GLOBAL FOOD TECHNOLOGIES, INC. - FORM 10-Q

Attached files

file	filename
EX-4.1 - EXHIBIT 4.1 - GLOBAL FOOD TECHNOLOGIES, INC.	v359043_ex4-1.htm
EX-32.1 - EXHIBIT 32.1 - GLOBAL FOOD TECHNOLOGIES, INC.	v359043_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - GLOBAL FOOD TECHNOLOGIES, INC.	v359043_ex31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - GLOBAL FOOD TECHNOLOGIES, INC.	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - GLOBAL FOOD TECHNOLOGIES, INC.	v359043_ex31-2.htm

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SEPTEMBER 30, 2013

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from____________ to _____________

Commission file number 000-31385

GLOBAL FOOD TECHNOLOGIES, INC.

(Exact name of registrant as specified in charter)

Delaware	52-2257546
(State incorporation)	(IRS Employer
	Identification No.)

802 N Douty Street, Hanford, California	93230
(Address of principal executive offices)	(zip code)

559-589-0100

(Issuer’s telephone number)

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 ¨

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 (§232.405 of this chapter) 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 whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company.

Large accelerated filer ¨ accelerated filer ¨ non accelerated filer ¨ smaller reporting company x

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes¨ Nox

Indicate the number of shares outstanding of each issuer’s classes of common equity, as of the last practicable date:

Class		Outstanding as of October 15, 2013
Common stock, par value $0.0001		33,031,945

GLOBAL FOOD TECHNOLOGIES, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2013

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS	3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	17
ITEM 4. CONTROLS AND PROCEDURES	17

PART II - OTHER INFORMATION	18

ITEM 1. LEGAL PROCEEDINGS	18
ITEM 1A. RISK FACTORS	18
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	21
ITEM 4. MINE SAFETY DISCLOSURES	21
ITEM 5. OTHER INFORMATION	21
ITEM 6. EXHIBITS	23

	2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GLOBAL FOOD TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,
	2013		December 31,
	(Unaudited)		2012
ASSETS
Current Assets
Cash	$	108,772	$	411,265
Accounts receivable		9,180		38,960
Inventory		-		364,320
Prepaid expenses		43,466		30,645
Total Current Assets		161,418		845,190

Property and Equipment, net		292,798		629,203

Other Assets		29,182		26,100

TOTAL ASSETS	$	483,398	$	1,500,493

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities
Accounts payable	$	219,650	$	164,960
Accrued liabilities		877,355		764,023
Notes payable – related parties		640,000		640,000
Note payable – other		1,096,000		246,000
Trade finance notes payable		684,423		1,187,423
Short term convertible note payable		1,300,000		1,300,000
Total Current Liabilities		4,817,428		4,302,406

Stockholders’ Deficit:
Convertible Series C Preferred stock, $0.0001 par value, 1,500,000 shares authorized, 399,613 shares issued and outstanding, liquidation preference of $4.50 per share		40		40
Common stock, $0.0001 par value, 100,000,000 shares authorized, 33,031,945 and 32,810,851 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively.		3,304		3,281
Additional paid-in capital		68,880,947		68,321,270
Accumulated deficit		(73,218,321)		(71,126,504)
Total Stockholders’ Deficit		(4,334,030)		(2,801,913)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	483,398	$	1,500,493

See accompanying notes to condensed consolidated financial statements

	3

GLOBAL FOOD TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012

Revenues	$	-	$	106,260	$	830,031	$	172,536
Cost of goods sold		-		94,124		770,305		153,316
Gross profit		-		12,136		59,726		19,220

Operating Expenses
Marketing		102,891		157,557		701,753		494,777
General and administrative		185,164		291,888		514,960		825,975
Research and development		71,155		159,430		319,404		509,603
Depreciation		35,584		17,293		104,752		51,876
Interest		71,271		74,880		279,021		280,117
Impairment of iPura system		231,653		-		231,653		-
Total Operating Expenses		697,718		701,048		2,151,543		2,162,348

NET LOSS	$	(697,718)	$	(688,912)	$	(2,091,817)	$	(2,143,128)

Undeclared dividends on Preferred Stock		35,965		35,965		107,895		107,895

Net loss attributable to Common Stockholders		(733,683)		(724,877)		(2,199,712)		(2,251,023)

Loss per common share, basic and diluted	$	(0.02)	$	(0.02)	$	(0.07)	$	(0.07)

Weighted average common shares outstanding, basic and diluted		33,023,374		32,145,159		32,961,572		31,811,065

See accompanying notes to condensed consolidated financial statements

	4

GLOBAL FOOD TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the Nine Months Ended September 30, 2013

(Unaudited)

							Additional				Total
	Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balance, December 31, 2012	399,613	$	40	32,810,851	$	3,281	$	68,321,270	$	(71,126,504)	$	(2,801,913)
Issuance of common stock and warrants for cash, net of issuance costs	-		-	169,094		17		442,683		-		442,700
Common stock issued for accrued liabilities	-		-	52,000		6		116,994		-		117,000
Net loss	-		-	-		-		-		(2,091,817)		(2,091,817)
Balance, September 30, 2013	399,613	$	40	33,031,945	$	3,304	$	68,880,947	$	(73,218,321)	$	(4,334,030)

