UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
D. C. 20549
FORM
10-QSB
x
Quarterly report
pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
1934.
For
the quarterly period ended June 30, 2006
o
Transition report
pursuant to Section 13 or 15(d) of the Exchange
Act
for
the transition period from _________ to _________.
Commission
File Number: 0-9376
INNOVATIVE
FOOD HOLDINGS, INC.
(Exact
Name of Small Business Issuer as Specified in its Charter)
FLORIDA
(State
of or Other Jurisdiction of
Incorporation
or Organization)
|
20-1167761
(IRS
Employer I.D. No.)
|
1923
Trade Center Way
Naples,
Florida 34109
(Address
of Principal Executive Offices)
(239)
596-0204
(Issuer's
Telephone Number, Including Area Code)
Check
whether the issuer: (1) filed all reports required to be filed by Section 13
or
15(d) of the Issuer Exchange Act during the past 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 issuer is a shell company (as defined in Regulation
12b-2 of the Exchange Act).
YES
o NO x
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:
111,686,537Common
Shares as of August 4, 2006
Transitional
Small Business Disclosure Format:
YES
o NO x
INNOVATIVE
FOOD HOLDINGS, INC.
INDEX
TO FORM 10-QSB
|
|
Page
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Consolidated
Financial Statements (unaudited)
|
|
|
|
|
|
Balance
Sheet as of June 30, 2006
|
4
|
|
|
|
|
Statements
of Operations for the three months ended June 30, 2006 and June 30,
2005
and for the six months ended June 30, 2006 and June 30, 2005.
|
5
|
|
|
|
|
Statements
of Cash Flows for the six months ended June 30, 2006 and June 30,
2005
|
6
|
|
|
|
|
Notes
to Financial Statements
|
7
|
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis (including cautionary statement)
|
10
|
|
|
|
Item
3.
|
Controls
and Procedures
|
14
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
14
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
14
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
15
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Securities Holders
|
15
|
|
|
|
Item
5.
|
Other
Information
|
15
|
|
|
|
Item
6.
|
Exhibits
|
15
|
|
|
|
|
Signatures
|
16
|
PART
I -
FINANCIAL STATEMENTS
|
Consolidated
Balance Sheet
|
|
|
UNAUDITED
|
|
AUDITED
|
|
|
|
30-Jun
|
|
31-Dec
|
|
ASSETS
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
|
|
$
|
4,827
|
|
$
|
34,063
|
|
Accounts
receivable
|
|
|
359,159
|
|
|
439,341
|
|
Loan
Receivable
|
|
|
419,302
|
|
|
186,745
|
|
Inventory
|
|
|
5,201
|
|
|
4,281
|
|
Prepaid
Expenses
|
|
|
18,658
|
|
|
1,507
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
807,147
|
|
|
665,937
|
|
|
|
|
|
|
|
|
|
Property
and equipment - at cost, net of
|
|
|
|
|
|
|
|
accumulated
depreciation and amortization
|
|
|
84,403
|
|
|
87,368
|
|
|
|
|
|
|
|
|
|
|
|
$
|
891,550
|
|
$
|
753,305
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curent
Liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
621,767
|
|
$
|
419,030
|
|
Accrued
taxes and expenses
|
|
|
68,904
|
|
|
229,479
|
|
Accrued
interest payable
|
|
|
147,805
|
|
|
108,312
|
|
Accrued
bonus payable
|
|
|
|
|
|
6,000
|
|
Loan
payable bank
|
|
|
24,247
|
|
|
24,247
|
|
Convertible
notes payable-current maturities
|
|
|
|
|
|
464,000
|
|
Convertible
debentures payable
|
|
|
184,105
|
|
|
107,749
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
1,046,828
|
|
|
1,358,817
|
|
|
|
|
|
|
|
|
|
Notes
& loans payable
|
|
|
710,190
|
|
|
110,000
|
|
|
|
|
|
|
|
|
|
Loans
payable stockholders
|
|
|
|
|
|
2,758
|
|
|
|
|
|
|
|
|
|
Stockholders'
Deficiency
|
|
|
|
|
|
|
|
Common
stock authorized 500,000,000
|
|
|
|
|
|
|
|
111,686,537
issued and outstanding
|
|
|
11,169
|
|
|
10,474
|
|
Preferred
stock authorized 10,000,000, none issued
|
|
|
-
|
|
|
|
|
Additional
paid-in capital
|
|
|
2,273,151
|
|
|
2,233,223
|
|
Paid-in-capital-warrants
|
|
|
