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Item 5. Market for Registrant’s Common Equity

2021-04-15 compared with 2020-05-14 · 238 added, 20 removed, 30 unchanged (90% of the section changed)

4 unchanged sentences

Prior thereto, our common stock traded under the symbol “FBSN”.

34,416,984 shares of our common stock were outstanding as of May 11, 2020.

35,371,480 shares of our common stock were outstanding as of April 15, 2021.

Security Holders

On May 11, 2020, there were approximately 56 record holders of our common stock.

On April 15, 2021, there were approximately 56 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.”

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Recent Sales and Other Issuances of Our Equity Securities

During the twelve months ended December 31, 2019, the Company had the following equity related, nonregistered transactions:

On March 14, 2019, the Company issued a total of 131,136 shares of common stock to an aggregate of seven employees for bonuses related to the year ended December 31, 2017.

These shares had a value of $0.714 per share based upon the market price of the Company’s stock on the date of the grant.

The aggregate value in the amount of $93,666 was charged to operations during the year ended December 31, 2017 and was carried on the Company’s books as an accrued liability until the time of issuance.

During the year ended December 31, 2019, the Company transferred the amount of $93,666 from accrued liability to equity in connection with the issuance of these shares.

On July 23, 2019, the Company entered into a subscription agreement to sell 349,650 restricted shares of common stock to Pet Box LLC, a company controlled by David Polinsky, a director of the Company.

The purchase price was $0.715 per share for a total of $250,000.

The sale was made directly between the Company and Mr.

Polinsky without any brokers or public advertising.

On July 31, 2019, the Company issued 9,524 shares of common stock with a fair value of $0.54 to a service provider;

the fair value of $5,143 was charged to operations during the year ended December 31, 2019.

On October 2, 2019, the Company issued 4,762 shares of common stock with a fair value of $0.58 to a service provider;

the fair value of $2,762 was charged to operations during the year ended December 31, 2019.

On November 4, 2019, the Company issued 2,381 shares of common stock with a fair value of $0.55 to a service provider;

the fair value of $1,310 was charged to operations during the year ended December 31, 2019.

On December 2, 2019, the Company issued 2,381 shares of common stock with a fair value of $0.50 to a service provider;

the fair value of $1,191 was charged to operations during the year ended December 31, 2019.

During the year ended December 31, 2019, a total of 414,807 shares of the Company’s restricted common stock were vested pursuant to employment agreements.

During the year ended December 31, 2020, the Company had the following equity related, nonregistered transactions:

On January 29, 2020, the Company issued 38,943 shares of common stock with a fair value of $17,135 to an employee as a bonus.

On January 10, 2020, the Company issued 2,381 shares of common stock with a fair value of $1,119 to a service provider as payment for services.

On February 3, 2021, the Company issued an additional 2,381 shares of common stock with a fair value of $1,167 to a service provider as payment for services.

During the year ended December 31, 2020, the Company accrued the amount of $276,387 representing 775,748 shares of common stock issuable at an average price of $0.356 per share to its Chief Executive Officer pursuant to his compensation agreement.

During the year ended December 31, 2020, the Company accrued the amount of $17,116 representing 38,892 shares of common stock issuable at an average price of $0.44 per share to its Chief Strategy Officer pursuant to his compensation agreement.

During the year ended December 31, 2020, the Company accrued the amount of $35,000 to each of two directors (a total of $70,000) representing 69,928 shares of common stock issuance to each director (a total of 139,856 shares) pursuant to their service agreements.

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:

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Not Applicable.

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 and different food trends,

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 pandemic, 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.

Critical Accounting Policy and Estimates

Use of Estimates in the Preparation of Financial Statements

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

These estimates include certain assumptions related to doubtful accounts receivable, stock-based services, valuation of financial instruments, and income taxes.

On an on-going basis, we evaluate these estimates, including those related to revenue recognition and concentration of credit risk.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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.

(a) Warrants:

There were no warrants outstanding at December 31, 2020 and 2019.

(b) Embedded conversion features of notes payable:

There were no outstanding convertible notes outstanding at December 31, 2020 and 2019:

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, 2020 and 2019:

Number of options outstanding

Value at December 31

Number of options issued during the year

Value of options issued during the year

Number of options recognized during the year

Number of options exercised or expired during the year

Value of options recognized during the year

Revaluation (gain) during the period

Black-Scholes model variables:

Risk-free interest rates

Doubtful Accounts Receivable

The Company maintained an allowance in the amount of $343,832 for doubtful accounts receivable at December 31, 2020, and $95,284 at December 31, 2019.

