 1,000,000 shares of common stock for the conversion of $5,000 of principal.  In April 2009, the noteholder agreed to extend the maturity date of this note until January 1, 2010.  During the three months ended June 30, 2010, the noteholder agreed to extend the maturity date of this note until April 15, 2011. This note is past due as of September 30, 2011.
   
8,000
     
8,000
 
         
Convertible secured note payable in the amount of $10,000 originally payable to Lane Ventures dated August 25, 2005. We did not meet certain of our obligations under the loan documents relating to this issuance.  These lapses include not reserving the requisite number of treasury shares, selling subsequent securities without offering a right of first refusal, not complying with reporting obligations, not having our common shares quoted on the OTC:BB and not timely registering certain securities.  This note was in technical default at November 13, 2005.  The note originally carried interest at the rate of 8% per annum, and was due in full on August 25, 2007. Upon default, the note’s interest rate increased to 15% per annum and the note became immediately due. This note contains a cross default provision. The note is convertible into common stock of the Company at a conversion price of $0.005 per share. A beneficial conversion feature in the amount of $10,000 was recorded as a discount to the note, and was amortized to interest expense when the note entered default status in November, 2005.  Accrued interest is convertible into common stock of the Company at a price of $0.005 per share. Interest in the amount of $121 was accrued on this note during the three months ended September 30, 2011 and 2010. Interest in the amount of $359 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the twelve months ended December 31, 2006, the holder of the note converted $4,000 of principal and $1,467 of accrued interest into common stock. In April 2009, the noteholder agreed to extend the maturity date of this note until January 1, 2010. During the three months ended June 30, 2010, the noteholder agreed to extend the maturity date of this note until April 15, 2011. This note is past due as of September 30, 2011.
   
6,000
     
6,000
 
 

INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

 
September 30,
2011
December 31,
2010
Secured note payable in the amount of $120,000 originally payable to Alpha Capital, dated February 7, 2006. The note originally carried interest at the rate of 15% per annum, and was originally due in full on February 7, 2007. The Company was not in compliance with various terms of this note, including making timely payments of interest, and this note was in technical default at May 8, 2006. At this time, the interest rate increased to 20% and the note became immediately due and payable. During the three months ended September 30, 2007, the Company extended the due date of the note one year, to October 31, 2007; at the same time, the Company added a convertibility feature, allowing the noteholder to convert the notes and accrued interest into common stock of the Company at a rate of $0.005 per share. This note entered technical default on October 31, 2007.  The Company recorded a discount to this note for the fair value of the conversion feature in the amount of $95,588 and amortized this discount to interest expense when the note entered default status in October 2007. On March 12, 2008, the Company extended this note to March 4, 2009.  As consideration for the extension of this notes, the Company issued five-year warrants as follows: warrants to purchase 24,000,000 shares of common stock at $0.0115 per share; 6,000,000 shares of common stock at $0.011 per share; and 2,400,000 shares of common stock at $0.005 per share. These warrants were valued via the Black-Scholes valuation method at an aggregate amount of $126,465. This transaction was accounted for as an extinguishment of debt, and a loss of $126,465 was charged to operations during the twelve months ended December 31, 2008. Interest in the amount of $4,537 was accrued on this note during the three months ended September 30, 2011 and 2010. Interest in the amount of $13,463 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. In April 2009, the noteholder agreed to extend this note to April 1, 2009.  During the three months ended June 30, 2010, the noteholder agreed to extend the maturity date of this note until April 15, 2011. This note is past due as of September 30, 2011.
   
120,000
     
120,000
 
         
Secured note payable in the amount of $30,000 originally payable to Whalehaven dated February 7, 2006. The note originally carried interest at the rate of 15% per annum, and was due in full on February 7, 2007. The Company was not in compliance with various terms of this note, including making timely payments of interest, and this note was in technical default at May 8, 2006. At this time, the interest rate increased to 20% and the note became immediately due and payable.   During the three months ended September 30, 2007, the Company extended the due date of the note one year, to October 31, 2007; at the same time, the Company added a convertibility feature, allowing the noteholder to convert the note and accrued interest into common stock of the Company at a rate of $0.005 per share. This note entered technical default on October 31, 2007.  The Company recorded a discount to this note for the fair value of the conversion feature in the amount of $23,897 and amortized this discount to interest expense when the note entered default status in October 2007.    On March 12, 2008, the Company extended this note to March 4, 2009.  As consideration for the extension of this note, the Company issued five-year warrants as follows: warrants to purchase 6,000,000 shares of common stock at $0.0115 per share; 1,500,000 shares of common stock at $0.011 per share; and 600,000 shares of common stock at $0.005 per share. These warrants were valued via the Black-Scholes valuation method at an aggregate amount of $31,616. This transaction was accounted for as an extinguishment of debt, and a loss of $31,616 was charged to operations during the twelve months ended December 31, 2008. Interest in the amount of $1,134 was accrued on this note during the three months ended September 30, 2011 and 2010. Interest in the amount of $3,365 and $3,390 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. In April 2009, the noteholder agreed to extend this note to February 15, 2010. During the three months ended June 30, 2010, the noteholder agreed to extend the maturity date of this note until April 15, 2011. This note is past due as of September 30, 2011.
   
