10-K 1 innovativefood10k123115.htm 10-K innovativefood10k123115.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
FORM 10-K
 

 
x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2015
 
OR
 
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
COMMISSION FILE NUMBER: 0-9376
 
INNOVATIVE FOOD HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
FLORIDA
20-116776
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
28411 Race Track Rd.
Bonita Springs, Florida 34135
(Address of Principal Executive Offices)
 
(239) 596-0204
(Registrant's telephone number, including area code)
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.0001 PAR VALUE PER SHARE
(Title of class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  o   No  x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o   
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x No ¨
  
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,”  “accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
 
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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o   No  x
 
The aggregate market value of the voting and non-voting stock held by non-affiliates was approximately $25,947,727 as of June 30, 2015, based upon a closing price of $1.16 per share for the registrant’s common stock on such date.
 
On March 25, 2016, a total of 23,572,823 shares of our common stock were outstanding.
 
 
 

 
INNOVATIVE FOOD HOLDINGS, INC.
 
INDEX TO ANNUAL REPORT ON FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015
 
ITEMS IN FORM 10-K
 
 
PART I
PAGE
     
Item 1.
4
Item 1A.
7
Item 1B.
Unresolved Staff Comments
N/A
Item 2.
13
Item 3.
13
Item 4.
13
     
 
PART II
 
     
Item 5.
14
Item 6.
16
Item 7.
17
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
N/A
Item 8.
23
Item 9.
52
Item 9A.
52
Item 9B.
53
     
 
PART III
 
     
Item 10.
54
Item 11.
56
Item 12.
60
Item 13.
61
Item 14.
62
     
 
PART IV
 
     
Item 15.
63
     
 
66
 
 
 

 
FORWARD LOOKING INFORMATION
MAY PROVE INACCURATE
 
 
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO US THAT ARE BASED ON THE BELIEFS OF MANAGEMENT, AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO US. WHEN USED IN THIS DOCUMENT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," “SHOULD,” “PLAN,” AND "EXPECT" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO US, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS, INCLUDING THOSE DESCRIBED IN THIS ANNUAL REPORT ON FORM 10-K. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, PLANNED OR EXPECTED. WE DO NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
 
 
 
 
 
 
 

 
PART I
 
ITEM 1. Business
 
Our History
 
We (or the “Company”) were initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation. From June 1979 through February 2003, we were either inactive or involved in discontinued business ventures. We changed our name to Fiber Application Systems Technology, Ltd in February 2003. In January 2004, we changed our state of incorporation by merging into Innovative Food Holdings, Inc. (IVFH), a Florida corporation formed for that purpose. As a result of the merger, we changed our name to that of Innovative Food Holdings, Inc. In January 2004, we also acquired Food Innovations, Inc. (“FII” or “Food Innovations”), a Delaware corporation, for 500,000 (post reverse-split) shares of our common stock.
 
On May 18, 2012, the Company executed a Stock Purchase Agreement to acquire all of the issued and outstanding shares of Artisan Specialty Foods, Inc., an Illinois corporation (“Artisan”), from its owner, Mr. David Vohaska.  The purchase price was $1.2 million, with up to another $300,000 (with a fair value of $131,000) payable in the event certain financial milestones are met over the next one or two years. Those milestones have been met. The purchase price was primarily financed via a loan from Alpha Capital in the principal amount of $1,200,000.  Prior to the acquisition, Artisan was a supplier and had sold products to the Company.
 
On November 2, 2012, the Company entered into an asset purchase agreement (the “Haley Acquisition”) with The Haley Group, LLC whereby we acquired all existing assets of The Haley Group, LLC and its customers. The Haley Acquisition was valued at a total cost of $119,645.  On June 30, 2014, pursuant to a purchase agreement, the Company purchased 100% of the membership interest of Organic Food Brokers, LLC, a Colorado limited liability company (“OFB”), for $300,000, 100,000 options and up to an additional $225,000 in earn-outs if certain milestones are met.
 
On August 15, 2014, pursuant to a merger agreement (the “Fresh Diet Merger Agreement”), the Company acquired The Fresh Diet, Inc. (“The Fresh Diet” or “FD”) through a reverse triangular merger as the registrant created a subsidiary corporation (FD Acquisition Corp) that merged with and into FD with FD being the surviving corporation and becoming a wholly-owned subsidiary of the Company. The purchase price consisted of 10,000,000 shares of the Company’s common stock valued at $14,000,000. The majority of FD’s current liabilities consisted of approximately $3.8 million of deferred revenues and approximately $2.1 million in short term commercial loans and there were additional ordinary course of business expenses such as trade payables, payroll and sales taxes which vary from month to month. In addition, it had  some long term obligations the bulk of which consist of interest free loans from FD’s former shareholders in the amount of approximately $2.2 million which are not due for three years.  Prior to the merger FD had purchased an immaterial amount of product from the Company.  FD operated as an independent subsidiary subject to oversight of its board of directors and the Company’s President and CEO.  Effective February 23, 2016,  the Company closed a transaction to sell 90% of our ownership in FD to New Fresh Co., LLC, a Florida limited liability company controlled by the former founder of FD who was appointed Interim CEO of FD on February 9, 2016.  The consideration to Innovative Food Holdings consisted primarily of a restructuring of our loans, which includes the ability to convert to additional amounts of FD under certain circumstances. There is no continuing cash inflows or outflows from or to the discontinued operations.

Our Operations
 
Our business is currently conducted by our wholly-owned subsidiaries, Artisan, Food Innovations, Food New Media Group, Inc. (“FNM”), OFB, Gourmet Food Service Group, Inc. (“GFG”), Gourmet Foodservice Warehouse, Inc., Gourmeting, Inc., The Haley Group, Inc. (“Haley”), 4 The Gourmet, Inc. (d/b/a For The Gourmet, Inc.), (“Gourmet” and collectively with IVFH and its other subsidiaries, the “Company” or “IVFH”).  Since its incorporation, the Company primarily through FII’s relationship with thousands of specialty foodservice products including US Foods, Inc.  (“U.S. Foods” or “USF”), has been in the business of providing premium restaurants, within 24 – 72 hours, with the freshest origin-specific perishable, and healthcare products shipped directly from our network of vendors and from our warehouses. Our customers include restaurants, hotels, country clubs, national chain accounts, casinos, hospitals and catering houses.  Gourmet has been in the business of providing consumers with gourmet food products shipped directly from our network of vendors and from our warehouses within 24 – 72 hours. GFG is focused on expanding the Company’s program offerings to additional customers.  In our business model, we receive orders from our customers and then work closely with our suppliers and our warehouse facilities to have the orders fulfilled.  In order to maintain freshness and quality, we carefully select our suppliers based upon, among other factors, their quality, uniqueness, reliability and access to overnight courier services.
 
 
4

 
Artisan is a supplier of over 1,500 niche gourmet products to over 500 customers such as chefs, restaurants, etc. in the Greater Chicago area and also serves as a national fulfillment center for the Company’s other subsidiaries. Haley is a dedicated foodservice consulting and advisory firm that works closely with companies to access private label and manufacturers’ label food service opportunities with the intent of helping them launch and commercialize new products in the broadline foodservice industry and get products distributed via national broadline food distributors. Haley is a dedicated foodservice consulting and advisory firm that works closely with companies to access private label and manufacturers’ label food service opportunities with the intent of helping them launch and commercialize new products in the foodservice industry. OFB is an outsourced national sales and brand management team for emerging organic and specialty food CPG companies and provides  emerging CPG specialty food brands distribution and shelf placement access in all of the  major metro markets in the food retail industry.  
 
Our Products
 
We distribute over 7,300 perishable and specialty food products, including origin-specific seafood, domestic and imported meats, exotic game and poultry, artisanal cheeses, freshly prepared meals, caviar, wild and cultivated mushrooms, micro-greens, organic farmed and manufactured food products, estate-bottled olive oils and aged vinegars. We are constantly adding other products that many food distributors cannot effectively warehouse, including organic products and specialty grocery items. We offer our nationwide customers access to the best food products available from around the world, quickly, most direct, and cost-effectively.
 
Some of the items we sell include:
 
 
● 
Seafood - Alaskan wild king salmon, Hawaiian sashimi-grade ahi tuna, Gulf of Mexico day-boat snapper, Chesapeake Bay soft shell crabs, New England live lobsters, Japanese hamachi
     
  
● 
Meat & Game - Prime rib of American kurobuta pork, dry-aged buffalo tenderloin, domestic lamb, Cervena venison, elk tenderloin
     
 
Produce - White asparagus, baby carrot tri-color mix, Oregon wild ramps, heirloom tomatoes
     
 
Poultry - Grade A foie gras, Hudson Valley quail, free range and organic chicken, airline breast of pheasant
     
 
Specialty - Truffle oils, fennel pollen, prosciutto di Parma, wild boar sausage
     
 
Mushrooms - Fresh morels, Trumpet Royale, porcini powder, wild golden chanterelles
     
 
Cheese - Maytag blue, buffalo mozzarella, Spanish manchego, Italian gorgonzola dolce
 
Customer Service and Logistics

Our “live” chef-driven customer service department is available by telephone Monday through Thursday, from 8 a.m. to 6 p.m. and on Friday from 8 a.m. to 5 p.m., Florida time. The customer service department is made up of a team of  chefs and culinary experts who are full-time employees of the Company, and who are experienced in all aspects of perishable and specialty products. By employing chefs and culinary experts to handle customer service, we are able to provide our customers with extensive information about our products, including:
 
 Flavor profile and eating qualities
   
 ●
 Recipe and usage ideas
   
 ●
 Origin, seasonality, and availability
   
 ●
 Cross utilization ideas and complementary uses of products
 
Our logistics team tracks every package to ensure timely delivery of products to our customers. The logistics manager receives tracking information on all products ordered, and packages are monitored from origin to delivery. In the event that delivery service is interrupted, our logistics department begins the process of expediting the package to its destination. The customer is then contacted before the expected delivery commitment time allowing the customer ample time to make arrangements for product replacement or menu changes. Our logistics manager works directly with our vendors to ensure our strict packaging requirements are in place at all times.
 