See accompanying notes to condensed consolidated financial statements

	5

GLOBAL FOOD TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine Months Ended September 30,
	2013		2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,091,817)	$	(2,143,128)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		104,752		51,876
Impairment of iPura system		231,653		-
Common stock issued for services		-		124,789
Changes in operating assets and liabilities:
Accounts receivable		29,780		6,552
Inventory		364,320		(145,210)
Prepaid expenses		(12,821)		(7,519)
Other assets		(3,082)		(2,911)
Accounts payable		54,960		(80,024)
Accrued liabilities		230,332		172,703
Net cash used in operating activities		(1,092,193)		(2,022,872)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of trade finance notes payable		50,000		205,000
Repayment of trade finance notes payable		(553,000)		(5,000)
Proceeds from issuance of notes payable - other		850,000		-
Sale of common stock – net of issuance costs		442,700		1,857,651
Net cash provided by financing activities		789,700		2,057,651

NET (DECREASE) INCREASE IN CASH		(302,493)		34,779

CASH – BEGINNING OF PERIOD		411,265		194,662

CASH – END OF PERIOD	$	108,772	$	229,441

SUPPLEMENTAL DISCLOSURES
Interest paid in cash	$	106,498	$	111,470
Non-cash financing transactions:
Issuance of common stock for accrued liabilities	$	117,000	$	58,500

See accompanying notes to condensed consolidated financial statements

	6

GLOBAL FOOD TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

1. Description and nature of the business, organization and basis of presentation.

Global Food Technologies, Inc. (the “Company”, “we”, “our” or “us”) is a life sciences company focused on food safety processes for the food processing industry by using its proprietary scientific processes to substantially increase the shelf life of commercially packaged seafood and to make those products safer for human consumption. The Company has developed a process using its technology called the “iPura™ Food Processing System”. The System is installed in processor factories in foreign countries with the product available for sale in the United States. The Company’s ability to generate significant revenue will depend, among other things, on its ability to demonstrate the merits of the iPura™ system, as well as brand development and establishing alliances with suppliers and vendors.

The Company is a registrant under rules and regulations of the United States Securities and Exchange Commission (“SEC”) but has not yet obtained a listing on any stock exchange.

Going concern

The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes the realization of assets and the satisfaction of liabilities in the normal course of business. At September 30, 2013, the Company has an accumulated deficit approximating $73,200,000, and for the nine months ended September 30, 2013, negative cash flows from operations of approximately $1,092,000. Additionally, the Company has negative working capital at September 30, 2013 of approximately $4,656,000. The Company’s ability to continue as a going concern is predicated on its ability to raise additional capital, increase sales and margins, and ultimately achieve sustained profitable operations. The uncertainty related to these conditions raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Based on the Company’s cash balance at September 30, 2013, management estimates that it will need to raise additional capital to cover operating and capital requirements for the remainder of fiscal year 2013 and 2014 and obtain a significant line of credit to finance the inventory of iPura product. Management plans on raising the additional needed capital through issuing additional shares of common stock or other equity securities, or obtaining debt financing. In addition, management has from time to time explored commercial and joint venture financing opportunities. Although management has been successful to date in raising necessary funding, there can be no assurance that required future financing can be successfully completed on a timely basis, or on terms acceptable to the Company.

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Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and pursuant to the rules and regulations of the United States Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary in order to make the financial statements not misleading, have been included. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 20, 2013. The results of operations for interim periods are not necessarily indicative of the results expected for a full year or for any future period. The condensed consolidated balance sheet as of December 31, 2012 and any related disclosures have been derived from the December 31, 2012 audited financial statements filed in the Company’s 2012 Form 10-K.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Global Food Technologies, Inc. and its wholly owned subsidiary, iPura Food Distribution Company, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Accounting policies

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 periods. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenues when all of the following conditions exist: a) persuasive evidence of an arrangement exists in the form of an accepted purchase order; b) delivery has occurred, based on shipping terms, or services have been rendered; c) the Company’s price to the buyer is fixed or determinable, as documented on the accepted purchase order; and d) collectability is reasonably assured. To date, all of the purchase orders from our customers have met these criteria and therefore, the Company recognizes revenue when product is shipped to the customer.

Inventory

Inventory is stated at the lower of cost (first-in, first-out) or market. Market is determined by comparison with recent sales or net realizable value. Management reviews the carrying value of inventory in relation to its sales history and industry trends to determine an estimated net realizable value. Changes in economic conditions or customer demand could result in obsolete or slow moving inventory that cannot be sold or must be sold at reduced prices and could result in an inventory reserve.

Long-lived Assets

We review long lived assets for events or changes in circumstances that indicate that their carrying value may not be recoverable. An impairment loss is recognized when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results.

	8

During the three months ended September 30, 2013, we recorded an impairment charge relating to one of our iPura™ systems because the system was installed in Vietnam but was never placed into production for swai (catfish) as intended. The Company does not have any current plans to process swai or to place the system in service before its theoretical useful life is exceeded. Accordingly, its carrying value of $231,653 was charged to impairment expense during the current quarter.

Loss per common share

Basic and fully diluted cost per common share for the nine months ended September 30, 2013 were the same as potential common shares, consisting of 399,613 common shares underlying outstanding convertible Series C preferred stock, 9,645,464 common shares underlying outstanding warrants and 1,345,000 common shares underlying outstanding stock options.