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.

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.

At December 31, 2020, the Company has a net operating loss carryforward of approximately $11,473,000.

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.

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 four year options at a price of $1.46 per share, and up to an additional $225,000 in earn-outs if certain milestones are met.

Pursuant to an Asset Purchase Agreement dated as of January 1, 2017 the Company’s wholly-owned subsidiary, Oasis Sales Corp.

(“Oasis”), purchased substantially all of the assets of Oasis Sales and Marketing, L.L.C.

for $300,000 cash;

a $200,000 structured equity instrument which can be paid in cash or shares of the Company stock at the Company’s option, anytime under certain conditions, or is automatically payable via the issuance of 200,000 shares if the Company’s shares close above $1.00 for ten consecutive days;

a $100,000 note;

and up to an additional $400,000 in earn-outs over two years if certain milestones are met.

The Agreement also contains claw-back provisions if certain revenue conditions are not met.

On August 15, 2014, pursuant to a merger agreement, the Company acquired The Fresh Diet, Inc.

Effective February 23, 2016, the Company closed a transaction to sell 90% of our ownership in FD for consideration consisting 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.

Effective January 24, 2018, pursuant to an asset acquisition agreement (the “igourmet Asset Acquisition Agreement”), our wholly-owned subsidiary, Innovative Gourmet, LLC acquired substantially all of the assets and certain liabilities of igourmet LLC and igourmet NY LLC, privately-held New York limited liability companies located in West Pittston, Pennsylvania and engaged in the sale, marketing, and distribution of specialty food and specialty food items through www.igourmet.com, online marketplaces, additional direct-to-consumer platforms, distribution to foodservice, retail stores and other wholesale accounts, pursuant to the terms of an Asset Purchase Agreement.

The consideration for and in connection with the acquisition consisted of:

(i) $1,500,000, which satisfied or reduced secured, priority and administrative debt of Sellers;

(ii) in connection with and prior to the acquisition, our wholly-owned subsidiary, Food Funding, LLC (“Food Funding”), funded advances of $325,000 to Sellers on a secured basis, pursuant to certain loan documents and as bridge loans, which loans were reduced by the proceeds of the Asset Purchase Agreement;

(iii) the purchase for $200,000 of certain debt owed by Sellers, to be paid out of, if available, Innovative Gourmet’s cash flow;

(iv) potential contingent liability allocation for a percentage of Sellers’ approximately $2,300,000 of certain debt, not purchased or assumed by Innovative Gourmet, which under certain circumstances, Innovative Gourmet may determine to pay;

and (v) additional purchase price consideration of (a) up to a maximum of $1,500,000, if EBITDA of Innovative Gourmet reaches $800,00 in 2018, (b) up to a maximum of $1,750,000, if EBITDA of Innovative Gourmet in 2019 exceeds its EBITDA in 2018 by at least 20% and if its EBITDA reaches $5,000,000;

and (c) up to a maximum of $2,125,000, if EBITDA of Innovative Gourmet in 2020 exceeds its EBITDA in 2019 by at least 20% and if its EBITDA reaches $8,000,000.

The EBITDA based earnout shall be paid 37.5% in cash, 25% in IVFH shares valued at the time of the closing of this transaction and 37.5%, at Innovative Gourmet’s option, in IVFH shares valued at the time of the payment of the earnout or in cash.

The 2018, 2019 and 2020 earnout milestones were not met.

In connection with the acquisition, our wholly-owned subsidiary, Food Funding, purchased Seller’s senior secured note at a price of approximately $1,187,000, pursuant to the terms of a Loan Sale Agreement with UPS Capital Business Credit.

That note was reduced by the proceeds of the Asset Purchase Agreement.

See Item (i) above.

Effective July 6, 2018, pursuant to an asset purchase agreement between Mouth Foods, Inc.

(“Mouth”) and our wholly-owned subsidiary M Innovations LLC (“M Innovations”)(the “MFI APA”), the Company acquired certain assets of Mouth from MFI (assignment for the benefit of creditors), LLC, in connection with a Delaware assignment proceeding.

The MFI APA was accounted for as an acquisition of an ongoing business where the Company was treated as the acquirer and the acquired assets and assumed liabilities were recorded by the Company at their preliminary estimated fair values.

Mouth, a privately held New York company operating out of Brooklyn, was an expert curator and online retailer of high quality specialty foods from small-batch makers in the US.