294,101
|
|
|
289,164
|
|
Accumulated
deficit
|
|
|
(3,443,889
|
)
|
|
(3,251,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(865,468
|
)
|
|
(718,270
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
891,550
|
|
$
|
753,305
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial statements
|
Innovative
Food Holdings, Inc. and Subsidiary
|
Consolidated
Statements of Operations
|
Unaudited
|
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,825,309
|
|
$
|
1,281,850
|
|
$
|
3,448,451
|
|
$
|
2,385,647
|
|
Other
income
|
|
|
43,580
|
|
|
43,964
|
|
|
61,484
|
|
|
110,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,868,889
|
|
|
1,325,814
|
|
|
3,509,935
|
|
|
2,496,189
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
1,394,282
|
|
|
1,034,733
|
|
|
2,659,376
|
|
|
1,961,455
|
|
Selling
expenses
|
|
|
249,194
|
|
|
202,675
|
|
|
446,064
|
|
|
393,962
|
|
General
and administrative expenses
|
|
|
246,156
|
|
|
210,467
|
|
|
469,648
|
|
|
355,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,889,632
|
|
|
1,447,875
|
|
|
3,575,088
|
|
|
2,710,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before other income (expense) and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provision
for income taxes
|
|
|
(20,743
|
)
|
|
(122,061
|
)
|
|
(65,153
|
)
|
|
(214,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(24,593
|
)
|
|
(19,748
|
)
|
|
(48,330
|
)
|
|
(35,657
|
)
|
Amortization
of discount on debentures
|
|
|
(33,634
|
)
|
|
|
|
|
(79,386
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,227
|
)
|
|
(19,748
|
)
|
|
(127,716
|
)
|
|
(35,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/Loss
before income taxes expense
|
|
|
(78,970
|
)
|
|
(141,809
|
)
|
|
(192,869
|
)
|
|
(250,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(78,970
|
)
|
$
|
(141,809
|
)
|
$
|
(192,869
|
)
|
$
|
(250,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share - basic and diluted
|
|
$
|
(0.0007
|
)
|
$
|
(0.0018
|
)
|
$
|
(0.0017
|
)
|
$
|
(0.0031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial statements.
|
|
Consolidated
Statements of Cash Flows
|
Unaudited
|
|
|
Six
months ended June,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
loss
|
|
$
|
(192,869
|
)
|
$
|
(250,377
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
used
in operating activities
|
|
|
|
|
|
|
|
Depreciation
|
|
|
25,794
|
|
|
25,642
|
|
Amortization
on discount on debentures
|
|
|
79,386
|
|
|
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
80,182
|
|
|
7,199
|
|
Inventory
|
|
|
(921
|
)
|
|
4,664
|
|
Prepaid
expenses
|
|
|
(17,151
|
)
|
|
(84,564
|
)
|
Loan
Receivable
|
|
|
(232,557
|
)
|
|
-
|
|
Accounts
payable
|
|
|
202,737
|
|
|
(72,011
|
)
|
Accrued
taxes and expenses
|
|
|
(126,970
|
)
|
|
28,223
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(182,369
|
)
|
|
(341,225
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
(22,829
|
)
|
|
30,795
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by investing activities
|
|
|
(22,829
|
)
|
|
30,795
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term-debt
|
|
|
-
|
|
|
452,000
|
|
Payment
of loan payable bank
|
|
|
-
|
|
|
(46,521
|
)
|
Payment
of loans from stockholders
|
|
|
(2,758
|
)
|
|
(3,227
|
)
|
Debentures
issed from stock conversion
|
|
|
178,720
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
175,962
|
|
|
402,252
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH
|
|
|
|
|
|
|
|
AND
CASH EQUIVALENTS
|
|
|
(29,236
|
)
|
|
91,822
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
34,063
|
|
|
28,011
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
4,827
|
|
$
|
119,833
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
Interest
Paid
|
|
$
|
665
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
The
accompanying notes are an integral part of the financial
statements.