30,000
     
30,000
 
 

INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

 
September 30,
2011
December 31,
2010
Note payable in the amount of $75,000 originally payable to Michael Ferrone, dated August 2, 2004. The note bears interest at the rate of 8% per annum, and was due in full on February 2, 2005.  On September 30, 2008, this note was extended to December 31, 2009 in exchange for adding a convertibility feature to the note. This feature allows for conversion to common stock at a price of $0.005 per share. The Company valued this beneficial conversion feature at the amount of $89,945 using the Black-Scholes valuation model.  $75,000 of this amount was charged to discount on the note. Interest in the amount of $0 and $1,513 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively.  Interest in the amount of $2,865 and $4,489 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively.  During the six months ended June 30, 2011, the Company entered into an agreement with the note holder for the extinguishment of the debt. The Company made a cash payment of $25,000, which represented a payment of principal, the Company also agreed to make a cash payment in the amount of $12,500 in February 2012, which has been classified as a liability on the Company’s balance sheet.  The noteholder forgave the accrued interest on this note in the amount of $41,371. This transaction resulted in a gain on the extinguishment of debt in the amount of $78,871.
   
-
     
75,000
 
         
Secured note payable in the amount of $10,000 originally payable to Alpha Capital, dated May 19, 2006. The note originally carried interest at the rate of 15% per annum, and was originally due in full on November 19, 2006. The Company is not in compliance with various terms of this note, including making timely payments of interest, and this note was in technical default at February 20 2006. At this time, the interest rate increased to 20% and the note became immediately due and payable. During the three months ended September 30, 2007, the Company extended the due date of the note one year, to October 31, 2007; at the same time, the Company added a convertibility feature, allowing the noteholder to convert the notes and accrued interest into common stock of the Company at a rate of $0.005 per share. This note entered technical default on October 31, 2007. The Company recorded a discount to this note for the fair value of the conversion feature in the amount of $7,966 and amortized this discount to interest expense when the note entered default status in October 2007.  On March 12, 2008, the Company extended this note to March 4, 2009.  As consideration for the extension of this notes, the Company issued five-year warrants as follows: warrants to purchase 2,000,000 shares of common stock at $0.0115 per share; 500,000 shares of common stock at $0.011 per share; and 200,000 shares of common stock at $0.005 per share. These warrants were valued via the Black-Scholes valuation method at an aggregate amount of $10,539. This transaction was accounted for as an extinguishment of debt, and a loss of $10,539 was charged to operations during the twelve months ended December 31, 2008. Interest in the amount of $377 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $1,119 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. During the three months ended June 30, 2010, the noteholder agreed to extend the maturity date of this note until April 15, 2011. This note is past due as of September 30, 2011.
   
10,000
     
10,000
 
                 
Twenty-nine convertible notes payable in the amount of $4,500 each originally payable to Sam Klepfish, the Company’s CEO and a related party, dated the first of the month beginning on November 1, 2006. Pursuant to the Company’s employment agreement with Mr. Klepfish, the amount of $4,500 in salary is accrued each month to a note payable. These notes bear interest at the rate of 8% per annum and have no due date. These notes and accrued interest are convertible into common stock of the Company at a rate of $0.005 per share. Beneficial conversion features in the aggregate amount of $9,000 for the year ended December 31, 2006, $39,190 for the year ended December 31, 2007, $58,464 for the year ended December 31, 2008, and $8,100 for the three months ended March 31, 2009 were calculated using the Black-Scholes valuation model. Since these notes are payable on demand, the value of these discounts were charged immediately to interest expense. Interest in the amount of $2,632 on this note during the three months ended September 30, 2011 and 2010. Interest in the amount of $7,810 and $7,810 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively.     130,500        130,500   
                 
Note payable in the original amount of $25,787 originally payable to Microsoft Corporation dated May 3, 2006. The note bears interest at the rate of 9.7% per annum, and is payable in 60 monthly payments of $557 beginning October 1, 2006. Principal in the amounts of $1,641 and $1,494 were paid on this note during the three months ended September 30, 2011 and 2010, respectively. Principal in the amounts of $4,816 and $4,377 were paid on this note during the nine months ended September 30, 2011 and 2010, respectively.     -        4,815   
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
 