Subsequent events

Management has evaluated events subsequent to September 30, 2013 through the date that the accompanying condensed consolidated financial statements were filed with the Securities and Exchange Commission for transactions and other events which may require adjustment of and/or disclosure in such financial statements.

2. Trade Finance Notes Payable

Trade finance notes payable represent promissory notes, secured by inventory and equipment, issued in a series of maturities of one year with annual interest rates from 8.2% to 9.8%. Funds received are controlled by a third-party custodian to be disbursed for third party costs of inventory. Proceeds from sale of inventory by the Company upon collection are applied pro rata to the trade financing debt. At September 30, 2013, the Company owed $684,423 in trade financing debt. Several of these notes mature on their anniversaries through 2014, and based on past renewal activity, we expect that the majority will be renewed upon maturity.

3. Notes Payable – Others

In August 2013 a debt financing facility for a total commitment of $1.6 million was finalized with an existing shareholder. Upon signing, the Company received initial loan proceeds of $700,000. The commitments include loans for an additional $900,000 in six tranches of $150,000 each due on the first of each subsequent month, beginning on September 1, 2013. The debt carries simple interest at 3% payable at maturity. The facility has a term of one year and is renewable for one additional year at the option of the Company. Both principal and interest, all or in part, are convertible into shares of the Company’s Common Stock, at any time at the election of the lender, at the rate of $2.39 per share. The balance owing at September 30, 2013 is $850,000.

Additional notes aggregating $246,000 are owed to a single third party. In 2010, the Company borrowed $126,000 with a one year term and has been renewed at each maturity. The note bears annual interest of 9%, is unsecured, and is convertible into common stock at any time at the option of the note-holder at a fixed price of $4.50 per share. An additional $120,000 was borrowed from the same third party in 2010 in two one-year notes bearing interest of 5% and 9%, respectively. These notes have been renewed at each maturity and will be due in June 2014. The original note included 14,000 warrants, have an exercise price of $7.00 per share and a term of 3 years.

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4. Notes Payable - Related Parties

Shareholder loan

In 2006, we arranged a 30 day bridge loan in the amount of $350,000 from a non-principal shareholder. The loan bears interest at 8% and is secured by all Company assets, including any intellectual property assets. Additional consideration included the issuance of warrants to purchase 35,000 shares of our common stock. The warrants are exercisable at $4.50 per share for two (2) years from the date of repayment. In July 2006, $100,000 of principal was repaid. The remaining balance of $250,000 is due on demand. The loan is guaranteed by the President of the Company.

Director loan

In 2006, we arranged for three loans aggregating $290,000 from a Director of the Company. Two of the loans aggregating $190,000 are demand loans and bear interest of 8%. The third loan for $100,000 matured July 18, 2006, and was repaid on its due date. Additional consideration for the three loans was approved by the Company’s Board of Directors in August 2006, in the form of warrants to purchase 29,000 shares of common stock. The warrants are exercisable at $4.50 per share for two (2) years from the date of repayment. In August 2006, we arranged for a fourth loan, a six month bridge loan, for $100,000 from the Director bearing interest at 8%. The loan was renewed each subsequent maturity for an additional six months and now matures in November 2013. In November 2010, for the same 12% interest rate, the Company borrowed an additional $100,000 from such director, due on demand. The current indebtedness to the Director is $390,000, all of which is unsecured.

5. Short Term Convertible Note Payable

In November 2010, a stockholder resident in the United Kingdom loaned the Company $1,300,000 on a six month note bearing interest at 18% per year. The note was extended for an additional six months and has been renewed at each maturity for an additional six months. The note is now due in November 2013. The renewal involved issuing a renewal bonus of $58,500, charged to interest expense and paid in shares of common stock at $2.25 per share, to reduce the interest rate to 9% per year. The first six month renewal bonus was paid in November 2011 with the issuance of 26,000 shares. Additional 26,000 share issuances were made at each subsequent renewal in May and November. Interest is payable at maturity in shares of Company common stock at the rate of $2.25 per share and is recorded as interest expense ratably as incurred. At the sole option of the lender, the principal may also be converted into shares of Company common stock at the fixed rate of $2.25 per share. The Note is secured by all of the assets of the Company and is subordinate to the 2006 shareholder note of $250,000. Currently, the Company does not have the ability or resources to repay such loans if a demand is made for repayment in full.

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6. Stockholders’ Deficit

Common Stock Issuances

We have been selling stock to fund operations since inception and expect to continue to sell stock to fund continued operations.

In the nine months ended September 30, 2013, a total of 169,094 shares of common stock and 25,358 warrants to purchase common stock were issued in private placements for proceeds of $442,700, net of issuance costs of $9,800, at $3.50 per unit. The warrants are exercisable at $7.00 for a period of 3 years.

During the nine months ended September 30, 2013, a total of 52,000 shares of common stock valued at $117,000, were issued for accrued interest.

Warrants

There are 9,645,893 warrants outstanding as of September 30, 2013 exercisable at prices ranging from $3.00 to $7.00, in conjunction with sales of common and preferred stock and awards for services.

The above securities were issued under exemption from Regulation under either Regulation D or S promulgated by the Securities and Exchange Commission under the Securities Act of 1933.