|
|
Period
Ended June 30, 2006 Earnings Per
Share
|
|
|
Income
|
|
Number
of Shares
|
|
Amount
|
|
|
|
(numerator)
|
|
outstanding
|
|
per
share
|
|
Net
Loss
|
|
|
(192,869
|
)
|
|
|
|
|
|
|
Less:
Preferred stock dividends
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
Loss
available to common stockholders
|
|
|
(192,869
|
)
|
|
111,686,537
|
|
|
($0.002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effects
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
Options
to purchase common stock
|
|
|
|
|
|
|
|
|
|
|
8%
convertible notes
|
|
|
|
|
|
388,313,463
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
Loss
available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
adjusted
for the effects of assumed
|
|
|
|
|
|
|
|
|
|
|
exercise
of options and conversion of notes
|
|
|
(192,869
|
)
|
|
500,000,000
|
|
|
($0.000
|
)
|
INNOVATIVE
FOOD HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1: Basis
of Presentation
The
accompanying Consolidated Condensed Financial Statements of Innovative Food
Holdings, Inc. and subsidiary (collectively, the “Company”) have been prepared
in accordance with accounting principles generally accepted for interim
financial statement presentation and in accordance with the instructions to
Form
10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all
of
the information and footnotes required by accounting principles generally
accepted for complete financial statement presentation. In the opinion of
management, all adjustments for a fair statement of the results of operations
and financial position for the interim periods presented have been included.
All
such adjustments are of a normal recurring nature. This financial information
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included in the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2005. There have been no changes in significant
accounting policies since December 31, 2005.
NOTE
2: Nature
of Activities and Significant Accounting Policies
Nature
of Business:
Innovative Food Holdings Inc. is the parent Company of Food Innovations Inc.,
of
which it owns 100%. The activities of the business are accounted for by the
equity method. The parent/subsidiary relationship commenced in February 2004.
Food Innovations, Inc. is in the business of providing premium white tablecloth
restaurants with the freshest, origin specific perishable products direct from
its network of vendors to the back door within 48 hours.
Basis
of Presentation: The
Consolidated Financial Statements reflect the operations of Food Innovations
Inc., a provider of wholesale, origin specific perishable and specialty products
as a continuing operation.
A
summary
of the Company’s significant accounting policies follows:
Accounting
estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Principles
of Consolidation: The
Consolidated Financial Statements include the accounts of Innovative Food
Holdings Inc., and its operating subsidiary, which is wholly owned. All
intercompany balances and transactions have been eliminated in
consolidation.
Revenue
recognition: The
Company recognizes revenue upon shipment of the product from the vendor.
Shipping and handling costs incurred by the Company are included in cost of
goods sold.
Cash
and cash equivalents:
For
purpose of reporting cash flows, the Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Concentration
of credit risk:
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist of cash and accounts receivable. The Company places
its
cash with high quality financial institutions because at times it may exceed
the
FDIC $100,000 insurance limit.
Trade
receivables:
Trade
receivables are carried at the original charge amount less any estimated amount
made for doubtful receivables, if any, based on a review of all outstanding
amounts on a quarterly basis. Management determines the allowance for doubtful
accounts, by identifying troubled accounts and by using historical experience
applied to an aging of accounts. Trade receivables are written off when deemed
uncollectible. Recoveries of trade receivables previously written off are
recorded when received. The accounts receivable were assigned as security in
February 2005.
Inventories:
A small
amount of inventory is held at cost.
Property
and Equipment:
Property
and equipment is stated at cost. Depreciation is computed based on estimated
useful lives of office equipment 5 years; computer equipment and software 3
years, using the straight-line method and the declining balance method.