The consideration for and in connection with the acquisition consisted of (i) closing related cash payments of $208,355;

(ii) additional revenue-based contingent liabilities valued by management at $100,000 related to certain future sales of purchased assets payable under the following terms:

payment of 5% of certain revenues, with no payments on the first $500,000 of revenues and no payments on revenues after June 30, 2020;

(iii) additional revenue based contingent liabilities of up to $185,000 associated with the purchase of certain debt of the seller;

and (iv) additional contingent liability consideration valued by management at approximately $20,000.

Effective July 23, 2019, P Innovations acquired certain assets of GBC Sub, Inc.

(d/b/a The GiftBox) (“GiftBox”) (the “GiftBox Asset Purchase Agreement”).

GiftBox, a privately held Nevada corporation controlled by David Polinsky, a director of the Company, was in the business of subscription-based ecommerce.

The consideration for the assets purchased was a nominal amount of cash.

The GiftBox Asset Purchase Agreement also provides the sellers the option to acquire 30% of P Innovations subject to dilution for a period of thirty-six months following the date of the Giftbox Asset Purchase Agreement;

the option will only be exercisable if there is a spinoff of P Innovations to Innovative Food Holdings shareholders.

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 Major Customer in Note 19 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

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, 2020 Compared to Year Ended December 31, 2019

Revenue decreased by $6,226,938 or approximately 10.8% to $51,676,028 for the year ended December 31, 2020 from $57,902,966 prior year.

The decrease in revenue is primarily attributable to a decrease in specialty foodservice revenues which was driven by the nationwide closures of restaurants and other foodservice establishments related to COVID-19.

The decline in specialty foodservice was partially offset with revenues increases mainly associated with e-commerce.

The increases in e-commerce revenues were driven by the Company’s ability to increase sales at its e-commerce properties and convert significant shifts in e-commerce specialty food, supermarket trends, and e-commerce grocery trends, driven initially by the COVID-19 pandemic, into e-commerce revenues.

We continue to assess the potential of new revenue sources from the manufacture and sale of proprietary food products, private label products and additional sales channel opportunities in both the foodservice and consumer space and will implement a strategy which based on our analysis provides the most beneficial opportunity for growth.

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 markets 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.

Cost of goods sold

Our cost of goods sold for the year ended December 31, 2020 was $37,859,500, a decrease of $3,395,576 or approximately 8.2% compared to cost of goods sold of $41,255,076 for the year ended December 31, 2019.

Cost of goods sold was made up of the following expenses for the year ended December 31, 2020:

cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $24,092,859;

shipping, delivery, handling, and purchase allowance expenses in the amount of $13,072,457;

and cost of goods associated with logistics of $694,184.

Total gross margin was approximately 27% of sales in 2020 compared to approximately 29% of sales in 2019.

The decrease in gross margins from 2019 is primarily attributable to variation in product and revenue mix across our various selling channels including a decrease in higher gross margin revenues associated with National Brand Management and lower gross margins associated with foodservice revenues including revenue and margin variations driven by the COVID-19 pandemic.

In 2020, we continued to price our products in order to gain market share and increase the number of our end users and ecommerce customers.

We currently expect, if market conditions and our product revenue mix remain constant, that our cost of goods sold may increase and our gross margin decrease.

Selling, general, and administrative expenses

Selling, general, and administrative expenses increased by $3,067,690 or approximately 18.6% to $19,531,818 during the year ended December 31, 2020 compared to $16,464,128 for the year ended December 31, 2019.

The increase in selling, general, and administrative expenses was primarily due to an increase in advertising and marketing costs of $1,370,345, increases in payroll and related costs of approximately $1,386,169 (net of an increase in non-cash compensation in the amount of $111,258), an increase in IT and computer costs of $210,456, an increase in insurance costs of $176,485 an increase in banking and credit card fees of $272,364, an increase in bad debt expense of $218,862, , an increase in office, facilities, and vehicles costs $133,842, and an increase in taxes of $98,290.

These increases were partially offset by a decrease in amortization and depreciation of $530,157 and a decrease in professional fees of $25,048.

The increases were driven mainly by additional costs including increases in costs including warehouse fulfillment costs associated with COVID-19, increased costs associated with additional personnel mainly related to warehouse operations, overall employee costs and insurance costs, increased legal, accounting, facility and IT costs including costs associated with the planned launch of new websites, and increased advertising associated with increased spending in digital marketing related to certain of the Company’s e-commerce websites.