7. Commitments and contingencies

A civil complaint was received dated September 10, 2013 for breach of contract involving a real property lease for a warehouse/R&D facility in Hanford CA. The lease has a term ending in October 2014. We ceased using the facility and stopped paying rent in May 2013. The lawsuit is the culmination of a 3 year dispute over various aspects of the lease and occurred with the change of ownership of the property. The landlord and plaintiff, STG Realty Ventures, Inc. filed the suit in Kings County, CA Superior Court and asks for computed damages of $160,792 for failure to pay rent, plus interest and attorneys’ fees. The Company believes that it may have viable defenses with respect to some of the damages asked for in the suit. However, no assurances can be given with respect to the outcome of the litigation and a judgment against the Company could have a material, adverse impact on our financial condition.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

Our iPura^® System is the physical on-site processing element of the “iPura^® Food Safety Program”, which combines various food safety elements described below. Our latest generation iPura^® System is designed to process seafood, with certain customization required for different types of seafood and the specific requirements of a given installation site.

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In 2009, we completed the installation of our iPura^® System at a food processor located in China, Tongwei (Hainan) Aquatic Products Co., and began producing our first order of inventory and selling it in the United States. We completed installation of a second, larger iPura^® System with a processor in Vietnam in early 2010, but had to remove the installation after quality control and solvency issues arose with that processor. We have no immediate plans for operations in Vietnam for the processing of SWAI (catfish) and during the quarter ended September 30, 2013 we impaired the carrying value of the system while it remains in storage for potential future installation. We have a third system installed at another processor in China, which was installed at Evergreen Aquatic Inc, a vertically integrated tilapia producer located in Zhanjiang City, Guangdong Province, China. This system became operational at the end of 2012. Our fourth system is at our Hanford, California warehouse facility and is able to be installed if capacity is required.

From the commencement of our research and development activities in 2001, we have raised substantial equity capital to fund the development of our iPura^® System. At September 30, 2013, the Company has an accumulated deficit approximating $73,200,000, and for the nine months ended September 30, 2013 negative cash flows from operations of approximately $1,092,000. Additionally, the Company has negative working capital at September 30, 2013 of approximately $4,656,000. Research on our first generation prototype was completed in 2004, and development and refinement on the commercial system design continued through 2005, especially adapting the system to processing salmon. Further development has resulted in a more efficient, less labor intensive and more easily maintained processing system adapted for tilapia. A subsequent prototype has been developed for processing shrimp. This prototype requires additional testing and possible refinement before it can be used for commercial shrimp production. Once the prototype has successfully completed such testing, we plan to begin negotiations with overseas processors to install the system as well as retail stores to sell the iPura shrimp product in the United States. We are targeting the second half of 2014, although this time frame is subject to change and uncertainty.

The Company is executing its marketing strategy by promoting the iPura® brand to food processors and industry associations as the world’s first food safety label. In addition to selling to retail chains on a wholesale basis, we are promoting a private label program to large retailers to exclusively source iPura labeled products to protect their own brand. In our vision, an established leader would enthusiastically “champion” the iPura® brand by promoting the iPura® logo next to its name on their product packaging, with the iPura® seal also displayed on the individually wrapped fillets inside the package (“iPura® inside”). This would communicate to customers that the retailer is doing everything possible to improve food safety, food quality and sustainability of natural resources. Our value proposition to retailers is that sourcing iPura® products will allow the retailer to increase control & trust of foreign suppliers, protect their brand and company image, and increase sales with repeat purchases due to superior products.

While we currently pursue a strategy of importing and distributing the iPura® product, the successful reduction in processing costs by the on-site production of the iPura organic antimicrobial agent should allow the resumption of the implementation of the high volume on-site service model where the Company earns a cents per pound charge to the processor licensee.

The iPura^® seal is anchored with a descriptive and lasting slogan: “The Highest Standard in Food Safety™”.

· The science and marketing connect well with world food safety issues.

· The iPura^® label is a tool which communicates that exceptional food safety measures have been taken to protect consumer health.

· The label will serve to identify food products that have a higher level of safety and quality.

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· GFT has filed trade marks for its brand and slogan in every major food producing and food consuming nation.

The iPura^® Food Safety Program is the constitution of the iPura^® food safety brand, which is anticipated to include:

· An organic pathogenic and spoilage microorganism “kill step” prior to packaging.

· Intelligent packaging of product.

· Product traceability of handling and temperature.

· An independent third party certification of standards.

· A unique product insurance that follows the iPura^® labeled product throughout the distribution chain.

· A distribution chain and consumer “pull through” marketing program promoting iPura^® as “The Highest Standard in Food Safety™.”

The iPura^® Food Safety Program is designed to help the food distribution chain grow their margins by increasing the quality, safety, and economic value of their products by reducing or eliminating the waste and liability associated with the distribution of contaminated food, and by increasing shelf life.

Distribution and Marketing Plan

Management believes that it is commercially feasible to create recurring revenue streams through service, sales, and licensing to capitalize on the potential of our proprietary technologies, market opportunities and human resources. We have identified four potential price-per-pound revenue models and in each model, GFT will provide the daily on-site service to maintain control of The Highest Standard in Food Safety and Quality.