 
5


Relationship with U.S. Foods
 
We have historically sold the majority of our products, $22,218,034 and $18,446,745 for the years ended December 31, 2015 and 2014, respectively (72% and 71% of total sales in the years ended December 31, 2015 and 2014, respectively) through a distributor relationship between FII and Next Day Gourmet, L.P., a subsidiary of U.S. Foods, a leading broadline distributor. On January 26, 2015 we executed a contract between Food Innovations, Inc., our wholly-owned subsidiary, and U.S. Foods.  The term of the Agreement is from January 1, 2015 through December 31, 2016 and provides for up to three (3) automatic annual renewals thereafter if no party gives the other 30 days’ notice of its intent not to renew. 
 
Growth Strategy
 
While the U.S. economic recovery remains fragile, there appears to be much for the specialty food industry to celebrate. According to The  Specialty Food Association, specialty food sales during 2014 grew to over $109 billion which represents a 22% increase over 2012 ; with sale to consumers in retail foodservice at approximately $85 billion and sales of specialty foodservice products of over $24.1 billion. Sales of specialty foods in the specialty foodservice channel have grown 30.7% or averaging approximately 10% per year between 2012 and 2014. For our continued growth within the specialty foodservice industry and the consumer specialty food industry , we rely on the availability to our customers of our chefs' culinary skills, a high level of personal customer service, premium quality products, new product introductions, and continued expansion of our marketing activities with new and existing customers in both the specialty foodservice space and the consumer specialty food space.
 
We anticipate attempting to grow our current specialty foodservice business both through increased sales of existing products to our existing foodservice customers, the introduction of new products to our foodservice customers, increasing our foodservice customer base, and through further entry into markets such as the direct to consumer market through a variety of potential sales channels, and sales partnerships and directly via the web.
 
In addition to attempting to grow our current business, we believe that there are lateral opportunities in the food industry. We may consider the possibility of acquiring a specialty  food manufacturer, or specialty food distributor at some future point in time. We anticipate that, given our current cash flow levels, any acquisition could potentially involve the issuance of additional shares of our common stock or third party financing, which may not be available on acceptable terms. No acquisition will be consummated without thorough due diligence. No assurance can be given that we will be able to identify and successfully conclude negotiations with any potential target.
 
General economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-prepared-away-from-home and, in turn, can impact our customers and our sales. We believe the current general economic conditions, including pressure on consumer disposable income, may contribute to a slow or declining growth in the overall broadline foodservice market  We intend to continue our efforts to expand our market share and grow earnings by focusing on sales growth, margin management, productivity gains and supply chain management, and product and service differentiation.
 
Competition
 
While we face intense competition in the marketing of our products and services, it is our belief that there is no other single company in the United States that offers such a broad range of customer service oriented, quality, chef driven products and specialty gourmet meals, for delivery from same day to 72 hours..  Our primary competition in both areas is from local purveyors that supply a limited local market and have a limited range of products and from other specialty gourmet distributors. However, many purveyors are well established, have reputations for success in the development and marketing of these types of products and services and have significantly greater financial, marketing, distribution, personnel and other resources. These financial and other capabilities permit such companies to implement extensive advertising and promotional campaigns, both generally and in response to efforts by additional competitors such as us, to enter into new markets and introduce new products and services.
 
Insurance
 
We maintain a general liability insurance policy with a per occurrence limit of $1,000,000 and aggregate policy covering $2,000,000 of liability and non-owned automobile personal injury coverage with a limit of $1,000,000. Such insurance may not be sufficient to cover all potential claims against us and additional insurance may not be available in the future at a reasonable price.
 
 
6

 
Government Regulation
 
Various federal and state laws currently exist, and more are sure to be adopted, regulating the delivery of fresh food products. We require all third-party vendors to certify that they maintain at least $2,000,000 liability insurance coverage and compliance with Hazard Analysis and Critical Control Point (HACCP), an FDA- and USDA-mandated food safety program, or a similar standard. Any changes in the government regulation of delivering of fresh food products that hinders our current ability and/or cost to deliver fresh products, could adversely impact our net revenues and gross margins and, therefore, our profitability and cash flows could also be adversely affected.
 
Employees
 
We currently employ 46 full-time employees, including 6 chefs and 2 executive officers. We believe that our relations with our employees are satisfactory. None of our employees are represented by a union.
 
Transactions with Major Customers
 
Transactions with a major customer and related economic dependence information is set forth (1) following our discussion of Liquidity and Capital Resources, (2) Concentrations of Credit Risk in Note 2 to the Condensed Consolidated Financial Statements, (3) in Business – Relationship with U.S. Foods, (4) as the second item under Risk Factors.
 
How to Contact Us
 
Our executive offices are located at 28411 Race Track Rd., Bonita Springs, Florida 34135;  our Internet address is www.foodinno.com; and our telephone number is (239) 596-0204.  The contents of our website are not incorporated in or deemed to be a part of this Annual Report on Form 10-K.
 
ITEM 1A. Risk Factors
 
Prior to 2013, We Have a History of Losses Requiring Us to Seek Additional Sources of Capital

As of December 31, 2015, we had an accumulated deficit of $37,570,402.   We cannot assure you that we can achieve profitability on a quarterly or annual basis in the future. If revenues grow more slowly than we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, or other extraordinary events occur, we will incur losses. Our possible success is dependent upon the successful development and marketing of our services and products, as well as continued expansion of our products and customers, as to which we can give no assurance. Any future success that we might enjoy will depend upon many factors, including factors out of our control or which cannot be predicted at this time. These factors may include changes in or increased levels of competition, including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating costs, including costs of supplies, personnel, marketing and promotions, reduced margins caused by competitive pressures and other economic and non-economic factors. These conditions may have a materially adverse effect upon us or may force us to reduce or curtail operations. In addition, we could require additional funds to sustain and expand our sales and marketing activities, particularly if a well-financed competitor emerges. We can give no assurance that financing will be available in amounts or on terms acceptable to us, if at all. Our inability to obtain sufficient funds from our operations or external sources could require us to curtail or cease operations.
 
We Have Historically Derived Substantially All of Our Revenue From One Client and if We Were to Lose Such Client and Be Unable to Generate New Sales to Offset Such Loss, We May Be Forced to Cease or Curtail Our Operations.
 
In 2003, Next Day Gourmet initially contracted with our subsidiary, Food Innovations to handle the distribution of over 3,000 perishable and specialty food products to customers of USF. In February 2010, Food Innovations signed a new contract with USF that was scheduled to expire in December 2012 but was automatically extended for an additional 12 months in each of January 2013 and 2014 and in January 2015 we entered into a new contract with USF.  The term of the Agreement is from January 1, 2015 through December 31, 2016 and provides for up to three (3) automatic annual renewals thereafter if no party gives the other 30 days’ notice of its intent not to renew. Our sales through USF’s sales force generated gross revenues for us of $22,218,034 in the year ended December 31, 2015, and $18,446,745 in the year ended December 31, 2014. Those amounts contributed 72% and 71% respectively, of our total sales in those periods. Our sales efforts are for the most part substantially dependent upon the efforts of the USF sales force. Although we have generated revenues from additional customers other than USF, if our relationship with USF were to be materially changed and we are unable to generate substantial new sales to offset such loss, we may be forced to cease or curtail our operations.
 
 
7


A Variety of Factors, Including Seasonality and the Economic Environment, May Cause Our Quarterly Operating Results to Fluctuate, Leading to Volatility in Our Stock Price.

Our quarterly results have fluctuated in the past and may fluctuate in the future, depending upon a variety of factors, including changes in economic conditions, shifts in the timing of holiday selling seasons, including Valentine’s Day, Easter, Halloween, Thanksgiving and Christmas.

If We Fail to Attract and Retain Key Personnel, Our Business and Operating Results May be Harmed.
 
Our future success depends to a significant degree on the skills, experience and efforts of key personnel in our senior management, whose vision for our company, knowledge of our business and expertise would be difficult to replace. If any one of our key employees leaves, is seriously injured or unable to work, or fails to perform and we are unable to find a qualified replacement, we may be unable to execute our business strategy.
 
We May Be Unable to Manage Our Growth Which Could Result in Our Being Unable to Maintain Our Operations.

Our strategy for growth is focused on continued enhancements and expansion to our existing business model, offering a broader range of services and products, affiliating with additional vendors and through possible joint ventures. Pursuing this strategy presents a variety of challenges. We may not experience an increase in our services to our existing customers, and we may not be able to achieve the economies of scale, or provide the business, administrative and financial services, required to sustain profitability from servicing our existing and future customer base. Should we be successful in our expansion efforts, the expansion of our business would place further demands on our management, operational capacity and financial resources. To a significant extent, our future success will be dependent upon our ability to maintain adequate financial controls and reporting systems to manage a larger operation and to obtain additional capital upon favorable terms. We can give no assurance that we will be able to successfully implement our planned expansion, finance its growth, or manage the resulting larger operations. In addition, we can give no assurance that our current systems, procedures or controls will be adequate to support any expansion of our operations. Our failure to manage our growth effectively could have a material adverse effect on our business, financial condition and results of operations.
 
The Specialty Food and Foodservice Industry is Very Competitive, Which May Result in Decreased Revenue for Us as Well as Increased Expenses Associated with Marketing Our Services and Products.

The specialty food and foodservice businesses are highly competitive.  We compete against other providers of quality foods, some of which sell their services globally, and some of these providers have considerably greater resources than we have. These competitors may have greater marketing and sales capacity, established distribution networks, significant goodwill and global name recognition.  Our e-commerce and product catalog websites and paper catalogs compete with other e-commerce websites and other catalogs, and other specialty foodservice providers that market lines of products similar to ours. We compete with national, regional and local businesses utilizing a similar strategy, as well as traditional specialty food distributors. The substantial sales growth in the direct-to-customer industry within the last decade has encouraged the entry of many new competitors, new business models, and an increase in competition from established companies. Furthermore, it may become necessary for us to reduce our prices in response to competition. This could negatively impact our ability to be profitable.
 
We Rely Upon Outside Vendors and Shippers for Our Specialty Food Products and Interruption in the Supply of Our Products or their Failure to Adhere to Our Quality Standards May Negatively Impact Our Revenues.