Income
Taxes:
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carry forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for
the
effects of changes in tax laws and rates on the date of enactment.
NOTE
3: Per
Share Information
In
accordance with SFAS No. 128, “Earnings Per Share”, basic net income per common
share (“Basic EPS”) is computed by dividing the net income attributable to
common shareholders by the weighted-average number of common shares and dilutive
common share equivalents and convertible securities then outstanding. SFAS
No.
128 requires the presentation of both Basic EPS and Diluted EPS on the face
of
the Company’s Consolidated Statements of Operations.
ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
Some
of
the matters discussed in this section contain forward-looking statements and
information relating to us that are based on the current beliefs and
expectations of management, as well as assumptions made by and information
currently available to us. When used in this section, and elsewhere in this
Form
10-QSB, the words "anticipate", "believe", "estimate", “should” and "expect" and
similar expressions, as they relate to us are intended to identify
forward-looking statements. Such statements reflect the current views of our
management with respect to future events and are subject to certain risks,
uncertainties and assumptions, which could cause the actual results to differ
materially from those reflected in the forward-looking statements.
Cautionary
Statements
The
following are cautionary statements made pursuant to the Private Securities
Litigation Reform Act of 1995 in order for the Company to avail itself of the
“safe harbor” provisions of the Reform Act. The discussions and information in
this document may contain both historical and forward-looking statements. To
the
extent that the document contains forward-looking statements regarding the
financial condition, operating results, business prospects or any other aspect
of the Company, please be advised that the Company’s actual financial condition,
operating results and business performance may differ materially from that
projected or estimated by the Company in forward-looking statements. The
differences may be caused by a variety of factors, including but not limited
to
adverse economic conditions, loss of a material contract, inability to attract
prospective new customers or retain existing customers resulting in a declining
revenue base, intense competition including entry of new competitors and
services, adverse federal, state and local government regulation, unexpected
costs and operating deficits, lower sales and revenues than forecast, default
on
leases or other indebtedness, loss of supplies, price increases for capital,
supplies and materials, inadequate capital and/or inability to raise financing,
the risk of litigation and administrative proceedings involving the Company
and
its employees, higher than anticipated labor costs, the possible acquisition
of
new businesses that result in operating losses or that do not perform as
anticipated, resulting in unanticipated losses, the possible fluctuation and
volatility of the Company’s operating results and financial condition, adverse
publicity and news coverage, inability to carry out marketing and sales plans,
loss of key executives, changes in interest rates, inflationary factors, and
other specific risks that may be alluded to in this or in other reports issued
by the Company. In addition to the above, specific risk factors relating to
our
business are contained in our Annual Report on Form 10-KSB for the year ended
December 31, 2005
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.
RESULTS
OF OPERATIONS
Our
sales
for the three months ended June 30, 2006 and 2005 were $1,868,888 and $1,325,814
respectively. Management believes that this increase of approximately 41% was
primarily due to the increase in the number of divisions of US Foodservice
(“USF”) through which our products were sold and increased awareness in the
market place of the service we provide.
The
following table sets forth for the periods indicated the percentage of net
revenues represented by the certain items reflected in our statement of
operations:
Quarter
ended June 30,
|
|
Three
Months Ended
|
Six
Months Ended
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
Cost
of Goods Sold
|
|
|
(74.60
|
%)
|
|
(78.04
|
%)
|
|
(75.77
|
%)
|
|
(78.58
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
25.39
|
%
|
|
21.95
|
%
|
|
24.23
|
%
|
|
21.42
|
%
|
|
Selling,
general and administrative expenses
|
|
|
(26.50
|
%)
|
|
(31.16
|
%)
|
|
(26.09
|
%)
|
|
(30.02 |
%) |
|
Interest
& amortization expense
|
|
|
(3.06
|
%)
|
|
(1.49
|
%)
|
|
(3.60
|
%)
|
|
(1.42
|
%)
|
|
Net
Loss
|
|
|
(4.17
|
%)
|
|
(10.70
|
%)
|
|
(5.46
|
%)
|
|
(10.03
|
%)
|
The
following is a discussion of our financial condition and results of operations
for the quarters ended June 30, 2006 and 2005. This discussion may contain
forward looking-statements that involve risks and uncertainties. Our actual
results could differ materially from the forward looking-statements discussed
in
this report. This discussion should be read in conjunction with our consolidated
financial statements, the notes thereto and other financial information included
elsewhere in the report.