We are proceeding to validate iPura^® with sales in the U.S. markets through the “importer model” and “private label brand manufacturer model” (co-branding). This has allowed the iPura® brand to gain a limited amount of market recognition which management believes will lead to important private label brand manufacturing sales. We are also promoting non branded seafood sales from our main supplier, Tongwei Aquatic Products, and intend to pursue growth by licensing strategic partners to distribute iPura^® labeled products internationally, thereby creating additional streams of recurring revenue. Market entry is anticipated to begin with the most popular aquaculture products: tilapia, striped pangasius (swai), catfish, salmon, and shrimp. Farmed tilapia is available now, guaranteed to have been processed with the iPura^® Food Safety Program. Although we are targeting the second half of 2014 for the introduction of shrimp, such estimate is subject to change, and we do not have any current estimate for the potential introduction of swai, catfish or salmon.

The iPura® marketing materials that target large distributors and retailers make a point that iPura® promotes their brand by differentiating their product from all others in the marketplace. The materials point out that iPura^® addresses brand protection and critical food safety and quality assurance issues at a level unmatched in the industry. Marketing materials also point out that today’s consumers expect a higher degree of food safety and most believe that not enough is being done to protect their health. The iPura^® seal represents the highest standards in food safety, quality, and sustainability.

One of the most important direct marketing opportunities of each year is presence at the International Boston Seafood Show, held in March. We have the opportunity to meet with top executives from our target prospect list as well as to conduct interviews with media to promote the iPura® brand and private label business. We believe that this direct approach to large distributors and retailers, combined with media coverage and a limited amount of consumer marketing will result in the market acceptance of the iPura® brand.

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Consumer marketing currently is limited. Currently, most of our retail sales, such as at grocery stores, are made to customers without any prominent iPura® branding. We hope to improve point-of-sale branding and have developed descriptive brochures and educational materials for display at supermarkets where seafood with the iPura® seal may be sold. The Social Media core tools: Facebook, Twitter, YouTube and Blogger are used to publicize iPura within industry thought leaders and directly to consumers.

Processor and Distribution Agreements

We have installed three iPura® Systems under installation and supplier agreements, two in China and one pending in Vietnam. One system in China has been operating since 2009, producing tilapia fillets. The other system has been installed with a different processor in China and began producing iPura® tilapia product in the end of 2012. A third system in Vietnam has been relocated and installed at the facilities of Cantho Import-Export Seafood Joint Stock Company (Caseamex). The system in Vietnam has not been put into service to date but is capable of production of pangasius/swai (a catfish) when marketing plans are finalized and financing is put in place. A fourth system is in storage in our R&D facility to increase capacity as necessary. Impairment charges relating to the Vietnam and R&D systems have been recorded because the Company has no immediate need for the systems.

Under these agreements, GFT is generally responsible for the cost of manufacturing, fabricating and installing the iPura® System at the processors’ facilities, with the processors providing power and utility connections and certain other operating expenses. Our iPura® System is typically installed onto one or two processing lines at the processors’ facilities. Our iPura® Systems are operated and supervised by GFT personnel, at GFT’s expense. Seafood processed through our iPura® System is then be packaged and labeled with our iPura® seal. Our wholly owned subsidiary, iPura Food Distributors, has the exclusive rights to buy and distribute the seafood processed with our iPura® System and the processors therefore cannot sell such seafood to any other customers or distributors, or otherwise use our iPura® System for any other seafood processing. IFD has obtained most favored nations pricing with respect to seafood purchased under all of the agreements. None of the agreements have any minimum purchase requirements for IFD.

We have had limited and sporadic sales to date for our products and continue negotiations with certain select U.S. grocery store retailers, including negotiations with regional and national retailers. The sales cycle for such stores has taken substantially longer than originally anticipated, sometimes involving several years of efforts. With this “importer” sales model, we will need to obtain adequate financing in order to purchase the seafood from the processor and carry the seafood inventory costs until resold to a sub-distributor or retailer. The marketing focus is now on the private label business with these same retailers and is expected to require much less inventory carrying cost.

Liquidity and Capital Resources

The report from our independent registered public accounting firm on our financial statements for the year ended December 31, 2012 included in Form 10-K filed with the SEC on March 20, 2013, indicates that factors relating to our financial condition as of December 31, 2012 and our results of operations and cashflows for the year ended December 31, 2012 raise substantial doubt about our ability to continue as a going concern.

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Historically, our primary source of cash has been the sale of equity instruments to investors, as well as loans and debt instruments. Although we expect to generate increasing revenue from increased sales of seafood processed with our iPura® Systems within the next 12 months, any funds generated from installing and operating our iPura® Systems during the next 12 months are not expected to cover our operating expenses.

Based on our cash balance as of September 30, 2013, we are in need of immediate additional financing to fund our current operating and working capital requirements. Furthermore, we believe that we will need approximately $5 million to cover operating expenses during the next twelve months, in addition to a financing vehicle or a line of credit to finance the inventory of iPura® product. As an alternative to a traditional commercial bank line of credit, we have implemented a program, described below, to finance inventory. However, this program has only been successful in raising relatively limited amounts for inventory financing to date. The amount of capital required will vary depending on a variety of factors, many of which are beyond our control. We cannot provide assurance that funds from our future operations or funds provided by our current financing activities will meet our capital requirements, and in that event, we will continue to seek additional sources of financing to maintain liquidity. Any additional capital we raise will likely involve issuing additional shares of common stock or other equity securities, or obtaining debt financing, which could be convertible into equity securities. However, at this point, we have not specifically identified the type or sources of this required funding.