Shortages in supplies of the food products we sell may impair our ability to provide our services. Our vendors are independent and we cannot guarantee their future ability to source the products that we sell. Many of our products are wild-caught, and we cannot guarantee their availability in the future. Unforeseen strikes and labor disputes as well as adverse weather conditions may result in our inability to deliver our products in a timely manner. Also, if our suppliers fail to supply quality product in a timely and effective manner it could lead to an increase in recalls and customer litigation against us which could harm our brands’ images and negatively affect our business and operating results.  The success of our business depends, in part, on our ability to timely and effectively deliver merchandise (i.e. fresh products) to our customers. We cannot control all of the various factors that might affect our fulfillment rates in direct-to-customer sales.  We are heavily dependent upon one national carrier for the delivery of our fresh products to our customers. Accordingly, we are subject to risks, including labor disputes, union organizing activity, inclement weather, technology breakdowns, natural disasters, the closure of their offices or a reduction in operational hours due to an economic slowdown, possible acts of terrorism associated with their ability to provide delivery services to meet our shipping needs, disruptions or increased fuel costs, and costs associated with any regulations to address climate change. Since our customers rely on us to deliver their orders daily or within 24-72 hours, delivery delays could significantly harm our business.
 
 
8

 
In Order to be Successful, We Must be able to Enhance Our Existing Products and Develop and Introduce New Products and Services to Respond to Changing Market Demand.

The markets in which we operate are characterized by frequently changing customer demand and the introduction of new “flavors of the month” as certain foods become more and less popular. Changes in customer preferences and buying trends may also affect our products differently. We must be able to stay current with preferences and trends in specialty food and address the customer tastes for each of our target customer demographics. We must also be able to identify and adjust products to cater to customer demands and dietary needs. For example, a change in customer preferences for gluten free items may not correlate to a similar change in buying trends for other specialty food. In order to be successful, we must be able to enhance our existing products and develop and introduce new products and services to respond to changing market demand for new tastes. The development and enhancement of services and products entails significant risks, including:
 
o the inability to effectively adapt new food types to our business;

o the failure to conform our services and products to evolving industry standards;

o the inability to develop, introduce and market enhancements to our existing services and products or newservices and products on a timely basis; and

o the non-acceptance by the market of such new service and products.

If we misjudge either the market for our products or our customers’ purchasing habits, our sales may decline significantly which would negatively impact our business and operating results. 

Any Acquisitions We Make or have made Could Result in Difficulties in Successfully Managing Our Business and Consequently Harm Our Financial Condition.

We seek to expand by acquiring complementary businesses in our current or ancillary markets.  We cannot accurately predict the timing, size and success of our acquisition efforts and the associated capital commitments that might be required.  We expect to face competition for acquisition candidates, which may limit the number of acquisition opportunities available to us and may lead to higher acquisition prices.  There can be no assurance that we will be able to identify, acquire or profitably manage additional businesses or successfully integrate acquired businesses, if any, without substantial costs, delays or other operational or financial difficulties. In addition, acquisitions involve a number of other risks, including:

 
·
failure of the acquired businesses to achieve expected results;
     
 
·
diversion of management’s attention and resources to acquisitions;
     
 
·
failure to retain key customers or personnel of the acquired businesses;
     
 
·
disappointing quality or functionality of acquired equipment and people: and
     
 
·
risks associated with unanticipated events, liabilities or contingencies.
 
Client dissatisfaction or performance problems at a single acquired business could negatively affect our reputation.  The inability to acquire businesses on reasonable terms or successfully integrate and manage acquired companies, or the occurrence of performance problems at acquired companies, both prior and after acquisition, could result, or has resulted, in dilution, potential violations of bank covenants, unfavorable accounting treatment or one-time charges, and difficulties in successfully managing our business, requiring to expend additional effort and expense in obtaining waivers, settling matters and otherwise addressing any such issues.

Our Future Results Depend on Continued Evolution of the Internet and its Use by Consumers and Businesses for Buying Our Products.

Our future results can depend on  the use of the Internet for information, publication, distribution and commerce. Our growth may also be dependent on increasing availability to business consumers of broadband Internet access which will allow such persons to access higher-capacity content through the Internet. Our business could suffer if Internet usage and broadband availability does not continue to grow and evolve.  In addition, the concept of ordering food, including ingredients is a relatively new concept and represents a change from the way it had been previously done.
 
 
9


If We are Unable to Effectively Manage Our IT Dependent Business Our Reputation and Operating Results May be Harmed.

The success of our business depends, in part, on third parties and factors over which we have limited control. We are also vulnerable to certain additional risks and uncertainties associated with our e-commerce and product catalog websites and IT integration with our partners , including: changes in required technology interfaces; website downtime and other technical failures; internet connectivity issues; costs and technical issues as we upgrade our website software; computer viruses; changes in applicable federal and state regulations; security breaches; and consumer privacy concerns. In addition, we must keep up to date with competitive technology trends, including the use of new or improved technology, creative user interfaces and other e-commerce marketing tools such as paid search and mobile applications, among others, which may increase our costs and which may not succeed in increasing sales or attracting customers. Our failure to successfully respond to these risks and uncertainties might adversely affect the sales in our e-commerce business, as well as damage our reputation and brands.

We May be Exposed to Risks and Costs Associated with Credit Card Fraud and Identity Theft that could Cause Us to Incur Unexpected Expenses and Loss of Revenue.

A portion of our customer orders are placed through our e-commerce websites and a significant portion of our orders are submitted via networked applications. In addition, a significant portion of sales made through our retail channel require the collection of certain customer data, such as credit card information. In order for our sales channels to function and develop successfully, we and other parties involved in processing customer transactions must be able to transmit confidential information, including credit card information, securely over public networks. Third parties may have the technology or knowledge to breach the security of customer transaction data. Although we take the security of our systems and the privacy of our customers’ confidential information seriously, we cannot guarantee that our security measures will effectively prevent others from obtaining unauthorized access to our information and our customers’ information. Any person who circumvents our security measures could destroy or steal valuable information or disrupt our operations. Any security breach could cause consumers to lose confidence in the security of our websites and choose not to purchase from us. Any security breach could also expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and harm our reputation, any of which could harm our business.

In addition, states and the federal government are increasingly enacting laws and regulations to protect consumers against identity theft. Compliance with these laws will likely increase the costs of doing business and, if we fail to implement appropriate safeguards or to detect and provide prompt notice of unauthorized access as required by some of these new laws, we could be subject to potential claims for damages and other remedies, which could harm our business.
 
Earthquakes, Inclement Weather or Other Events Out of Our Control May Damage or Limit Production from Our Facilities and Our Ability to Timely Deliver Products Thereby Adversely Affecting Our Results of Operations.

We have significant operations in New York and in other areas where weather or other events  such as an earthquake, tsunami, flood, typhoon, fire, or other natural or manmade events, could disrupt our operations and impair production or distribution of our products, damage inventory, interrupt critical functions, or otherwise affect our business negatively, adversely affecting our results of operations.
 
Declines in General Economic Conditions and the Resulting Impact on Consumer Confidence and Consumer Spending Could Adversely Impact Our Results of Operations.

Our financial performance is subject to declines in general economic conditions and the impact of such economic conditions on levels of consumer confidence and consumer spending. Consumer confidence and consumer spending may deteriorate significantly, and could remain depressed for an extended period of time. Consumer purchases of discretionary items, including our merchandise, generally decline during periods when disposable income is limited, unemployment rates increase, consumer perceptions of personal well-being and security declines or there is economic uncertainty. An uncertain economic environment, could adversely impact our business and operating results.

We Are and May Be Subject to Regulatory Compliance and Legal Uncertainties.

Changes in government regulation and supervision or proposed Department of Agriculture or other regulatory agency reforms or rule changes could impair our sources of revenue and limit our ability to expand our business. In the event any future laws or regulations are enacted which apply to us, we may have to expend funds and/or alter our operations to insure compliance.  New Internet legislation or regulation, or the application of existing laws and regulations to the Internet and e-commerce could add additional costs and risks to doing business on the Internet. We are subject to regulations applicable to businesses generally and laws or regulations directly applicable to communications over the Internet and access to e-commerce. Although there are currently few laws and regulations directly applicable to e-commerce, it is possible that a number of laws and regulations may be adopted with respect to the Internet, covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust, taxation and characteristics and quality of products and services. 
 
 
10


The Issuance of Shares Upon Conversion of Convertible Notes and Exercise of Outstanding Warrants or Restricted Stock Units May Cause Immediate and Substantial Dilution to Our Existing Stockholders.

The issuance of shares upon conversion of convertible notes and exercise of warrants and restricted stock units may result in substantial dilution to the interests of other stockholders since the note/warrant/restricted stock unit holders may ultimately convert or exercise and sell the full amount of shares issuable on conversion/exercise/vesting. Although, for the most part, such note/warrant holders may not convert their convertible notes and/or exercise their warrants if such conversion or exercise would cause them to own more than 9.99% of our outstanding common stock unless there was a management change or a change of control, this restriction does not prevent them from converting and/or exercising some of their holdings, selling off those shares, and then converting the rest of their holdings. In this way, they could sell more than this limit while never holding more than this limit; nor does that cap apply to any holder of restricted stock units. We anticipate that eventually, over time, the full amount of the convertible notes could be converted into shares of our common stock, in accordance with the terms of the secured convertible notes, as well as the exercise of the warrants and the issuance of shares underlying the restricted stock units which will cause significant dilution to our other shareholders.

If We Are Required for any Reason to Repay Our Outstanding Convertible Notes We May Have to Deplete Our Working Capital, If Available, or Have to Raise Additional Funds.

We can be required to repay certain of our convertible notes or other notes. If we are required to repay a significant amount of these notes, we would be required to use our limited working capital and/or raise additional funds (which may be unavailable) which would have the effect of causing further dilution and lowering shareholder value.  If we were unable to pay the notes when required, the note holders could commence legal action against us and foreclose on almost all of our assets to recover the amounts due.  Any such action could require us to curtail or cease operations.

Because we do Not Intend to Pay Any Cash Dividends on Our Shares of Common Stock, Our Stockholders Will Not be Able to Receive a Return on Their Shares Unless They Sell Them.
  
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them at a price higher than that which they initially paid for such shares.  

We may be Subject to Legal Proceedings that Could be Time Consuming, Result in Costly Litigation, Require Significant Amounts of Management Time and Result in the Diversion of Significant Operational Resources.