Quarter
Ended June 30, 2006 Compared to Quarter Ended June 30,
2005
Revenue
increased by $543,074, or 41%, to $1,868,889 for the quarter ended June 30,
2006
from $1,325,814 in the prior year. The substantial portion of the increase
was
attributable to increases in sales of specialty products and cheeses to our
product offerings and the addition of two new Chefs in the customer
service/sales department has increased sales within each region of US Foods
resulting in overall top line growth and increased awareness within the market
place of the services we have to offer.
Our
cost
of revenues during the quarters ended June 30, 2006 and 2005 are primarily
comprised of (1) cost of goods sold (74.60% and 78.04%, respectively), (2)
selling expenses (13.33% and 15.29%, respectively), and (3) general and
administrative expenses (13.17% and 15.87%, respectively).
Consolidated
gross margin as a percentage of net revenue was 25.39% during the quarter ended
June 30, 2006, compared to 21.95% in the quarter ended June 30, 2005,
representing an absolute percentage point increase of 2.96%. This increase
was
primarily due to ongoing product analysis and pricing
restructuring.
Selling
expenses increased by approximately $46,519, or 22.29%, from approximately
$202,675 to approximately $249,194 for the quarters ended June 30, 2005 and
2006, respectively. The increase was attributable to an increase in earned
commissions as related to the staff and sales increase.
General
and Administrative expenses ("G&A") increased by approximately $35,689, or
16.96%, when comparing G&A of approximately $246,156 and $210,467 for the
quarters ended June 30, 2006 and 2005, respectively. The increase was primarily
attributable to the hiring of a V.P. of Sales in January, 2006 for potential
retail opportunities and the implementation of a benefit plan for the employees
and management in June of 2005.
We
continuously evaluate the collectibility of trade receivables by reviewing
such
factors as deterioration of the results of operations and the financial
condition or bankruptcy filings of our customers. As a result of this review
process, we record bad debt provisions to adjust the carrying amount of the
receivables to their realizable value. Provisions for bad debts are also
recorded resulting from the review of other factors, including (a) length of
time the receivables are past due, (b) historical experience and (c) other
factors obtained during collection efforts. If the circumstances relating to
any
specific customers change adversely, our provision for bad debts would be
changed accordingly.
Other
Income
Other
Income was virtually unchanged between the two quarters ended June 30, 2006
and
June 30, 2005.
Liquidity
and Capital Resources
As
of
June 30, 2006 the Company had cash on hand of $4,827, a decrease of $29,236
over
December 31, 2005. During the quarter ended June 30, 2006, $10,000 was received
from an investor in return for a Note Payable at 10% p.a. The funds were loaned
to Pasta Italiana Inc.(“Pasta”). Cash used in operating activities during the
quarter was $172,369
Historically,
our primary cash requirements have been used to fund the cost of operations,
with additional funds having been used in promotion and advertising and in
connection with the exploration of new business lines. No such expenditures
have
been made in the quarter ended June 30, 2006. As indicated in the unaudited
financial statements included in this filing, our revenues for the quarter
have
increased again marking the sixth straight quarter in which revenues have
increased and our loss from operations was reduced to $20,000 continuing a
second quarter trend of reduced losses.
Under
current operating plans and assumptions, management believes that projected
cash
flows from operations and available cash resources will be insufficient to
satisfy our anticipated cash requirements for the next twelve months. We
anticipate that we will require approximately $250,000 to fund our continued
operations for the next twelve months depending on revenue from operations.