As of September 30, 2013, we had trade indebtedness in the ordinary course of business as well as other debt in the form of continuing short term loans of $640,000 from a Director and a shareholder due on demand and one-year notes from two third parties in the amount of $1,096,000, which mature in 2014.

In 2010, a stockholder resident in the United Kingdom loaned the Company $1,300,000 on a six month note bearing interest at 9% per year. The note has been extended for an additional six months at each maturity date and now matures in November 2013. Interest is payable at each maturity in shares of Company common stock at the rate of $2.25 per share and is recorded as current interest expense. At the sole option of the lender, the principal may also be converted into shares of Company common stock at the fixed rate of $2.25 per share. Pursuant to a security agreement, the note is secured by all of the assets of the Company and is subordinate to a 2006 related party note of $250,000. Currently, we do not have the ability or resources to repay such loans if a demand is made for repayment in full. In such event, this secured lender could foreclose on all of our assets as part of its security interest.

We have implemented a trade financing program for individual accredited investors as an alternative to traditional commercial inventory financing and factoring. This financing program consists of issuing promissory notes, secured by inventory and equipment, in a series of maturities from one to three years with annual interest rates from 8.2% to 9.2%. The funds are received and controlled by a third party custodian to be disbursed for third party costs of inventory. As is typical of trade financing, the Company’s collected sales proceeds will be applied pro rata to trade financing debt. At September 30, 2013, the Company had $684,423 in trade financing debt on one year notes. They mature on their anniversaries throughout 2014 and, based on past renewal activity, we expect that the majority will be renewed upon maturity.

We are actively pursuing all potential financing options as we look to secure additional funds both to stabilize and to grow our business operations. Our management will review any financing options at their disposal, and will judge each potential source of funds on its individual merits. Since we have not located any commercial bank inventory financing, we are developing options for inventory debt financing with other private parties, as described in more detail above. Successful inventory financing is critical to fund the distribution of our products and generate revenue. We cannot provide assurance that we will be able to secure additional funds from debt or equity financing, as and when we need to, or if we can, that the terms of this financing will be favorable to us or our stockholders. We have from time to time also explored commercial and joint venture financing opportunities and relationships with potential processor/customers, and expect to continue to seek out such potential arrangements.

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We believe that we have adequate plant capabilities and capacity and sufficient qualified personnel to achieve our planned operations over the next 12 months. Historically, the fabrication of major components of our iPura® System have been outsourced. We will likely continue this practice, and may also elect to outsource the integration and installation of the units depending on the number of units installed and the logistics of a particular site. We will add non-technical support personnel as required to manage the increase in administrative activity.

Results of Operations

Sales:

The Company had no sales revenue in the quarter ended September 30, 2013 due to lapse in the long term relationship with Safeway, described in more detail below. The sales revenue in the nine month period was $830,031 solely attributable to sales to Safeway. Sales in the periods ending in 2012 were nominal sales to Safeway and local distributors.

In 2012, we negotiated with Safeway, Inc. to expand our product offering to a co-branded two pound bag. Raw product pricing mandated that we should have a dual source for the tilapia product for Safeway, which required the installation of an iPura processing system in the Evergreen Aquatic processor. This installation was accomplished by the end of 2012.

After successfully dual sourcing tilapia product, we anticipated an increase in volume from Safeway. We also anticipated that our gross margins, approximately 11% for the nine months ended September 30, 2012, would increase in 2013 based on our transparent pricing model of “cost plus,” which is computed on a 25 cent per pound gross profit margin. While sales did resume and continued for the first six months of 2013, Safeway rescinded acceptance of this “cost plus” model and the Company had to bear the actual costs, which reflected extended expensive cold storage warehousing, non-optimum delivery quantities and special labeling. After segregating special labeling as a branding cost, gross margins for Safeway became uneconomical and pricing agreements could not be reached. Communication continues with Safeway but no orders are expected in the foreseeable future. This represents a significant setback to our sales and marketing efforts.

Expenses:

Our net loss for the quarter ended September 30, 2013 was $697,718, compared to $688,912 for the comparable period in 2012, a decrease of 1%. The net loss for the nine month period ended September 30, 2013 compared to 2012 also decreased a nominal $51,311 or 2%. As described above, our net loss for the three and nine months ended September 30, 2013 include an impairment charge of approximately $232,000 relating to our iPura system in Vietnam. Without the impairment charge, our net loss for the three months ended September 30, 2013 would have been $466,065 or a 32% reduction over the comparable 2012 period, and for the nine months ended September 30, 2013 would have been $1,860,134 or a 13% decrease over the comparable 2012 period. Total expenses remained relatively constant between the 2013 and 2012 periods due to inclusion of the non-cash impairment charge. However, operating costs decreased significantly between the periods. Marketing costs decreased 35% in the three months ended September 2013 compared to the same period in 2012; general administrative costs decreased 38% and research and development costs decreased 37% in the comparable three month periods. The discretionary cost savings of 41% are solely due to scaling back activity, discretionary costs and personnel costs in a strategy refocusing. The same discretionary costs for the comparable nine month periods decreased only 16% in total due to the inclusion of approximately $200,000 of nonrecurring Safeway rebranding preference costs included in marketing costs in 2013. Similar to reductions in the comparable three month periods, general and administrative costs and research and development costs each decreased 38% in the nine month periods ended September 30, 2013 and 2012.