   
September 30,
2011
   
December 31,
2010
 
Convertible secured note payable in the amount of $200,000 originally payable to Alpha Capital, dated December 31, 2008.  This note bears interest at the rate of 8% per annum, and is due in full on July 31, 2011.  Principal and accrued interest is convertible into common stock of the Company at the rate of $0.005 per share.  Also issued with this note are warrants to purchase 40,000,000 shares of the Company’s common stock at a price of $0.005 per share.  The Company calculated a discount to the note in the amount of $200,000, and recorded $12,004 and $77,623 amortization for the three and nine months ended September 30, 2011. Interest in the amount of $969 and $2,905 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $4,299 and $9,937 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively.  During the twelve months ended December 31, 2009, the Company made $16,000 payment on the principal of this note.  During the twelve months ended December 31, 2010, the Company made $80,000 payment on the principle of this note. During the three and nine months ended September 30, 2011, the Company made $24,000, and $72,000 in principal payments on this note, respectively.
    32,000       104,000  
                 
Convertible secured note payable for the settlement of the amount owed for the penalty for the late registration of shares in the amount of $230,000 originally payable to Alpha Capital, dated January 1, 2009.  This note bears interest at the rate of 8% per annum, and is due in full on July 31, 2011.  Principal and accrued interest are convertible into shares of common stock of the Company at a rate of $0.005 per share. The Company calculated a discount to the note in the amount of $230,000, and recorded $32,132 and $150,367 amortization for this discount during the three and nine months ended September 30, 2011. Interest in the amount of $4,638 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $13,763 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. This note is past due as of September 30, 2011.
    230,000       230,000  
                 
Convertible secured note payable for the settlement of the amount owed for the penalty for the late registration of shares in the amount of $38,000 originally payable to Whalehaven Capital, dated January 1, 2009.  This note bears interest at the rate of 8% per annum, and is due in full on July 31, 2011.  Principal and accrued interest is convertible into shares of common stock of the Company at a rate of $0.005 per share.  The Company calculated a discount to the note in the amount of $38,000, and recorded $5,309 and $24,843 amortization for this discount during the three and nine months ended September 30, 2011.  Interest in the amount of $766 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $2,273 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. This note is past due as of September 30, 2011.
    38,000       38,000  
                 
Convertible secured note payable for the settlement of the amount owed for the penalty for the late registration of shares in the amount of $25,310 originally payable to Asher Brand, dated January 1, 2009.  This note bears interest at the rate of 8% per annum, and is due in full on July 31, 2011.  Principal and accrued interest is convertible into shares of common stock of the Company at a rate of $0.005 per share. The Company calculated a discount to the note in the amount of $25,310, and recorded $3,536 and $16,547 of amortization for this discount during the three and nine months ended September 30, 2011, respectively. Interest in the amount of $510 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $1,513 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. This note is past due as of September 30, 2011.
    25,310       25,310  
                 
Convertible secured note payable for the settlement of the amount owed for the penalty for the late registration of shares in the amount of $25,310 originally payable to Momona Capital, dated January 1, 2009.  This note bears interest at the rate of 8% per annum, and is due in full on July 31, 2011.  Principal and accrued interest is convertible into shares of common stock of the Company at a rate of $0.005 per share. The Company calculated a discount to the note in the amount of $25,310, and recorded $3,536 and $16,547 of amortization for this discount during the three and nine months ended September 30, 2011. Interest in the amount of $510 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $1,513 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. This note is past due as of September 30, 2011.
    25,310       25,310  
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
 
   
September 30,
2011
   
December 31,
2010
 
Convertible secured note payable for the settlement of the amount owed for the penalty for the late registration of shares in the amount of $10,124 originally payable to Lane Ventures, dated January 1, 2009.  This note bears interest at the rate of 8% per annum, and is due in full on July 31, 2011.  Principal and accrued interest is convertible into shares of common stock of the Company at a rate of $0.005 per share.  The Company calculated a discount to the note in the amount of $10,124, and recorded $1,415 and $6,619 amortization for this discount during the three and nine months ended September 30, 2011. Interest in the amount of $205 was accrued on this note during the three months ended September 30, 2011 and 2010, respectively. Interest in the amount of $608 was accrued on this note during the nine months ended September 30, 2011 and 2010, respectively. This note is past due as of September 30, 2011.
    10,124       10,124  
                 
    $ 1,229,291     $ 1,660,106  
 
   
Note
   
Unamortized
   
Net of
 
September 30, 2011:
 
Amount
   
Discounts
   
Discount
 
Notes payable - current portion
 
$
1,098,791
   
$
-
   
$
1,098,791
 
Notes payable - related parties, current portion
   
130,500
     
-
     
130,500
 
Total
 
$
1,229,291
   
$
-
   
$
1,229,291
 
  
   
Note
   
Unamortized
   
Net of
 
December 31, 2010:
 