We are involved in lawsuits, claims and proceedings incident to the ordinary course of our business.  Litigation is inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. Even if we believe that we have meritorious defenses against these actions, and we resolve  to vigorously defend against them, the cost of defending against all these types of claims against us or the ultimate resolution of such claims, whether by settlement or adverse court decision, may harm our business and operating results and may be in excess of any amounts previously reserved for legal expenses. In addition, the increasingly regulated business environment and the nature of our products may result in a greater number of enforcement actions and private litigation. This could subject us to increased exposure to stockholder lawsuits. Also, we (and our affiliates) may be subject to attempts to bring legal claims by creditors and other third parties related to the liabilities or potential liabilities, of our former subsidiary, The Fresh Diet, Inc. which occurred during the time we owned it.
  
We are a Smaller Reporting Company, and We Cannot be Certain if the Reduced Reporting Requirements Applicable to Smaller Reporting Companies Will Make our Common Stock Less Attractive to Investors.

We are a smaller reporting company, as defined in the Securities Act of 1933. For as long as we continue to be a smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding historical financial statements, executive compensation in  our periodic reports, registration statements, and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company until the beginning of a year in which we had a public float of $75 million held by non-affiliates as of the last business day of the second quarter of the prior year.
 
 
11

 
Under New SEC rules we May be Able to Incorporate Future Documents by Reference Which Will Make it More Difficult for Investors to Locate All of Our Filings.
 
The SEC has recently published a new interim rule which allows a public company which is current with its reporting obligations to be able to incorporate future filings into registration statements on Form S-1, such as the registration statement of which this prospectus forms a part.  Prior to the adoption of such rule, issuers using a Form S-1 had to file post-effective amendments to make required disclosures.  Thus, investors wishing to view information about the offering and the issuer could locate all relevant information in one location.  However, we will now be able to incorporate all such future disclosures into this filing thereby requiring interested persons to search multiple filings to view all information about us.  This extra effort may have a chilling effect on potential investors who may choose not to pursue an interest in us which could reduce market activity for our stock and make it more difficult for an investor in our stock to sell their shares.  We intend to take advantage of this new rule.

We do Not Have a Compensation or an Audit Committee, so Shareholders Will Have to Rely on the Directors to Perform These Functions.
 
We do not have an audit or compensation committee comprised of independent directors. These functions are performed by the members of our board of directors. Until we have an audit committee or independent directors, there may less oversight of management decisions and activities and little ability for minority shareholders to challenge or reverse those activities and decisions, even if they are not in the best interests of minority shareholders.
 
Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading Market in our Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price, for warrants or options or conversion price for convertible notes, of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
 
           ●           that a broker or dealer approve a person's account for transactions in penny stocks; and
           ●           the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
 
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

           ●           obtain financial information and investment experience objectives of the person; and
           ●           make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
 
           ●           Sets forth the basis on which the broker or dealer made the suitability determination, and
           ●           that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
 
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
 
 
12

 
ITEM 2. Properties
 
On May 7, 2012, we entered into a three-year lease with David and Sherri Vohaska for approximately 18,700 feet of office and warehouse space located at 8121 Ogden Avenue, Lyons, Illinois.  The annual rent under the lease is approximately $8,333 per month for the first year, $8,417 per month for the second year, and $8,500 for the third year. David Vohaska was the owner of Artisan Specialty Foods  prior to the Company’s acquisition of Artisan Specialty Foods.  The Company and Mr. Vohaska agreed to terminate this lease agreement effective October 11, 2015.
 
On March 8, 2013, we purchased a building and property located at 28411 Race Track Road, Bonita Springs, Florida 34135.  The property consists of approximately 1.1 acres of land and close to 10,000 square feet of combined office and warehouse space.  The purchase price of the property was $770,000 and was financed in part by a five year mortgage in the amount of $546,000.  The company relocated all of its office then Florida-based and warehouse facilities into the newly acquired building in Bonita Springs, Florida on July 15, 2013.

On May 14, 2015, we purchased a building and property located at 2528 S. 27th Avenue, Broadview, Illinois 60155. The property consists of approximately 1.33 acres of land and approximately 28,711 square feet of combined office and warehouse space. The purchase price of $914,350 was initially financed primarily by a draw-down of $900,000 on the Company’s credit facility with Fifth Third Bank. On May 29, 2015, a permanent financing facility was provided by Fifth Third Bank in the form of a loan in the amount of $980,000. $900,000 of this amount was used to pay the balance of the credit facility; the additional $80,000 was used for refrigeration and other improvements at the property. The interest on the loan is at the LIBOR rate plus 3.0%.  The building  is  used for office and warehouse space for the Company’s Artisan subsidiary.  During the twelve  months ended December 31, 2015, the Company paid a total of $474,300 for various building improvements, furniture, fixtures, and equipment related to this property.  Depreciation on the building and the related improvements, furniture, fixtures, and equipment began at the time the Company occupied the facility in October, 2015.
 
ITEM 3. Legal Proceedings
 
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
 
ITEM 4. Mine Safety Disclosure
 
Not Applicable.
 
 
13

 
PART II
 
ITEM 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information
 
Prices for our common stock are quoted on the OTCQB. Since March 2004, our common stock has traded under the symbol "IVFH".  Prior thereto, our common stock traded under the symbol "FBSN".  23,572,824 shares of our common stock were outstanding as of March 25, 2016.  The following table sets forth the high and low closing sales prices of our common stock as reported in the OTCQB for each full quarterly period within the two most recent fiscal years.
      
Fiscal Year Ending December 31, 2015
 
HIGH
   
LOW
 
First Quarter
 
$
1.90
   
$
1.30
 
Second Quarter
   
1.39
     
1.13
 
Third Quarter
   
1.28
     
0.95
 
Fourth Quarter
   
0.94
     
0.51
 
 
Fiscal Year Ending December 31, 2014
 
HIGH
   
LOW
 
First Quarter
 
$
1.80
   
$
1.13
 
Second Quarter
   
1.75
     
1.20
 
Third Quarter
   
1.69
     
1.16
 
Fourth Quarter
   
1.75
     
1.20
 

The quotations listed above reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. On March 08,  2016, the closing price of our common stock as reported by the OTC Market was $0.46.
 
Security Holders
 
On March 25, 2016, there were approximately 64 record holders of our common stock.  In addition, we believe there are at least several hundred additional beneficial owners of our common stock whose shares are held in "street name."
 
Dividends
 
We have not paid dividends during the three most recently completed fiscal years, and have no current plans to pay dividends on our common stock. We currently intend to retain all earnings, if any, for use in our business.
 
Recent Sales and Other Issuances of Our Equity Securities
 
During the twelve months ended December 31, 2015, the Company had the following transactions:
 
The Company completed a round of financing of $3,078,998 through the sale of 3,178,420 restricted shares of our common stock at a price per share of $0.9646, primarily for the purpose of acquiring, in a block sale, the shares of Monolith Ventures Ltd, a former shareholder of The Fresh Diet, who agreed to sell its position of approximately 3 million shares at a price of $0.9646 per share. Concurrently, Monolith Ventures Ltd. dismissed its previously reported litigation against the Company and exchanged mutual releases with the Company.  Simultaneously, the Company also raised an additional $1,209,598 through the sale of 943,829 restricted shares of the Company’s common stock at a price per share of $1.30.
 
The Company issued 727,270 shares of common stock to for cash proceeds of $400,000 upon the exercise of warrants with an exercise price of $0.55 per share.  The Company also issued 533,915 shares of common stock for cash proceeds of $307,000 upon the exercise of warrants with an exercise price of $0.575 per share.

The Company issued 40,000 shares of common stock pursuant to the exercise of 40,000 stock options with an exercise price of $0.38 per share, for cash proceeds of $15,200, and an additional 150,000 shares of common stock pursuant to the exercise of 150,000 stock options with a weighted-average exercise price of $0.444 per share, for cash proceeds of $66,660.

 
14


The Company issued 150,000 shares of common stock at $0.25 per share, which was previously accrued in the amount of $37,500 pursuant to the terms of the acquisition of The Haley Group.  The Company also issued 21,126 shares of common stock with a fair value of $21,126 or $1.00 per share to an employee pursuant to the terms of the acquisition of The Haley Group.

The Company issued 30,000 shares of common stock with a fair value of $39,000 (or $1.30 per share) and an additional 25,000 shares of common stock with a fair value of $34,000 (or $1.36 per share) to two service providers.

The Company issued 25,000 shares of common stock with a fair value of $42,500 or $1.70 per share to an employee pursuant to an employment agreement, and an additional 15,000 shares of common stock with a fair value of $10,500 or $0.70 per share to an employee as a bonus.

The Company issued 125,000 shares of common stock to an officer for the exercise of RSUs.

All of the issuances described above were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 for the following reasons:  (1) none of the issuances involved a public offering or public advertising for  the payment of any commissions or fees; (2) the issuances for cash were to “accredited investors”; (3) the issuances upon conversion of notes were for notes held at least 12 months and did not involve the payment of any other consideration; and (4) all issuances to affiliates and to non-affiliates holding the securities for less than  six months carried restrictive legends.
 
Dilutive Securities
 
December 31, 2015
 
At December 31, 2015, the Company had outstanding convertible notes payable in the aggregate principal amount of $758,065 with accrued interest of $668,615 convertible at the rate of $0.25 per share into an aggregate 5,706,720 shares of common stock.  These notes were issued mainly as part of a debt financing into the Company in 2004 and have certain restrictions on repayment. In addition, the Company had a convertible note payable in the amount of $100,000 convertible at the rate of $1.54 per share into 64,935 shares of common stock. This note was issued as part of the purchase price of Organic Food Brokers in 2014.
 
Also at December 31, 2015, the Company had outstanding warrants for holders to purchase the following additional shares: The following warrants were issued in connection to a 2004 equity investment into the Company: 2,294,493 shares exercisable at a price of $0.575 per share; 448,011  shares exercisable at a price of $0.55 per share; and 94,783  shares exercisable at a price of $0.25 per share. In addition the Company has 700,000  warrants outstanding exercisable at a price of $0.01 per share. These warrants were originally issued in connection with the issuance of a loan connected to the Artisan Specialty Foods acquisition. 800,000 of the original warrants were cancelled upon the early payment of the loan in 2012, leaving the current 700,000 connected to the Artisan loan previously outstanding.
 