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Interest expense remained relatively constant between the 2013 and 2012 periods reflecting the stability of the Company’s debt. There was only nominal repayment and origination activity in trade finance debt during the periods, effectively netting out. The significant reduction in principal occurred in August 2013 at the end of the three month period resulting in a 5% decrease over the comparable quarter.

Depreciation expense doubled over the comparable three and nine month periods, with the addition of the second iPura system having been installed and placed available for service at the Evergreen Aquatic processor.

During the three months ended September 30, 2013, we recorded an impairment charge relating to one of our iPura™ systems because the system was installed in Vietnam but never put into production for swai (catfish) as intended. The Company does not have any current plans process swai and to place the system in service before its theoretical useful life is exceeded. Accordingly, its cost of $231,653 was charged to impairment expense during 2013

The cash used in operations decreased by approximately $931,000 or 46% from $2,022,872 to $1,092,193 between the comparable nine month periods, resulting from the reduced level of activity represented by the lower net loss, net of impairment, and the timing of cash payments to vendors and from customers.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Customer and Supplier Concentration

Our revenue for the nine months ended September 30, 2013 was primarily derived from Safeway, Inc. After the failure of negotiations over the appropriate pricing model, we ceased all sales to Safeway in the third quarter of 2013, which has had a material, negative impact on our revenue. We cannot currently estimate anticipated future customer concentration levels, given the current lack of sales.

Our inventory during the nine months ended September 30, 2013 was derived from two suppliers at their processing plants in China. We anticipate continued dependence upon a very small number of suppliers.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A smaller reporting company is not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act) that are designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that this information is accumulated and communicated to our management, including our principal executive/financial officer, to allow timely decisions regarding required disclosure.

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Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer (“Certifying Officers”), evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based upon that evaluation, our Certifying Officers concluded that as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective. Our primary material weakness has been due to our limited number of personnel and, therefore, segregation of duties.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q 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

ITEM 1A. RISK FACTORS

A smaller reporting company is not required to provide the information required by this Item. However, please note the following about forward-looking statements and the following brief description of certain risks that could have a material, adverse impact on the Company and its operations.

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Cautionary Information Regarding “Forward-Looking Statements”

This Quarterly Report on Form 10-Q includes certain statements about us that may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to matters such as, among other things, product development and acceptance, our anticipated financial performance, business prospects, technological developments, new products, future distribution or license rights, international expansion, possible strategic alternatives, new business concepts, capital expenditures, consumer trends and similar matters.

Forward-looking statements necessarily involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievement expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “intend,” “expect,” “anticipate,” “assume,” “hope,” “plan,” “believe,” “seek,” “estimate,” “predict,” “approximate,” “potential,” “continue” or the negative of these terms. Statements including these words and variations of these words, and other similar expressions, are forward-looking statements. Although we believe that the expectations reflected in our forward-looking statements are reasonable based upon our knowledge of our business, we cannot absolutely predict or guarantee any future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements.

We note that a variety of factors could cause our actual results and future experiences to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. The risks and uncertainties that may affect our operations, performance, development and results include, but are not limited to, the following:

	·	whether we will be able obtain additional financing to continue or expand operations and to finance inventory costs, and the terms on which we will be able to obtain this financing, if at all;

	·	whether we will be able to charge a premium for our products and generate adequate gross margins on our sales;

	·	our ability to obtain any commercial financing to allow us to purchase seafood inventory for processing in our iPura™ System, and to obtain such financing in amounts required and on commercially reasonable terms;

	·	our dependence on a small number of customers and suppliers

	·	our ability to timely replace the loss of sales to Safeway, Inc.;

	·	our ability to negotiate contracts and purchase orders with distributors and retailers;

	·	our ability to obtain brand related premium pricing to yield an acceptable sales margin;

	·	risks related to inventory costs, shipping and handling and spoilage;

	·	our ability to obtain one or more third-party manufacturers for our system components and other products;

	·	the cost at which we will be able to have our system components and other products manufactured, if at all, and the time it will take to have our system components and other products manufactured;

	·	our ability to obtain all required components for our systems on a timely basis and at the prices we anticipate;

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	·	whether our systems and products are viewed as providing the benefits we claim and whether these benefits are marketable by any customers we may seek to obtain;

	·	our ability to enter into additional contracts with food processors, the time it takes for us to enter into any of these contracts and the licensing or pricing models we are able to implement;

	·	our systems and products performing in the manner we expect in customer applications and without any material modifications;

	·	our ability to obtain all necessary governmental approvals for our systems and other products, including all required import-exporter licenses and permits;

	·	whether the introduction of the iPura™ brand will succeed in creating preferences with the consuming public;

	·	whether we will be able to apply our technology to products other than fish or use our technology in any other fields;

	·	the pace at which we will utilize our existing working capital and whether our existing working capital will be sufficient for us to continue to develop our systems and products to the extent we anticipate;

	·	our ability to protect our intellectual property and obtain and maintain patents and other protections for our intellectual property.