Amount
   
Discounts
   
Discount
 
Notes payable - current portion
 
$
1,314,606
   
$
(292,545
 
$
1,022,061
 
Notes payable - related parties, current portion
   
345,500
     
-
     
345,500
 
Total
 
$
1,660,106
   
$
(292,545
 
$
1,367,561
 
 
   
For the Three Months Ended
 
   
September 30,
 
   
2011
   
2010
 
Discount on Notes Payable amortized to interest expense:
 
$
57,932
   
$
32,580
 

   
For the Nine Months Ended
 
   
September 30,
 
   
2011
   
2010
 
Discount on Notes Payable amortized to interest expense:
 
$
292,546
   
$
66,247
 
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

Gain from the extinguishment of debt

During the nine months ended September 30, 2011, the Company entered into agreements (the “Notes Settlement Agreements”) with several convertible note holders regarding thirteen convertible notes in the aggregate amount of $333,000 principal and $236,924  accrued interest.  Pursuant to the Note Settlement Agreements, the Company made cash payments in the aggregate amount of $181,604 and agreed to pay an additional $12,500 by February 15, 2012.  The Company also committed to issue a total of 33,986,996 shares of its common stock to the note holders. The Notes Settlement Agreements resulted in an aggregate gain on extinguishment of debt in the amount of $165,325.

Conversion Options Embedded in Convertible Notes

The Company accounts for conversion options embedded in convertible notes in accordance with FASB ASC 815-10-05 ‘‘Accounting for Derivative Instruments and Hedging Activities’’ and FASB ASC 815-40-05 ‘‘Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. ASC 815-10-05 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments in accordance with ASC 815-40-05.

At September 30, 2011 and December 31, 2010 the Company had outstanding $1,229,291 and $1,655,291 in principal, respectively, of various convertible notes with embedded conversion options accounted for as free standing derivative financial instruments in accordance with ASC 815-10-05 and ASC 815-40-05.  The fair value of these embedded conversion options was $1,748,541 and $2,465,565 at September 30, 2011 and December 31, 2010, respectively.  The fair value of these embedded conversion options were estimated at September 30, 2011 using the Black-Scholes option pricing model with the following assumptions:  risk free interest rate of 0.06%; expected dividend yield of 0%; expected option life of 10; and volatility of 92.86%.  The fair value of these embedded conversion options were estimated at December 31, 2010 using the Black-Scholes option pricing model with the following assumptions:  risk free interest rate of 0.20%; expected dividend yield of 0%; expected option life of 10; and volatility of 119.60%.  The expected term of 10 years was used for all notes in both periods because several of the notes are currently or have been in default, and accordingly the term of the note is deemed not relevant as a variable for the Black-Scholes calculation.  The Company revalues the conversion options at each reporting period, and charges any change in value to operations. During the three months ended September 30, 2011 and 2010, the Company recorded a loss of $1,769 and a gain of $140,630, respectively, due to the change in value of the conversion option liability.  During the nine months ended September 30, 2011 and 2010, the Company recorded a gain of $264,032and a loss of $1,186,706, respectively, due to the change in value of the conversion option liability. If all convertible options were converted, 245,858,200 additional shares would be issuable.
  
When convertible notes payable are satisfied by payment or by conversion to equity, the Company revalues the related conversion option liability at the time of the payment or conversion.  The conversion option liability is then relieved by this amount, which is charged to additional paid-in capital.  During the three months ended September 30, 2011 and 2010, a conversion option in the amount of $34,102 and $51,028, respectively, was transferred from liability to equity due to the conversion or payment of the related convertible notes payable. During the nine months ended September 30, 2011 and 2010, a conversion option in the amount of $452,992 and $128,854, respectively, was transferred from liability to equity due to the conversion or payment of the related convertible notes payable.

Discounts on notes payable

The Company calculates the fair value of any beneficial conversion features embedded in its convertible notes via the Black-Scholes valuation method. The Company also calculates the fair value of any detachable warrants offered with its convertible notes via the Black-Scholes valuation method.  The instruments are considered discounts to the notes, to the extent the aggregate value of the warrants and conversion features do not exceed the face value of the notes. These discounts are amortized to interest expense via the effective interest method over the term of the notes.  The fair value of these instruments is expensed to interest expense to the extent that the value of these instruments exceeds the face value of the notes.
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)

Extension of notes payable

The Company accounts for modifications of its notes payable according to the guidance in FASB ASC 470-50-40. Pursuant to ASC 470-50-40, changes to an existing note should be accounted for as an extinguishment of the note with resultant gain or loss if the present value of the cash flows from the new note vary by more than 10% from the present value of the cash flows from the original note.  ASC 470-50-40 provides an exception to this rule for the addition of conversion options accounted for as a derivative liability.
 
During the year ended December 31, 2009, the Company negotiated the extension of its notes payable in the aggregate amount of $587,000.  The Company extended the maturity date of these notes until January 1, 2010.  These notes, along with two additional notes payable in the aggregate amount of $150,000, contained certain provisions for a default interest rate.  The Company negotiated an agreement with the noteholders and the noteholders agreed to reinstate the original interest rate of 8% per annum.