Also at December 31, 2015, the Company had outstanding options for holders to purchase the following additional shares: 30,000 shares at a price of $3.40 per share; 20,000 shares at a price of $2.40 per share; 500,000 shares at a price of $2.00 per share; 15,000 shares at a price of $1.90 per share; 310,000 shares at a price of $1.60 per share; 15,000 shares at a price of $1.50 per share; 100,000 shares at a price of $1.46 per share; 15,000 shares at a price of $1.44 per share; 75,000 shares at a price of $1.31 per share; 225,000 shares at a price of $0.57 per share; 92,500 shares at a price of $0.48 per share; 92,500 shares at a price of $0.474 per share; 92,500 shares at a price of $0.45 per share; 275,000 shares at a price of $0.40 per share; 92,500 shares at a price of $0.38 per share; and 1,170,000 shares at a price of $0.35 per share.
 
December 31, 2014
 
At December 31, 2014, the Company had outstanding convertible notes payable in the aggregate principal amount of $758,065 with accrued interest of $655,931 convertible at the rate of $0.25 per share into an aggregate 5,655,984 shares of common stock, These notes were issued mainly as part of a debt financing into the Company in 2004 and have certain restrictions on repayment. In addition, the Company had a convertible note payable in the amount of $200,000, convertible at the rate of $1.54 per share, into 129,871 shares of common stock. This note was issued as part of the purchase price of Organic Food Brokers in 2014.
 
 
15

 
Also at December 31, 2014, the Company had outstanding warrants for holders to purchase the following additional shares: The following warrants were issued in connection to a 2004 equity investment into the Company: 2,828,405 shares exercisable at a price of $0.575 per share; 1,175,281 shares exercisable at a price of $0.55 per share; and 94,783 shares exercisable at a price of $0.25 per share. In addition the Company has 700,000 warrants outstanding exercisable at a price of $0.01 per share. These warrants were originally issued in connection with the issuance of a loan connected to the Artisan Specialty Foods acquisition. 800,000 of the original warrants were cancelled upon the early payment of the loan in 2012, leaving the current 700,000 connected to the Artisan loan previously outstanding.
 
Also at December 31, 2014, the Company had outstanding options for holders to purchase the following additional shares: 500,000 shares at a price of $2.00 per share; 15,000 shares at a price of $1.90 per share; 310,000 shares at a price of $1.60 per share; 100,000 shares at a price of $1.46 per share; 15,000 shares at a price of $1.44 per share; 75,000 shares at a price of $1.31 per share; 225,000 shares at a price of $0.57 per share; 132,500 shares at a price of $0.48 per share; 132,500 shares at a price of $0.474 per share; 132,500 shares at a price of $0.45 per share; 275,000 shares at a price of $0.40 per share; 132,500 shares at a price of $0.38 per share; and 1,200,000 shares at a price of $0.35 per share.
 
The holders of the notes and warrants have each contractually agreed not to convert their convertible notes and/or exercise their warrants if such conversion or exercise would cause them to own more than 9.99% of our outstanding common stock, unless there was a management change or a change of control.  However, this restriction does not prevent them from converting and/or exercising some of their holdings, selling off those shares, and then converting the rest of their holdings.  These note and warrant holders have also contractually agreed volume limitations on the sale of our shares.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
As of December 31, 2015, the following shares are issuable pursuant to outstanding stock options, warrants, and rights issued under the 2011 Stock Option Plan:
 
Plan Category
 
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
   
Weighted-average exercise price of outstanding options, warrants, and rights
   
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
                   
Equity compensation plans approved by security holders
   
3,120,000
   
$
0.890
     
96,755,000
 
Equity compensation plans not approved by shareholders
   
8,198,106
   
$
1.008
     
N/A
 
 
ITEM 6. Selected Financial Data
 
Not Applicable. 
 
 
16

 
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
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 Private Securities Litigation Reform Act will not apply to certain  "forward looking statements” because we issued "penny stock" (as defined in Section 3(a)(51) of the Securities Exchange Act of 1934 and Rule 3(a)(51-1) under the Exchange Act) during the three year period preceding the date(s) on which those forward looking statements were first made, except to the extent otherwise specifically provided by rule, regulation or order of the Securities and Exchange Commission. We caution readers that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements which may be deemed to have been made in this Report or which are otherwise made by or on our behalf.  For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may",  "will", "expect", "believe",  "explore",  "consider",  "anticipate",  "intend", "could", "estimate",  "plan", "propose" or "continue" or the negative variations of those words or comparable terminology are intended to identify forward-looking statements. Factors that may affect our results include, but are not limited to, the risks and uncertainties associated with:
 
 Our ability to raise capital necessary to sustain our anticipated operations and implement our business plan,
   
 Our ability to implement our business plan,
 
 Our ability to generate sufficient cash to pay our lenders and other creditors,
 
 Our dependence on one major customer,
   
 Our ability to employ and retain qualified management and employees,
 
 Our dependence on the efforts and abilities of our current employees and executive officers,
 
 Changes in government regulations that are applicable to our current  or anticipated business,
 
 Changes in the demand for our services,
 
 The degree and nature of our competition,
 
 The lack of diversification of our business plan,
 
 The general volatility of the capital markets and the establishment of a market for our shares, and
 
 Disruption in the economic and financial conditions primarily from the impact of past terrorist attacks in the United States, threats of future attacks, police and military activities overseas and other disruptive worldwide political and economic events and environmental weather conditions.
 
We are also subject to other risks detailed from time to time in our other filings with Securities and Exchange Commission 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.
 
 
17

 
Critical Accounting Policy and Estimates
 
Use of Estimates in the Preparation of Financial Statements
 
The preparation of these financial statements included in this report 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.
 
(a) Warrants:
 
The following table illustrates certain key information regarding our warrants and warrant valuation assumptions at December 31, 2015 and 2014:
 
   
December 31,
 
   
2015
   
2014
 
Number of warrants outstanding
   
3,537,284
     
4,798,469
 
Value at December 31
   
N/A
     
N/A
 
Number of warrants issued during the period
   
-
     
-
 
Value of warrants issued during the year
   
N/A
     
N/A
 
Revaluation (gain) loss during the period
   
N/A
     
N/A
 
Number of warrants exercised during the period
   
1,261,185
     
1,020,660
 
Value of warrants exercised during the period
   
N/A
     
N/A
 
Number of warrants cancelled or expired during the period
   
-
     
  -
 
Value of warrants cancelled or expired during the period
   
N/A
     
N/A
 
Black-Scholes model variables:
               
Volatility
   
N/A
     
N/A
 
Dividends
   
N/A
     
N/A
 
Risk-free interest rates
   
N/A
     
N/A
 
Term (years)
   
N/A
     
N/A
 
 
(b) Embedded conversion features of notes payable:
 
The following table illustrates certain key information regarding our Conversion options and conversion option valuation assumptions at December 31, 2015 and 2014:
 
   
December 31,
 
   
2015
   
2014
 
             
Number of conversion options outstanding
   
5,771,665
     
5,786,866
 
Value at December 31
 
$
N/A
   
$
N/A
 
Number of conversion options issued during the year
   
49,724
     
237,786
 
Value of conversion options issued during the year
 
$
-
   
$
-
 
Number of options exercised or underlying notes or accrued interest paid or converted during the year
   
64,935
     
926,268
 
Value of options exercised during the year
 
$
N/A
   
$
N/A
 
Revaluation loss (gain) during the period
   
N/A
     
N/A
 
                 
Black-Scholes model variables:
   
  N/A
     
  N/A
 
Volatility
 
N/A
   
N/A
 
Dividends
   
N/A
     
N/A
 
Risk-free interest rates
   
N/A
     
N/A
 
Term (years)
   
N/A
     
 N/A
 
 
 
18

 
(c)   Stock options:
 
The Company accounts for options in accordance with FASB ASC 718-40.  Options are valued upon issuance utilizing the Black-Scholes valuation model.   Option expense is recognized over the requisite service period of the related option award.  The following table illustrates certain key information regarding our options and option assumptions at December 31, 2015 and 2014:
 
   
December 31,
 
   
2015
   
2014
 
Number of options outstanding
   
3,105,000
     
3,245,000
 
Value at December 31
   
N/A
     
N/A
 
Number of options issued during the year
   
50,000
     
705,000
 
Value of options issued during the year
 
$
6,894
   
$
393,737
 
Number of options recognized during the year  pursuant to SFAS 123(R)
   
0
     
0
 
Number of options exercised or expired during the year
   
190,000
     
  40,000
 
Value of options recognized during the year  pursuant to SFAS 123(R)
 
$
188,491
   
$
308,782
 
Revaluation (gain) during the period
 
$
N/A
   
$
N/A
 
                 
Black-Scholes model variables:
               
Volatility
 
47.35% to 57.56
%
 
89.42% to 189.71
%
Dividends
   
0
     
0
 
Risk-free interest rates
   
0.14% to 0.99
%
   
0.37% to 0.42
%
Term (years)
   
0.92 to 3.00
     
2.00 to 4.00
 
 
Doubtful Accounts Receivable
 
The Company maintained an allowance in the amount of $56,364 for doubtful accounts receivable at December 31, 2015, and $29,500 at December 31, 2014. Actual losses on accounts receivable were $9,358 for 2015 and $20,057 for 2014. The Company has an operational relationship of several years with our major customers, and we believe this experience provides us with a solid foundation from which to estimate our expected losses on accounts receivable. Should our sales mix change or if we develop new lines of business or new customers, these estimates and our estimation process will change accordingly. These estimates have been accurate in the past.
 
Fair Value of Financial Instruments
 
The Company measures its financial assets and liabilities in accordance with accounting principles generally accepted in the United States of America. The estimated fair values approximate their carrying value because of the short-term maturity of these instruments or the stated interest rates are indicative of market interest rates. These fair values have historically varied  due to the market price of the Company’s stock at the date of valuation. Generally, these liabilities  increased as the price of the Company’s stock increased (with resultant gain), and decreased as the Company’s stock decreased (yielding a loss). In December 2012, the Company removed  these liabilities from its balance sheet  by  reclassifying them as equity.
 
Income Taxes
 
The Company has a history of losses, and as such has recorded no liability for income taxes. Until such time as the Company begins to provide evidence that a continued profit is a reasonable expectation, management will not determine that there is a basis for accruing an income tax liability. These estimates have been accurate in the past.
 