Impairment of goodwill and intangible assets

During the year-ended December 31, 2020, the Company performed impairment tests of our goodwill and intangible assets that incorporated the use of a discounted cash flow model that involves many management assumptions that are based upon future growth projections which include estimates of COVID-19’s impact on our business.

Assumptions include estimates of future revenues, growth rates which take into account estimated inflation rates, estimates of future levels of gross profit and operating profit, projected capital expenditures and discount rates based upon industry and competitor analyses.

As a result of impairment tests, the Company was required by applicable accounting rules to record an impairment of goodwill and intangible assets in the aggregate amount of $1,698,952.

At December 31, 2020, the net carrying value of goodwill and other intangible assets on the Company’s balance sheet is $1,633,202.

There was no such comparable charge during the prior period.

Other leasing income

On November 8, 2019 the Company purchased a logistics and warehouse facility located in Mountain Top, Pennsylvania.

During the year ended December 31, 2020, the Company recognized revenue in the amount of $43,810 in connection with the lease of space in this facility compared to $3,125 during the year ended December 31, 2019.

The increase was due to the Company recognizing a full year of activity during 2020 compared to the period from November 8, 2019 to December 31, 2019 during the prior year.

Gain on settlement of contingent liabilities

During the year ended December 31, 2019, the Company recorded a gain on settlement of contingent liabilities in the amount of $132,300 in connection with potential additional consideration under the igourmet Asset Purchase Agreement.

There was no comparable transaction during the current year.

Gain on disposal of fixed assets

During the year ended December 31, 2020, the Company recorded a gain on the sale of warehouse equipment in the amount of $7,984, compared to a gain on sale of equipment of $12,495 during the prior period.

This type of transaction occurs infrequently.

Interest expense, net

Interest expense, net of interest income, increased by $193,661 or approximately 177.8% to $302,576 during the year ended December 31, 2020, compared to $108,915 during the year ended December 31, 2019.

The increase was due primarily to an increase in interest accrued or paid on the Company’s commercial loans and notes payable in the amount of $182,640 from $114,257 during the year ended December 31, 2019 to $296,897 during the year ended December 31, 2020.

The Company also recorded interest expense in connection with the amortization of prepaid loan fees in the amount of $12,560 during the year ended December 31, 2020 compared to $1,819 during the prior period, an increase of $10,741.

Interest income was $6,831 during the year ended December 31, 2020, a decrease of $330 compared to interest income of $7,161 during the prior year.

Net (loss) income

For the reasons above, the Company had a net loss for the year ended December 31, 2020 of $7,665,024 compared to a net income of $222,767 during the year ended December 31, 2019.

The loss for the year ended December 31, 2020 includes a total of $3,159,751 in non-cash charges, including impairment of intangible assets in amount of $1,698,952;

amortization of intangible assets in the amount of $212,902;

depreciation expense of $491,039;

charges for non-cash compensation in the amount of $525,436;

and amortization of prepaid loan fees of $12,560.

The income for the year ended December 31, 2019 includes a total of $1,650,096 in non-cash charges, including amortization of intangible assets in the amount of $899,757, depreciation expense of $334,342, charges for non-cash compensation in the amount of $414,178, and amortization of prepaid loan fees of $1,819.

Liquidity and Capital Resources at December 31, 2020

As of December 31, 2020, the Company had current assets of $11,446,921, consisting of cash and cash equivalents of $5,060,015;

trade accounts receivable of $2,380,305;

inventory of $3,719,786;

and other current assets of $286,815.

Also at December 31, 2020, the Company had current liabilities of $12,207,022, consisting of trade payables and accrued liabilities of $5,098,523, accrued interest of $28,873, deferred revenue of $2,917,676, line of credit of $2,000,000, current portion of notes payable (net of discount) of $1,741,571, current portion of operating leases of $87,375, current portion of financing leases of $146,004, and current portion of contingent liabilities of $187,000.

During the year ended December 31, 2020, the Company had cash used in operating activities of $1,759,883.

Cash flow used in operations consisted of the Company’s consolidated net loss of $7,665,024 subtracted by impairment of intangible assets of $1,698,952, depreciation and amortization of $703,941, non-cash compensation in the amount of $525,436, amortization of right-of-use assets of $161,926, provision for doubtful accounts of $254,899, and amortization of prepaid loan fees in the amount of $12,560.

These amounts were partially offset by a gain on the disposition of fixed assets in the amount of $7,984.