During the year ended December 31, 2009, the Company negotiated the extension of certain of its notes payable in the aggregate amount of $138,000.  The Company extended the maturity date of these notes until February 15, 2010.  During the year ended December 31, 2010, as described below, the Company negotiated the extension of these notes payable, and the maturity dates of these notes to either June 15, 2010 or April 15, 2011.

During the year ended December 31, 2010, the Company negotiated the extension of nine of its notes payable in the aggregate amount of $617,000, to April 15, 2011.  The Company also negotiated the extension of two of its notes payable in the aggregate amount of $130,000 until June 15, 2010.

Embedded conversion features of notes payable:
 
The Company values embedded conversion features utilizing the Black-Scholes valuation model.  Conversion options are valued upon issuance, and re-valued at each financial statement reporting date.  Any change in value is charged to income or expense during the period.  The following table illustrates certain key information regarding our conversion option valuation assumptions at September 30, 2011 and 2010:
 
   
September 30,
 
   
2011
   
2010
 
Number of conversion options outstanding
   
245,858,200
     
327,858,200
 
Value at September 30,
 
$
1,748,541
   
$
2,442,844
 
Number of conversion options issued during the period
   
-
     
-
 
Value of conversion options issued during the period
 
$
-
   
$
-
 
Number of conversion options exercised or underlying   
   notes paid during the period
   
78,700,000
     
18,390,600
 
Value of conversion options exercised or underlying  
   notes paid during the period
 
$
452,992
   
$
128,854
 
Revaluation (gain) loss during the period
 
$
(264,032
 
$
1,186,706
 
                 
Black-Scholes model variables:
               
Volatility
 
92.52– 110.66
 
167.99-266.73
Dividends
   
-
     
-
 
Risk-free interest rates
   
0.06-0.19
%
   
0.20
%
Term (years)
   
10
     
10
 
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
 
10. INCOME TAXES
 
Deferred income taxes result from the temporary differences arising from the use of accelerated depreciation methods for income tax purposes and the straight-line method for financial statement purposes, and an accumulation of net operating loss carryforwards for income tax purposes with a valuation allowance against the carryforwards for book purposes.
 
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in deferred tax assets are Federal and State net operating loss carryforwards of approximately $4.3 million, which will expire beginning in 2025.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Due to significant changes in the Company's ownership, the Company's future use of its existing net operating losses may be limited.
 
11. EQUITY

Common Stock

During the nine months ended September 30, 2011, the Company had the following issuances of common stock: 

The Company issued 6,471,033 shares of common stock for the conversion of $21,000 of principal and $11,355 of accrued interest of a convertible note payable.    

The Company cancelled 4,000,000 shares that were issued in error by the transfer agent which resulted in duplication of shares of common stock issued to a note holder in a prior period.

The Company issued 20,933,413 shares of common stock for the conversion of notes payable and accrued interest.

The Company issued 250,000 shares of common stock to a director for services. The fair value of these shares in the amount of $2,000 was charged to operations and recorded as a liability during the period ended December 31, 2010.
 
Treasury Stock

During the nine months ended September 30, 2011, the Company purchased 15,200 shares of the Company’s outstanding common stock.  The purchase price was $99 and the Company recorded the transaction at cost to Treasury stock.
 
Warrants
 
The following table summarizes the significant terms of warrants outstanding at September 30, 2011. These warrants may be settled in cash or via cashless conversion into shares of the Company’s common stock at the request of the warrant holder. These warrants were granted as part of a financing agreement:

Range of
exercise
prices
   
Number of
warrants outstanding
   
Weighted
average
remaining
contractual
life (years)
   
Weighted
average
exercise
price of
outstanding
warrants
   
Number of
warrants exercisable
   
Weighted
average
exercise
price of
exercisable
warrants
 
$
0.0050
     
179,700,000
     
0.91
   
$
0.0050
     
179,700,000
   
$
0.0050
 
                                             
$
0.0110
     
18,500,000
     
0.55
   
$
0.0110
     
18,500,000
   
$
0.0110
 
                                             
$
0.0120
     
1,000,000
     
1.96
   
$
0.0120
     
-
   
$
-
 
                                             
$
0.0115
     
74,000,000
     
0.93
   
$
0.0115
     
74,000,000
   
$
0.0115
 
         
273,200,000
     
0.90
   
$
0.0072 
     
272,200,000
   
$
0.0072
 
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
  
Transactions involving warrants are summarized as follows:
 