Background
 
We were initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation. From June 1979 through February 2003, we were either inactive or involved in discontinued business ventures. We changed our name to Fiber Application Systems Technology, Ltd in February 2003. In January 2004, we changed our state of incorporation by merging into Innovative Food Holdings, Inc. (IVFH), a Florida corporation formed for that purpose. As a result of the merger, we changed our name to that of Innovative Food Holdings, Inc. In January 2004, we also acquired Food Innovations, Inc. (“FII” or “Food Innovations”), a Delaware corporation, for 500,000 shares of our common stock.
 
 
19

 
On May 18, 2012, the Company executed a Stock Purchase Agreement to acquire all of the issued and outstanding shares of Artisan Specialty Foods, Inc., an Illinois corporation (“Artisan”), from its owner, Mr. David Vohaska.  The purchase price was $1.2 million, with up to another $300,000 (with a fair value of $131,000) payable in the event certain financial milestones were  met over the next one or two years.  Those milestones have been met. The purchase price was primarily financed via a loan from Alpha Capital in the principal amount of $1,200,000. The loan was repaid in November 2013 via the issuance of a loan from Fifth Third Bank which has been paid in full.  Prior to the acquisition, Artisan was a supplier and had sold products to the Company.

Pursuant to an asset purchase agreement, effective November 2, 2012, the Company purchased the outstanding assets of The Haley Group, LLC (“Haley”). Pursuant to a purchase agreement, effective June 30, 2014, the Company purchased 100% of the membership interest of Organic Food Brokers, LLC, a Colorado limited liability company (“OFB”).
 
On August 15, 2014, pursuant to a merger agreement (the “Fresh Diet Merger Agreement”), the Company acquired The Fresh Diet, Inc. (“The Fresh Diet” or “FD”) through a reverse triangular merger as the registrant created a subsidiary corporation (FD Acquisition Corp) that merged with and into FD with FD being the surviving corporation and becoming a wholly-owned subsidiary of the Company. The purchase price consisted of 10,000,000 shares of the Company’s common stock valued at $14,000,000. The majority of FD’s current liabilities consisted of approximately $3.8 million of deferred revenues and approximately $2.1 million in short term commercial loans and there were additional ordinary course of business expenses such as trade payables, payroll and sales taxes which vary from month to month. In addition, it had  some long term obligations the bulk of which consist of interest free loans from FD’s former shareholders in the amount of approximately $2.2 million which are not due for three years.  Prior to the merger FD had purchased an immaterial amount of product from the Company.  FD operated as an independent subsidiary subject to oversight of its board of directors and the Company’s President and CEO.  Effective February 23, 2016,  the Company closed a transaction to sell 90% of our ownership in FD to New Fresh Co., LLC, a Florida limited liability company controlled by the former founder of FD who was appointed Interim CEO of FD on February 9, 2016.  The consideration to Innovative Food Holdings consisted primarily of a restructuring of our loans, which includes the ability to convert to additional amounts of FD under certain circumstances. There is no continuing cash inflows or outflows from or to the discontinued operations.
 
Transactions With a Major Customer
 
Transactions with a major customer and related economic dependence information is set forth (1) following our discussion of Liquidity and Capital Resources, (2) under the heading Transactions with Major Customers in Note 17 to the Consolidated Financial Statements, and (3) in Business – Relationship with U.S. Foods, and (4) as the second item  under Risk Factors.
 
RESULTS OF OPERATIONS
 
Prior year balances have been recast to reflect the sale of 90% of our interest in The Fresh Diet, Inc. in February 2016.  Results of discontinued operations are excluded from the accompanying results of operations for all periods presented, unless otherwise noted.  See Note 3 – discontinued operations in the accompanying notes to consolidated financial statements.
 
This discussion may contain forward looking-statements that involve risks and uncertainties. Our future results could differ materially from the forward looking-statements discussed in this report. This discussion should be read in conjunction with our consolidated financial statements, the notes thereto and other financial information included elsewhere in the report.
 
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
 
Revenue
 
Revenue increased by $4,764,553   or approximately  18.4% to $30,648,381   for the year ended December 31, 2015 from $25,883,828  in the prior year. 
 
We continue to assess the potential of new revenue sources from the manufacture and sale of proprietary food products and additional sales channel opportunities in both the foodservice and consumer space and will implement that strategy if, based on our analysis, we deem it beneficial to us.
 
Any changes in the food distribution and specialty foods  operating landscape that materially hinders our current ability and/or cost to deliver our products to our customers could potentially cause a material impact on our net revenue and gross margin and, therefore, our profitability and cash flows could be adversely affected.
  
Currently, a small portion of our revenues comes from imported products or international sales. Our current sales from such segments may be hampered and negatively impacted by any economic tariffs that may be imposed in the United States or in foreign countries.
 
See "Transactions with Major Customers" and the Securities and Exchange Commission's ("SEC") mandated FR-60 disclosures following the "Liquidity and Capital Resources" section for a further discussion of the significant customer concentrations, loss of significant customer, critical accounting policies and estimates, and other factors that could affect future results.
 
 
20

 
Cost of goods sold
 
Our cost of goods sold for the twelve months ended December 31, 2015 was $21,460,812, an increase of $3,597,394 or approximately 20.1% compared to cost of goods sold of $17,863,418  for the twelve months ended December 31, 2014. Cost of goods sold is made up of the following expenses for the twelve months ended December 31, 2015: cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $15,716,405; and shipping, delivery, handling, and purchase allowance expenses in the amount of $5,744,407.  Total gross margin was approximately 30.0% of sales in 2015, compared to approximately 31.0% of sales in 2014. The decrease in gross margins from 2014 are primarily attributable to variation in product and revenue mix across our various selling channels.
     
In 2015, we continued to price our products in order to gain market share and increase the number of our end users. We were successful in both increasing sales and increasing market share.  We currently expect, if market conditions and our product revenue mix remain constant, that our cost of goods sold will either remain stable or possibly improve slightly.
 
Selling, general, and administrative expenses
 
Selling, general, and administrative expenses increased by $1,839,523 or approximately 25.7% to $8,990,658 during the twelve months ended December 31, 2015 compared to $7,151,135   for the twelve months ended December 31, 2014. The increase in selling, general, and administrative expenses was primarily due to non-cash compensation, which was $2,427,231 for the year ended December 31, 2015, an increase of $1,214,340 or 100%  compared to non-cash compensation of $1,212,891 during the twelve months ended December 31, 2014.
    
Interest expense, net
 
Interest expense, net of interest income, decreased by $213,032  or approximately 27.0%  to $575,914   during the twelve months ended December 31, 2015, compared to $788,946  during the twelve months ended December 31, 2014.  Approximately 15.5%  or $89,495  of the interest expense was accrued or paid interest on the company’s notes payable; approximately 84.9%  or $489,187 of the interest was a non-cash GAAP accounting charge associated with the amortization of the discounts on the Company’s notes payable.  The Company also had $2,768 of interest income during the period.
   
Other Income
 
There was other income of $5,400  during the year ended December 31, 2015, compared to other income of $1,700 during the year ended December 31, 2014.  Other income in 2015 consists of a gain on the sale of one of the investments that the Company made into an early stage food business.  That business was subsequently acquired by a private equity fund in 2015; other income in 2014 consists of a gain on the sale of property and equipment.

Net loss from continuing operations
 
For the reasons above, the Company had a net loss from continuing operations for the twelve months ended December 31, 2015 of $373,603,  which is an increase of approximately 555% compared to a net income of $82,029 during the twelve months ended December 31, 2014. The loss for the year ended December 31, 2015 includes a total of $3,300,869 in non-cash charges, including amortization of intangible assets in the amount of $299,825, depreciation expense of $84,626, charges for non-cash compensation in the amount of $2,427,231, and amortization of the discount on notes payable in the amount of $489,187; the loss for the year ended December 31, 2014 includes a total of $2,143,908 in non-cash charges, including amortization of intangible assets in the amount of $243,514, depreciation expense of $79,870, charges for non-cash compensation in the amount of $1,112,826, and amortization of the discount on notes payable in the amount of $707,698.
     
Liquidity and Capital Resources at December 31, 2015
 
As of December 31, 2015, the Company had current assets of $6,052,681, consisting of cash and cash equivalents of $1,645,320; trade accounts receivable, net of $1,650,584; inventory of $920,885; other current assets of $68,559; and current assets – discontinued operations of $1,767,333.  Also at December 31, 2015, the Company had current liabilities of $15,051,336,  consisting of accounts payable and accrued liabilities of $2,161,236 (of which $458,710 was payable to related parties); accrued interest of $9,230;  current portion of notes payable of $897,615; contingent liabilities of $91,000; and amount due under revolving credit facilities of $1,380,000.  The Company also had current liabilities – discontinued operations of $10,512,255.
 
During the twelve months ended December 31, 2015, the Company  had cash used in operating activities of ($3,662,434).  This consisted of the Company’s consolidated net loss of (27,176,091)  and gain on sale of investment of $5,400, offset by non-cash charges for the impairment of goodwill in the amount of $16,614,373; stock based compensation in the amount of $4,685,447; amortization of discount on notes payable of $489,187; depreciation and amortization of $1,417,916; and  increase in allowance for bad debt of $24,808.  The Company’s cash position also increased by $287,326  as a result of changes in the components of current assets and current liabilities.  
 
 
21

   
The Company had cash used in investing activities of $4,492,218 for the twelve months ended December 31, 2015, which consisted of $3,000,000 cash paid to re-acquire shares issued in the acquisition of The Fresh Diet, and  $1,551,618 for the acquisition of property and equipment, partially offset by $59,400 cash received from the sale of an investment.   The Company had cash generated by financing activities of $7,179,415 for the twelve months ended December 31, 2015, which consisted of common stock sold for cash of $4,288,596; cash received for the exercise of warrants of $788,860; borrowings on revolving credit facilities of $6,817,125; and borrowing under debt agreements of $2,625,015, partially offset by payments made on revolving credit facilities of $5,586,785; principal payments on notes payable of $1,565,253, and principal payments on capital leases of $188,143.
 
The Company had net working capital deficit of $8,998,655  as of December 31, 2015.  We have generated negative  cash flow from operations during the year ended December 31, 2015, which includes the results of The Fresh Diet. We generated  positive cash flow from operations during the year ended December 31, 2014.  We believe that the sale of The Fresh Diet will immediately return us to a position of positive cash flow from operations.  The Company intends to continue to focus on increasing market share and cash flow from operations by focusing its sales activities on specific market segments and new product lines.  Currently, we do not have any material long-term obligations other than those described in Note 12 to the financial statements included in this report. As we seek to increase our sales of new items and enter new markets, acquire new businesses as well as identify new and other consumer and food service oriented products and services, we may use existing cash reserves, long-term financing, or other means to finance such diversification. 