Although management believes it will be able to raise capital to continue
operations, there can be no assurance that financing will be available in
amounts or on terms acceptable to us, if at all. If we are unable to obtain
additional financing, we will likely be required to curtail our marketing and
development plans which would have a negative impact on revenues which, if
not
reversed, could result in causing us to possibly cease our
operations.
During
the quarter, our option to acquire Pasta expired. As of August 9, 2006, Pasta
owes us an aggregate of $356,000, which amount increases daily at the rate
of
$144.19. We are attempting to collect on this debt and if successful, we will
use the funds to pay off certain debts and as working capital.
Our
contract with our primary customer, Next Day Gourmet, L.P., a wholly-owned
subsidiary of US Foods, representing approximately 90% of our revenues, is
due
to expire in September. We have initiated discussion with representatives of
US
Foods to extend the contract on essentially the same terms as the current
contract. We believe that we will be successful in this endeavor, but if not,
the loss of US Foods as a customer will have a materially adverse impact on
our
revenues, cash flows and business prospects. At this time we can give no
assurances that we will be successful in extending the contract.
Critical
Accounting Policy and Accounting Estimate Discussion
In
accordance with the Securities and Exchange Commission's (the "Commission")
Release Nos. 33-8040; 34-45149; and FR-60 issued in December 2001, referencing
the Commission's statement "regarding the selection and disclosure by public
companies of critical accounting policies and practices", we have set forth
in
Note 2 of the Notes to Consolidated Financial Statements what we believe to
be
the most pervasive accounting policies and estimates that could have a material
effect on our results of operations and cash flows if general business
conditions or individual customer financial circumstances change in an adverse
way relative to the policies and estimates used in the attached financial
statements or in any "forward looking" statements contained herein.
Risk
Factors
Risk
factors relating to our business are contained in our Annual Report on Form
10-KSB for the year ended December 31, 2005. We direct your attention to the
risks described therein and especially, but without limitation, to the risk
factor describing our relationship with Next Day Gourmet, L.P. and US Foods
and
the adverse consequences to us if the contract expires on September 11,
2006.
ITEM
3 -
CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures
Our
principal executive officer and principal financial officer, after evaluating
the effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered
by this Quarterly Report, have concluded that as of that date, our disclosure
controls and procedures were adequate and effective to ensure that information
required to be disclosed by us in the reports we file or submit with the
Securities and Exchange Commission is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms.
(b)
Changes in internal control over financial reporting
There
were no changes in our internal control over financial reporting identified
in
connection with the evaluation required by Exchange Act Rules 13a-15(d) and
15-d-15 that occurred during the period covered by this Quarterly report that
has materially affected, or is reasonably likely to materially affect our
internal control over financial reporting.
PART
II. - OTHER INFORMATION
Item
1. Legal Proceedings
NONE
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
No
equity
securities were sold during the quarter ended June 30, 2006. The increase in
shares issued was the result of a partial conversion of two convertible notes
for 2,094,500 shares, 350,000 shares issued to a member of the board of
directors for services rendered and 900,000 shares issued to two employees
as a
bonus for services rendered during 2005.
Item
3. Defaults Upon Senior Securities
NONE
Item
4. Submission of Matters to a Vote of Security Holders
NONE
Item
5. Other Information
In
December, 2005 we filed a registration statement with the S.E.C. to register
shares of common stock underlying convertible
securities owned by certain of our investors. The S.E.C. responded with comments
to the filing and we are in the process of addressing those comments. As a
result of the comments, we expect to file Quarterly Reports for the first three
quarters of 2004 and made some amendments to certain of our filings.
Item
6. Exhibits
31.1 Section
302 Certification
31.2 Section
302 Certification
32.1 Section
906 Certification
32.2 Section
906 Certification
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SIGNATURE
|
TITLE
|
DATE
|
Sam
Klepfish
/s/
Sam Klepfish
|
Interim
President
|
August
18, 2006
|
Carol
Houston
/s/
Carol Houston
|
Principal
Financial Officer
|
August
18, 2006
|