   
Number of
   
Weighted Average
 
   
Warrants
   
Exercise Price
 
Warrants exercisable at December 31, 2010
   
273,200,000
   
$
0.007
 
                 
Granted
   
-
     
-
 
Exercised
   
-
     
-
 
Cancelled / Expired
   
-
     
-
 
                 
Warrants outstanding at September 30, 2011
   
273,200,000
   
$
0.007
 
                 
Exercisable
   
272,200,000
   
$
0.007
 
Not exercisable
   
1,000,000
   
$
0.012
 
 
Options

The following table summarizes the changes outstanding and the related prices for the options to purchase shares of the Company’s common stock issued by the Company: 
 
                 
Weighted
         
Weighted
 
           
Weighted
   
average
         
average
 
           
average
   
exercise
         
exercise
 
Range of
   
Number of
   
remaining
   
price of
   
Number of
   
price of
 
exercise
   
options
   
contractual
   
outstanding
   
options
   
exercisable
 
prices
   
outstanding
   
life (years)
   
options
   
exercisable
   
options
 
$
0.0050
     
15,000,000
     
0.14
   
$
0.0050
     
15,000,000
   
$
0.0050
 
                                             
$
0.0070
     
22,000,000
     
1.66
   
$
0.0070
     
22,000,000
   
$
0.0070
 
                                             
$
0.0076
     
6,625,000
     
3.50
   
$
0.0076
     
6,625,000
   
0.0076
 
                                             
$
0.0090
     
6,625,000
     
4.00
   
$
0.0090
     
6,625,000
   
$
0.0090
 
                                             
$
0.0095
     
6,625,000
     
3.75
   
$
0.0095
     
6,625,000
   
$
0.0095
 
                                             
$
0.0096
     
6,625,000
     
4.25
   
$
0.0096
     
6,625,000
   
$
0.0096
 
                                             
         
63,500,000
     
2.89
   
$
0.0073
     
63,500,000
   
$
0.0073
 
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
  
Transactions involving stock options are summarized as follows:
 
   
Number of
   
Weighted Average
 
   
Shares
   
Exercise Price
 
Options outstanding  at December 31, 2010
   
63,500,000
   
$
0.007
 
                 
 Granted
   
-
     
-
 
Exercised
   
-
     
-
 
Cancelled / Expired
   
-
     
-
 
                 
Options outstanding at September 30, 2011
   
63,500,000
   
$
0.007
 

Aggregate intrinsic value of options outstanding and exercisable at September 30, 2011 and 2010 was $47,838 and $46,263, respectively. Aggregate intrinsic value represents the difference between the Company's closing stock price on the last trading day of the fiscal period, which was $0.0075 and $0.0079 as of September 30, 2011 and 2010, respectively, and the exercise price multiplied by the number of options outstanding. During the three months ended September 30, 2011 and 2010, the Company charged $0 and $46,420, respectively, to operations related to recognized stock-based compensation expense for employee stock options. During the nine months ended September 30, 2011 and 2010, the Company charged $0 and $125,862, respectively, to operations related to recognized stock-based compensation expense for employee stock options.

Accounting for warrants and stock options

The Company accounts for the issuance of common stock purchase warrants, stock options, and other freestanding derivative financial instruments in accordance with the provisions of FASB ASC 815-40-15. Based on the provisions of ASC 815-40-15, the Company classifies, as equity, any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contract that (i) require net-cash settlement or (ii) give the counterparty a choice of net-cash settlement in shares (physical or net-share settlement). At September 30, 2011 and December 31, 2010, the Company had no freestanding derivative financial instruments that require net cash settlement or give the counterparty a choice of net cash settlement or settlement in shares.
  
The fair value of these warrants and stock options is determined utilizing the Black-Scholes valuation model. Through August 2005, these warrants were accounted for by the equity method, whereby the fair value of the warrants was charged to additional paid-in capital. During September, 2005, the number of shares of the Company's common stock issued and issuable exceeded the number of shares of common stock the Company had authorized. As the Company no longer had sufficient shares authorized to settle all of its outstanding contracts, this triggered a change in the manner in which the Company accounts for the warrants and stock options. The Company began to account for these warrants and stock options utilizing the liability method. Pursuant to ASC 815-40-15, “If a contract is reclassified from permanent or temporary equity to an asset or a liability, the change in fair value of the contract during the period the contract was classified as equity should be accounted for as an adjustment to stockholders' equity." Accordingly, during the year ended December 31, 2005, the Company charged the amount of $10,374,536 to stockholders' equity. At the same time, the Company changed the way in which it accounts for the beneficial conversion feature of convertible notes payable (see note 8).
 
The accounting guidance states that the warrants and stock options which are a derivative liability should be revalued each reporting period. The recorded value of such warrants and stock options can fluctuate significantly based on fluctuations in the market value of the underlying securities of the issuer of the warrants and stock options, as well as in the volatility of the stock price during the term used for observation and the term remaining for warrants. During the three months ended September 30, 2011 and 2010, the Company recognized a gain of $64,032 and $274,879 respectively, for the change in the fair value of the warrant liability and recorded the gain/loss in operations during the three months ended September 30, 2011 and 2010.  During the nine months ended September 30, 2011 and 2010, the Company recognized a gain of $363,500 and gain of 117,215, respectively, for the change in the fair value of the warrant liability and recorded the gain/loss in operations during the nine months ended September 30, 2011 and 2010.
 