In February 2016, we completed the sale of The Fresh Diet to New Fresh Co., LLC, a Florida limited liability company controlled by the former founder of FD.  See Note 3.
  
If the Company’s 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. The Company expects that any sale of additional equity securities or convertible debt will result in additional dilution to our stockholders.
 
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. 
 
2016 Plans
 
During 2016, in addition to our efforts to increase sales in our existing foodservice operations we plan to attempt to expand our business by expanding our focus to additional specialty foods markets in both the consumer and foodservice sector ,exploring potential acquisition opportunities and continuing to extend our focus in the  specialty food market through the growth of the Company’s existing sales channels and through a variety of  additional sales channel relationships which are currently being explored. In addition, we are currently exploring the introduction of a variety of new product categories and new product lines, to leverage our existing foodservice and consumer customer base.
 
No assurances can be given that any of these plans will come to fruition or that if implemented that they will necessarily yield positive results.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
 
Inflation
 
In the opinion of management, inflation has not had a material effect on the Company’s financial condition or results of its operations.
 
Transactions with Major Customers
 
The Company’s largest customer, US Foods, Inc. and its affiliates, accounted for approximately 72%  and 71% of total sales in the years ended December 31, 2015 and 2014, respectively.  A contract between our subsidiary, Food Innovations, and USF entered an optional renewal period in December 2012 but was automatically extended for an additional 12 months in each of January 1, 2013 and 2014.  On January 26, 2015 we executed a contract between Food Innovations, Inc., our wholly-owned subsidiary, and U.S. Foods, Inc.  The term of the Agreement is from January 1, 2015 through December 31, 2016 and provides for up to three (3) automatic annual renewals thereafter if no party gives the other 30 days’ notice of its intent not to renew. 
 
 
22

 
ITEM 8. Financial Statements
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
To the Board of Directors and Shareholders of
Innovative Food Holdings, Inc.
Bonita Springs, Florida
 
 
We have audited the accompanying consolidated balance sheet of Innovative Food Holdings, Inc., and subsidiaries (“the Company”) as of December 31, 2015 and 2014, the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have nor were we engaged to perform, an audit of its Internal Control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2014 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
/s/ LIGGETT & WEBB, P.A.
 

New York, NY
March 30, 2016
 
 
23

 
Innovative Food Holdings, Inc.
Consolidated Balance Sheets
 
   
December 31,
   
December 31,
 
   
2015
   
2014
 
ASSETS
           
Current assets
           
Cash and cash equivalents
 
$
1,645,320
   
$
2,601,834
 
Accounts receivable net
   
1,650,584
     
1,240,058
 
Inventory
   
920,885
     
938,906
 
Current assets - discontinued operations
   
1,767,333
     
1,845,334
 
Other current assets
   
68,559
     
11,316
 
Due from related parties
   
-
     
-
 
Total current assets
   
6,052,681
     
6,637,448
 
                 
Property and equipment, net
   
2,193,463
     
877,867
 
Investment
   
150,000
     
204,000
 
Non-current assets - discontinued operations
   
4,665,554
     
23,414,449
 
Intangible assets, net
   
940,452
     
1,240,277
 
Total assets
 
$
14,002,150
   
$
32,374,041
 
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
               
Current liabilities
               
Accounts payable and accrued liabilities
 
$
1,702,526
   
$
1,610,823
 
Accrued liabilities - related parties
   
458,710
     
914,964
 
Accrued interest
   
9,230
     
603,034
 
Accrued interest - related parties
   
-
     
54,150
 
Revolving credit facilities
   
1,380,000
     
-
 
Notes payable, current portion
   
897,615
     
440,682
 
Notes payable - related parties, current portion
   
-
     
110,500
 
Current liabilities - discontinued operations
   
10,512,255
     
9,630,209
 
Contingent liabilities
   
91,000
     
172,500
 
Total current liabilities
   
15,051,336
     
13,536,862
 
                 
Accrued interest – long term
   
614,465
     
-
 
Note payable - long term portion, net of discount
   
1,254,042
     
737,534
 
Notes payable - related parties, long term portion
   
164,650
     
-
 
Long term liabilities - discontinued operations
   
2,301,151
     
2,714,181
 
Total liabilities
   
19,385,644
     
16,988,577
 
                 
Commitments and contingencies (see Note 16)
               
                 
Stockholders' (deficit) equity
               
Common stock, $0.0001 par value; 500,000,000
shares authorized; 24,248,486 and 21,393,989
shares issued, and 23,547,823 and 20,693,326
shares outstanding at December 31, 2015 and
2014, respectively
   
2,423
     
2,140
 
Additional paid-in capital
   
32,344,584
     
25,937,734
 
Treasury stock, 486,254 shares outstanding at
December 31, 2015 and 2014, respectively
   
(160,099
)
   
(160,099
)
Accumulated deficit
   
(37,570,402
)
   
(10,394,311
)
Total stockholders' (deficit) equity
   
(5,383,494
)
   
15,385,464
 
                 
Total liabilities and stockholders' (deficit) equity
 
$
14,002,150
   
$
32,374,041
 
 
See notes to consolidated financial statements.
 
 
24

 
Innovative Food Holdings, Inc.
Consolidated Statements of Operations
 
   
For the
   
For the
 
   
Year Ended
   
Year Ended
 
   
December 31,
   
December 31,
 
   
2015
   
2014
 
             
             
Revenue
 
$
30,648,381
   
$
25,883,828
 
Cost of goods sold
   
21,460,812
     
17,863,418
 
Gross margin
   
9,187,569
     
8,020,410
 
                 
Selling, general and administrative expenses
   
8,990,658
     
7,151,135
 
Total operating expenses
   
8,990,658
     
7,151,135
 
                 
Operating income
   
196,911
     
869,275
 
                 
Other (income) expense:
               
Interest expense, net
   
575,914
     
788,946
 
Other (income)
   
(5,400
)
   
(1,700
)
Total other (income) expense
   
570,514
     
787,246
 
                 
Net (loss) income before taxes
   
(373,603
)
   
82,029
 
                 
Income tax expense
   
-
     
-
 
                 
Net (loss) income from continuing operations
 
$
(373,603
)
 
$
82,029
 
                 
Net loss from discontinued operations
   
(26,802,488
)
   
(3,812,977
)
                 
Consolidated net loss
 
$
(27,176,091
)
 
$
(3,730,948
)
                 
Net (loss) income per share from continuing operations - basic
 
$
(0.016
)
 
$
0.007
 
                 
Net loss per share from discontinued operations - basic
 
$
(1.166
)
 
$
(0.334
)
                 
Net (loss) income per share from continuing operations - diluted
 
$
(0.016
)
 
$
0.005
 
                 
Net loss per share from discontinued operations - diluted
 
$
(1.166
)
 
$
(0.334
)
                 
                 
Weighted average shares outstanding - basic
   
22,996,003
     
11,421,690
 
                 
Weighted average shares outstanding - diluted
   
22,996,003
     
15,990,111
 
 
See notes to consolidated financial statements.
 
 
25

 Innovative Food Holdings, Inc.
Consolidated Statements of Cash Flows
 
   
For the
   
For the
 
   
Year Ended
   
Year Ended
 
   
December 31,
   
December 31,
 
   
2015
   
2014
 
Cash flows from operating activities:
           
Net loss
 
$
(27,176,091
)
 
$
(3,730,948
)
Gain on disposition of property and equipment
           
(8,734
)
Gain on sale of investment
   
(5,400
)
   
-
 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
               
Depreciation and amortization
   
1,417,916
     
630,086
 
Impairment of  goodwill
   
16,614,373
     
-
 
Stock based compensation
   
2,427,231
     
1,212,891
 
Stock based compensation  for FD employees
   
2,258,216
     
-
 
Amortization of discount on notes payable
   
489,187
     
707,698
 
Increase in allowance for doubtful accounts
   
24,808
     
15,687
 
                 
Changes in assets and liabilities:
               
Accounts receivable, net
   
(432,422
)
   
(485,112
)
Deferred revenue
   
243,657
     
2,080,609
 
Inventory and other current assets, net
   
17,254
     
(347,278
)
Accounts payable and accrued expenses - related party
   
(192,935
)
   
715,654
 
Accounts payable and accrued expenses
   
683,382
     
131,378
 
Due from related party
   
(110
)
   
1,496
 
Contingent liability
   
(31,500
)
   
16,619
 
Net cash (used in) provided by operating activities
   
(3,662,434
)
   
940,046
 
                 
Cash flows from investing activities:
               
Investments in food related companies
   
-
     
(204,000
)
Cash received from sale of investment
   
59,400
     
-
 
Acquisition of Organic Food Brokers
   
-
     
(100,000
)
Cash received in acquisition of The Fresh Diet
   
-
     
277,885
 
Cash received from sale of property and equipment
   
-
     
44,481
 
Acquisition of property and equipment
   
(1,551,618
)
   
(4,519
)
Cash paid to re-acquire shares issued in acquisition of The Fresh Diet
   
(3,000,000
)
   
-
 
Net cash (used in) provided by investing activities
   
(4,492,218
)
   
13,847
 
                 
Cash flows from financing activities:
               
Common stock sold for cash
   
4,288,596
     
1,585,000
 
Common stock sold for exercise of options and warrants
   
788,860
     
357,000
 
Purchase of treasury stock for cash
   
-
     
(60,000
)
Payments made on revolving credit facilities
   
(5,586,785
)
   
(1,446,072
)
Borrowings on revolving credit facilities
   
6,817,125
     
585,543
 
Borrowings on debt
   
2,625,015
     
-
 
Principal payments on debt
   
(1,565,253
)
   
(816,522
)
Principal payments capital leases
   
(188,143
)
   
(119,921
)
Net cash provided by  financing activities
   
7,179,415
     
85,028
 
                 
(Decrease) increase in cash and cash equivalents
   
(975,237
)
   
1,038,921
 
                 
Cash and cash equivalents at beginning of period
   
3,112,526
     
2,073,605
 
                 
Cash and cash equivalents at end of period
 
$
2,137,289
   
$
3,112,526
 
Cash and cash equivalents at end of period - discontinued operations (see Note 3)
 
$
491,969
   
$
510,692
 
                 
Supplemental disclosure of cash flow information:
               
                 
Cash paid during the period for:
               
Interest
 
$
113,271
   
$
52,319
 
                 
Taxes
 
$
-
   
$
-
 
Non cash investing and financing activities:
               
                 
Issuance of 150,000 shares of common stock pursuant to the Haley Group acquisition
 
$
37,500
   
$
-
 
                 
Issuance of 10,000,000 shares of common stock for acquisition of The Fresh Diet
 
$
-
   
$
14,000,000
 
                 
Issuance of 846,263 shares of common stock for conversion of notes payable and accrued interest
 
$
-
   
$
211,567
 
                 
Discount on notes payable due to extension of term
 
$
647,565
   
$
732,565
 
                 
Acquisition note and options issued for the purchase of Organic Food Brokers
 
$
-
   
$
271,349
 
                 
Equipment acquired under capital lease
 
$
101,635
   
$
-
 
 
See notes to consolidated financial statements.
 