	·	the possible impact from competing products or technologies;

	·	possible reductions in consumer demand for fish and poultry, including as a result of any outbreaks of disease, including avian flu, or negative reports regarding the health benefits of fish and poultry;

	·	our ability to hire, train and retain a consistent supply of reliable and effective employees, both domestically and in any countries in which we might be able to install one of our processing system;

	·	the risk of non-payment by, and/or insolvency or bankruptcy of, our customers and others with indebtedness to us;

	·	the costs of complying with applicable labor laws and requirements, including, without limitation, with respect to health care;

	·	economic and political instability in foreign countries or restrictive actions by the governments of foreign countries in which we may seek to conduct our business or obtain customers;

	·	changes in tax laws or the laws and regulations governing food processing and on income generated outside the United States;

	·	general economic, business and social conditions in the United States and in foreign countries where we may conduct our business;

	·	fluctuation in interest rates, insurance, shipping, energy, fuel and other business utilities in any countries in which we conduct business;

	·	the stability of and fluctuations in currencies in which we conduct business;

	·	threats or acts of terrorism or war; strikes, work stoppages or slow downs by labor organizations in any countries in which we conduct business; and

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natural or man-made disasters that could adversely impact the industries or countries in which we conduct business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Sales of Unregistered Securities

During the period covered by this Quarterly Report, we issued the following securities, discussed below, which were not registered under the Securities Act of 1933. We did not employ any form of general solicitation or advertising in connection with the offer and sale of the securities described below. In addition, we believe the purchasers of the securities are “accredited investors” for the purpose of Rule 501 of the Securities Act. For these reasons, among others, the offer and sale of the securities listed below were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act, Regulation D and/or Regulation S promulgated by the Securities and Exchange Commission under the Securities Act.

During the three months ended September 30, 2013, a total of 17,143 shares of common stock and 8,571 warrants to purchase common stock were issued in private placements for net proceeds of $55,800. The warrants are exercisable at $7.00 for a period of 3 years.

Purchases of Equity Securities

We are required by the Securities Act of 1933 to disclose, in tabular format, any repurchases of our securities during this reporting period. We did not repurchase any of our securities during this reporting period, and accordingly, we have eliminated such table.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As previously disclosed in our Form 10-Q for the quarter ended June 30, 2013, on June 2nd and 5th, 2013, two of our trade finance notes, described in Note 2 (Trade Finance Notes Payable) of Item 1, Part 1 above, in the total amount of $513,000 became due and payable and were not renewed, causing the Company to be in default with respect to the repayment of such notes. On August 3, 2013, we cured the default by repaying these two notes in full. For the quarter ended September 30, 2013, there were no other material defaults in the payment of principal or interest, a sinking or purchase fund installment, or any other material default not cured within 30 days or with the consent of the lender, with respect to any of our indebtedness exceeding 5% of our total assets. However, as noted above under “Liquidity and Capital Resources” in Part I, Item 2, we have certain notes that are due upon demand, and we do not currently have the resources to repay such notes if demands for immediate payment in full were made.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a) Information Required To Be Disclosed In A Report On Form 8-K, But Not Reported

None.

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(b) Item 407(c)(3) of Regulation S-K

During our fiscal quarter covered by this Quarterly Report on Form 10-Q, there has not been any material change to the procedures by which our security holders may recommend nominees to our Board of Directors.

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ITEM 6. EXHIBITS

Exhibit No.		Description

3.1 (1)		Restated Certificate of Incorporation dated October 18, 2005.

3.2 (1)		Second Amended and Restated Bylaws as of August 31, 2005.

3.3 (2)		Certificate of Designation of Rights, Preferences and Privileges – Series B Preferred Stock

3.4 (3)		Certificate of Designation of Rights, Preferences and Privileges – Series C Preferred Stock

4.1 *		Debt Facility for $1,600,000 dated August 1, 2013

31.1*		Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1‡		Certification of Chief Executive Officer and Chief Financial Officer pursuant to pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS ‡‡		XBRL Instance Document

101.SCH ‡‡		XBRL Taxonomy Schema

101.CAL ‡‡		XBRL Taxonomy Calculation Linkbase

101.DEF ‡‡		XBRL Taxonomy Definition Linkbase

101.LAB‡‡		XBRL Taxonomy Label Linkbase

101.PRE ‡‡		XBRL Taxonomy Presentation Linkbase

* Filed herewith

‡ Furnished herewith.

‡‡ XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

	(1)	Filed on November 23, 2005 as an exhibit to our Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2005 and incorporated herein by reference.
	(2)	Filed on July 15, 2009, as an exhibit to our Report on Form 8-K and incorporated herein by reference.
	(3)	Filed on December 11, 2009, as an exhibit to our Report on Form 8-K and incorporated herein by reference.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GLOBAL FOOD TECHNOLOGIES, INC.

Dated: November 14, 2013	By:	/s/ Keith Meeks
	Keith Meeks, President and
	Chief Executive Officer
	(PRINCIPAL EXECUTIVE OFFICER)

Dated: November 14, 2013	By:	/s/ Marshall F. Sparks
	Marshall F. Sparks, Chief Financial Officer
	(PRINCIPAL ACCOUNTING OFFICER)

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GLOBAL FOOD TECHNOLOGIES, INC. - FORM 10-Q - November 14, 2013

Attached files

GLOBAL FOOD TECHNOLOGIES, INC. Reports