 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
  
The Company valued warrants and options using the Black-Scholes valuation model utilizing the following variables:
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Volatility
   
92.52 - 110.66.
%
   
119.60-336.00
%
Dividends
 
$
-
   
$
-
 
Risk-free interest rates
   
0.06-0.18
%
   
0.19-0.20
%
Term (years)
   
0.14-4.75
     
0.15 - 5.00
 

Insufficient Authorized but Unissued Shares of Common Stock
 
The Company has a potential obligation to issue 763,154,842 and 485,963,560 shares  of common stock upon the conversion of convertible notes and accrued interest, warrants and penalty shares issuable at September 30, 2011, and 2010, respectively.  The Company had 240,039,549 and 216,385,103 shares  of common stock outstanding at September 30, 2011,  and 2010, respectively, and  500,000,000 shares  of common stock authorized at September 30, 2011,  and 2010.   The Company has potentially exceeded its shares authorized by 503,194,391 and 534,323,633 shares at September 30, 2011 and 2010, respectively.
 
12. FAIR VALUE MEASUREMENTS

Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value.   The fair value of the Company’s stock option, convertible debt features and warrant instruments is determined using option pricing models.
  
As a result of the adoption of ASC 815-40, the Company is required to disclose the fair value measurements required by ASC 820, “Fair Value Measurements and Disclosures.”  The other liabilities recorded at fair value in the balance sheet as of September 30, 2011 are categorized based upon the level of judgment associated with the inputs used to measure their fair value.  Hierarchical levels, defined by ASC 820 are directly related to the amount of subjectivity associated with the inputs to fair valuations of these liabilities are as follows:
 
Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
  
Level 2 —  Inputs other than Level 1 inputs that are either directly or indirectly observable; and
  
Level 3 —  Unobservable inputs, for which little or no market data exist, therefore requiring an entity to develop its own assumptions.
 
The following table summarizes the financial liabilities measured at fair value on a recurring basis as of September 30, 2011, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
  
   
Level 1
   
Level 2
   
Level 3
   
Liabilities at fair
value
 
Warrant liability
 
$
-
   
$
-
   
$
819,675
   
$
819,675
 
Option liability
 
$
-
   
$
-
   
$
259,059
   
$
259,059
 
Conversion option liability
 
$
-
   
$
-
   
$
1,748,541
   
$
1,748,541
 
 
 
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto, as well as all other related notes, and financial and operational references, appearing elsewhere in this document.
 
Certain information contained in this discussion and elsewhere in this report may include "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbor created by that act. The safe harbor created by the Securities Litigation Reform Act will not apply to certain  "forward looking statements” because we issued "penny stock" (as defined in Section 3(a)(51) of the Securities Exchange Act of 1934 and Rule 3a51-1 under the Exchange Act) during the three year period preceding the date(s) on which those forward looking statements were first made, except to the extent otherwise specifically provided by rule, regulation or order of the Securities and Exchange Commission. We caution readers that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements which may be deemed to have been made in this Report or which are otherwise made by or on behalf of us. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may",  "will", "expect", "believe",  "explore",  "consider",  "anticipate",  "intend", "could", “should”, "estimate",  "plan", "propose" or "continue" or the negative variations of those words or comparable terminology are intended to identify forward-looking statements. Factors that may affect our results include, but are not limited to, the risks and uncertainties associated with:
 
● 
Our ability to raise capital necessary to sustain our anticipated operations and implement our business plan,
   
● 
Our ability to implement our business plan,
 
● 
Our ability to generate sufficient cash to pay our lenders and other creditors,
 
● 
The fact that over 90% of our revenues come from one customer,
   
● 
Our ability to employ and retain qualified management and employees,
 
● 
Our dependence on the efforts and abilities of our current employees and executive officers,
 
● 
Changes in government regulations that are applicable to our current  or anticipated business,
 
● 
Changes in the demand for our services,
 
● 
The degree and nature of our competition,
 
● 
The lack of diversification of our business plan,
   
● 
The general volatility of the capital markets and the establishment of a market for our shares, and
   
● 
Disruption in the economic and financial conditions primarily from the impact of past terrorist attacks in the United States, threats of future attacks, police and military activities overseas and other disruptive worldwide political and economic events (including inflation and rising fuel costs), environmental disasters and weather conditions.
 