26

 
Innovative Food Holdings, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
 
   
Common Stock
         
Treasury stock
   
Accumulated
       
   
Amount
   
Value
   
APIC
   
Amount
   
Value
   
Deficit
   
Total
 
                                           
                                           
Balance as of December 31, 2013
   
7,732,456
     
774
     
7,702,893
     
400,304
     
(100,099
)
   
(6,663,363
)
   
940,205
 
                                                         
Common stock issued for conversion of notes payable and accrued interest
   
846,263
     
84
     
211,483
     
-
     
-
     
-
     
211,567
 
                                                         
Common stock issued for the cashless exercise of warrants
   
16,203
     
2
     
(2
)
   
-
     
-
     
-
     
-
 
                                                         
Fair value of vested stock options issued to management and board
   
-
     
-
     
265,995
     
-
     
-
     
-
     
265,995
 
                                                         
Common stock repurchased
   
-
     
-
     
-
     
85,950
     
(60,000
)
   
-
     
(60,000
)
                                                         
Discount on notes payable
   
-
     
-
     
732,565
     
-
     
-
     
-
     
732,565
 
                                                         
Common stock issued to officers, previously accrued
   
175,000
     
17
     
65,818
     
-
     
-
     
-
     
65,835
 
                                                         
Common stock issued to service provider
   
17,248
     
2
     
17,591
     
-
     
-
     
-
     
17,593
 
                                                         
Common stock sold for cash
   
1,585,000
     
159
     
1,584,841
     
-
     
-
     
-
     
1,585,000
 
                                                         
Options issued in acquisition of Organic Food Brokers
   
-
     
-
     
71,349
     
-
     
-
     
-
     
71,349
 
                                                         
Shares issued in acquisition of The Fresh Diet
   
6,889,937
     
689
     
9,645,223
     
-
     
-
     
-
     
9,645,912
 
                                                         
Shares held for issuance in acquisition of The Fresh Diet
   
3,110,063
     
311
     
4,353,777
     
-
     
-
     
-
     
4,354,088
 
                                                         
Shares issued for exercise of warrants
   
1,001,819
     
100
     
349,900
     
-
     
-
     
-
     
350,000
 
                                                         
Fair value of stock options issued to a service provider
   
-
     
-
     
42,787
     
-
     
-
     
-
     
42,787
 
                                                         
Stock issued for exercise of options
   
20,000
     
2
     
6,998
     
-
     
-
     
-
     
7,000
 
                                                         
Value of RSU's recognized during the period
   
-
     
-
     
886,516
     
-
     
-
     
-
     
886,516
 
                                                         
Loss for the twelve months ended December 31, 2014
   
-
     
-
     
-
     
-
     
-
     
(3,730,948
)
   
(3,730,948
)
                                                         
                                                         
                                                         
Balance at December 31, 2014
   
21,393,989
     
2,140
     
25,937,734
     
486,254
     
(160,099
)
   
(10,394,311
)
   
15,385,464
 
                                                         
Common stock sold for cash
   
4,122,249
     
412
     
4,288,184
     
-
     
-
     
-
     
4,288,596
 
                                                         
Cancellation of shares issued in acquisition of The Fresh Diet
   
(3,110,063
)
   
(311
)
   
(4,353,777
)
   
-
     
-
     
-
     
(4,354,088
)
                                                         
Value of RSU's recognized during the period
   
-
     
-
     
2,397,973
     
-
     
-
     
-
     
2,397,973
 
                                                         
Fair value of RSUs charged to The Fresh Diet discontinued operations
   
-
     
-
     
2,258,216
     
-
     
-
     
-
     
2,258,216
 
                                                         
Fair value of vested stock options issued to management and board
   
-
     
-
     
98,938
     
-
     
-
     
-
     
98,938
 
                                                         
Shares issued for exercise of warrants
   
1,261,185
     
126
     
706,874
     
-
     
-
     
-
     
707,000
 
                                                         
Shares issued for exercise of options
   
190,000
     
19
     
81,841
     
-
     
-
     
-
     
81,860
 
                                                         
Value of options extensions
   
-
     
-
     
89,553
     
-
     
-
     
-
     
89,553
 
                                                         
Shares issued pursuant to Haley Acquisition - previously accrued
   
150,000
     
15
     
37,485
     
-
     
-
     
-
     
37,500
 
                                                         
Fair value of stock options issued to service provider
   
-
     
-
     
6,894
     
-
     
-
     
-
     
6,894
 
                                                         
Fair value of stock issued to service provider
   
55,000
     
5
     
72,995
     
-
     
-
     
-
     
73,000
 
                                                         
Fair value of stock granted to employee
   
40,000
     
3
     
52,997
     
-
     
-
     
-
     
53,000
 
                                                         
Discount on notes payable due to conversion feature of extended notes
   
-
     
-
     
647,565
     
-
     
-
     
-
     
647,565
 
                                                         
Shares issued to Haley - performance bonus - previously accrued
   
21,126
     
2
     
21,124
     
-
     
-
     
-
     
21,126
 
                                                         
Shares issued pursuant to exercises of RSUs
   
125,000
     
12
     
(12
)
   
-
     
-
     
-
     
-
 
                                                         
Loss for the twelve months ended December 31, 2015
                                           
(27,176,091
)
   
(27,176,091
)
                                                         
                                                         
Balance at December 31, 2015
   
24,248,486
     
2,423
     
32,344,584
     
486,254
     
(160,099
)
   
(37,570,402
)
   
(37,570,402
)
 
See notes to consolidated financial statements.
 
 
27

 
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Business Activity
 
Our business is currently conducted by our wholly-owned subsidiaries, Artisan Specialty Foods, Inc. (“Artisan”), Food Innovations, Inc. (“Food Innovations” or “FII”), Food New Media Group, Inc. (“FNM”), Organic Food Brokers, Inc. (“OFB”), Gourmet Food Service Group, Inc. (“GFG”), Gourmet Foodservice Warehouse, Inc., Gourmeting, Inc.; The Haley Group, Inc. (“Haley”), 4 The Gourmet, Inc. (d/b/a For The Gourmet, Inc.), (“Gourmet” and collectively with IVFH and other subsidiaries, the “Company” or “IVFH”).  Since its incorporation, the Company primarily through FII’s relationship with US Food, Inc.  (“U.S. Foods” or “USF”), has been in the business of providing premium restaurants, within 24 – 72 hours, with the freshest origin-specific perishables,   specialty food products, and healthcare products shipped directly from our network of vendors and from our warehouses. Our customers include restaurants, hotels, country clubs, national chain accounts, casinos, hospitals and catering houses.   Gourmet has been in the business of providing consumers with gourmet food products shipped directly from our network of vendors and from our warehouses within 24 – 72 hours. GFG is focused on expanding the Company’s program offerings to additional customers.  In our business model, we receive orders from our customers and then work closely with our suppliers and our warehouse facilities to have the orders fulfilled.  In order to maintain freshness and quality, we carefully select our suppliers based upon, among other factors, their quality, uniqueness, reliability and access to overnight courier services.
 
Artisan is a supplier of over 1,500 niche gourmet products to over 500 customers in the Greater Chicago area.  Haley provides consulting services and other solutions to its clients in the food industry.  Haley is a dedicated foodservice consulting and advisory firm that works closely with companies to access private label and manufacturers’ label food service opportunities with the intent of helping them launch and commercialize new products in the broadline foodservice industry and get products distributed via national broadline food distributors.  Haley is a dedicated foodservice consulting and advisory firm that works closely with companies to access private label and manufacturers’ label food service opportunities with the intent of helping them launch and commercialize new products in the foodservice industry. OFB is an outsourced national sales and brand management team for emerging organic and specialty food CPG companies and provides  emerging CPG specialty food brands distribution and shelf placement access in all of the  major metro markets in the food retail industry.  

Discontinued Operations

On February 23, 2016, the Company consummated the sale of  90% of our ownership in The Fresh Diet, Inc. (“FD”).  As a result of the sale, the results of operations for all periods  have been included in “Net (loss)  from discontinued operations” in our consolidated statements of operations. Additionally, these assets and liabilities have been presented as discontinued operations in our  consolidated balance sheet as of December 31, 2015 and 2014. See Note 3 - Discontinued Operations for additional information.
 
Use of Estimates
 
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. Accounts subject to estimate and judgements are accounts receivable reserves, income taxes, intangible assets, contingent liabilities, and equity based instruments. 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.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Innovative Food Holdings, Inc., and its wholly owned operating subsidiaries, Artisan, Food Innovations, FNM, OFB, GFG, Gourmet Foodservice Warehouse, Inc., Gourmeting, Inc., Haley, and Gourmet.  All accounts of FD have been included under discontinued operations.  All material intercompany transactions have been eliminated upon consolidation of these entities.
 
 
28

 
Revenue Recognition
 
The Company recognizes revenue upon product delivery. All of our products are shipped either same day or overnight or through longer 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.
  
Revenue from the sale of meals is recognized when the earnings process is complete, which is upon the delivery of the product to the Company’s customers. Meal programs are sold weekly, bi-weekly and monthly. Meal programs are non-returnable and non-refundable if not cancelled within 3 days of initial delivery. Refunds of cancelled meal plans are recorded at the time of cancellation.

Deferred revenue consists of cash received for meals that have not yet been delivered to the customer.