We are also subject to other risks detailed from time to time in our other Securities and Exchange Commission filings and elsewhere in this report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate.  Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements.  We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
 
 
Critical Accounting Policy and Estimates

Use of Estimates in the Preparation of Financial Statements

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates include certain assumptions related to doubtful accounts receivable, stock-based services, valuation of financial instruments, and income taxes. On an on-going basis, we evaluate these estimates, including those related to revenue recognition and concentration of credit risk. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe our estimates have not been materially inaccurate in past years, and our assumptions are not likely to change in the foreseeable future.

On August 25, 2005, the Company entered into contracts which obligated the company under certain circumstances to issue shares of common stock in excess of the number of shares of common stock authorized. Under accounting guidance provided by FASB ASC 815-40-05, effective August 25, 2005 the Company began to account for all derivative financial instruments, including warrants, conversion features embedded in notes payable, and stock options, via the liability method of accounting. Accordingly, all these instruments are valued at issuance utilizing the Black-Scholes valuation method, and are re-valued at each period ending date, also using the Black-Scholes valuation method.  Any gain or loss from revaluation is charged to operations during the period.

(a) Warrants:

The Company values warrants using the Black-Scholes valuation model.  Warrants are valued upon issuance, and re-valued at each financial statement reporting date.  Any change in value is charged to income or expense during the period.  The following table illustrates certain key information regarding our warrants and warrant valuation assumptions at September 30, 2011 and 2010:

   
September 30,
 
   
2011
   
2010
 
Number of warrants outstanding
   
273,200,000
     
273,200,000
 
Value at September 30,
 
$
819,675 
   
$
1,462,678
 
Number of warrants issued during the period
   
-
     
-
 
Value of warrants issued during the period
 
$
-
   
$
-
 
Revaluation (gain) during the period
 
$
(363,500
 
$
(117,215
                 
Black-Scholes model variables:
               
Volatility
   
92.52-110.66
   
167.99-266.73
%
Dividends
 
$
  -
 -
 
  -
 
Risk-free interest rates
   
0.06 -0.17
%
   
0.18-0.20
%
Term (years)
   
0.22-2.75
     
0.002-5.00
 
 
b.) Embedded conversion features of notes payable:

The Company accounts for conversion options embedded in convertible notes in accordance with ASC 815-10-05. ASC 815-10-05 generally requires companies to bifurcate conversion options embedded in convertible notes and preferred shares from their host instruments and to account for them as free standing derivative financial instruments in accordance with ASC 815-40-05. 
 

The Company values embedded conversion features utilizing the Black-Scholes valuation model.  Conversion options are valued upon issuance, and re-valued at each financial statement reporting date.  Any change in value is charged to income or expense during the period.  The following table illustrates certain key information regarding our conversion options and conversion option valuation assumptions at September 30, 2011 and 2010:
 
   
September 30,
 
   
2011
   
2010
 
Number of conversion options outstanding
   
245,858,200
     
327,858,200
 
Value at September 30,
 
$
1,748,541
   
$
2,442,844
 
Number of conversion options issued during the period
   
-
     
-
 
Value of conversion options issued during the period
 
$
-
   
$
-
 
Number of conversion options exercised or underlying   
   notes paid during the period
   
78,700,000
     
18,390,600
 
Value of conversion options exercised or underlying  
   notes paid during the period
 
$
452,992
   
$
128,854
 
Revaluation (gain) loss during the period
 
$
(264,032
 
$
1,186,706
 
                 
Black-Scholes model variables:
               
Volatility
 
92.52– 110.66
 
167.99-266.73
Dividends
   
-
     
-
 
Risk-free interest rates
   
0.06-0.19
%
   
0.20
%
Term (years)
   
10
     
10
 

c.)   Stock options

The Company accounts for options in accordance FASB ASC 718-40.  Options are valued upon issuance, and re-valued at each financial statement reporting date, utilizing the Black-Scholes valuation model.   Option expense is recognized over the requisite service period of the related option award. Any change in value is charged to income or expense during the period.  The following table illustrates certain key information regarding our options and option assumptions at September 30, 2011 and 2010:

   
September 30,
 
   
2011
   
2010
 
Number of vested options outstanding
   
63,500,000
     
56,875,000
 
Value at September 30,
 
$
259,059
   
$
352,030
 
Number of options issued during the period
   
-
     
19,875,000
 
Value of options issued during the period
 
$
-
     
125,862
 
Number of options recognized during the period
   pursuant to SFAS 123(R)
   
-
     
-
 
Value of options recognized during the period  
   pursuant to SFAS 123(R)
 
$
-
   
$
-
 
Revaluation (gain) during the period
 
$
(77,660
 
$
(81,541
                 
Black-Scholes model variables:
               
Volatility
 
92.52- 110.66
 
166.79-266.73
 %
Dividends
 
-
   
 $
-
 
Risk-free interest rates
   
0.06 - 0.19
%
   
0.18-0.20
%
Term (years)
   
0.22-4.75
     
0.002-5.00