The Company’s cash position increased by $2,555,411 as a result of changes in the components of current assets and current liabilities.

The Company had cash used in investing activities of $450,387 for the year ended December 31, 2020, which consisted of cash paid for the acquisition of property and equipment in the amount of $431,137, and cash paid for the acquisition of intangible assets in the amount of $19,250.

The Company had cash provided by financing activities of $3,304,235 for the year ended December 31, 2020, which consisted of proceeds for a line of credit in the amount of $2,000,000 and proceeds from a PPP loan in the amount of $1,650,221;

these amounts were partially offset by principal payments on loans and notes payable in the amount of $278,668 and principal payments on financing leases in the amount of $67,318.

The Company currently anticipates that up to 100% of this PPP loan will be eligible for government forgiveness under the PPP program, although there is no assurance of such eligibility.

The Company had net working capital deficit of $760,101 as of December 31, 2020.

The Company had cash used in operations during the year ended December 31, 2020 in the amount of $1,759,883.

This compares to cash generated from operating activities of $1,594,647 during the year ended December 31, 2019.

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 Notes 12, 13 and 14 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 food oriented products and services, we may use existing cash reserves, long-term financing, or other means to finance such diversification, although no assurance can be given that such growth will occur.

If the Company’s cash flow from operations is insufficient to fully implement its business plan, the Company may require additional financing in order to execute its operating plan.

The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form.

The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all.

In any of these events, the Company may be unable to implement its current plans for expansion, repay its debt obligations as they become due or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

As 2020 began we put together a plan which we expected to try to implement in 2020.

Those plans are described in the paragraphs below.

However, in the interim period since those plans were prepared, as described above in “Business – Growth Strategy”, “Risk Factors” and elsewhere in this Report, in 2020 the world has been in the grip of a pandemic which has wreaked havoc on economies world-wide, including in the U.S., which is our primary market.

As a result of the pandemic, restaurants, hotels, country clubs, casinos, catering houses and other of our primary customers have either been closed completely or are only partially open with significantly reduced operations.

Accordingly, Foodservice revenues, which historically have been a significant overall portion of our revenues have been significantly reduced as most foodservice establishments cross the United States closed or had limited operations.

As a result, Foodservice revenue commencing in the second half of March 2020 and continuing throughout the year experienced unprecedented declines.

Conversely, we have experienced significant growth in our on-line e-commerce revenues as overall e-commerce grew and as demand for food products continued across the United States.

Accordingly, we have focused our resources on meeting the growth of e-commerce revenues.

While the percentage increase in e-commerce revenues was strong, the additional e-commerce revenues did not exceed the decrease in foodservice revenues commencing in the second half of March 2020 and continuing throughout the year and overall revenues and profits declined for that time frame.

In April 2020 we applied for and received a loan of approximately $1.6 million under a program established under a recent congressionally approved program which is administered by the U.S.

Small Business Administration.

In 2021 we applied for and received $1,748,414 in new loans under a similar government program administered by the U.S.

Small Business Administration.

In addition, between the government loans, the potential forgiveness of the government loans, cash on hand and our current expectations of incoming revenues, we believe we have sufficient resources to continue operating for at least the next 12 months.

However, as we cannot predict at this time when quarantines, curfews, stay in place orders, and closures of non-essential businesses will end and general economic activity will resume, we cannot predict when our business will return to its pre-pandemic norms and the amount of economic stress we would experience.

While we intend to continue to focus on executing on our strategic growth plans, given the current economic conditions, we are not able to determine the exact timeframe in 2021, if at all, that we can then again consider fully implementing portions of the plans described below.

During 2021, we plan to attempt to expand our business by expanding our focus to additional specialty foods markets.

In addition, we will continue exploring potential acquisition and partnership opportunities and continue 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 potential sales channel relationships.

In addition, we are currently exploring the introduction of, or have introduced into the market, a variety of new product categories and new product lines, including private label products and proprietary branded products to leverage our existing foodservice and consumer customer base.

Furthermore, the Company intends to continue to expand its activities in the direct to consumer space and the overall consumer packaged goods (CPG) space through leveraging the assets acquired from igourmet LLC and Mouth Foods, Inc.

and through leveraging its overall capabilities in the consumer space, including leveraging its direct to consumer e-commerce capabilities to reach both additional customers in multiple channels, and to expand availability of its e-commerce capabilities to additional products and markets.

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.

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, U.S.

and its affiliates, accounted for approximately 40% and 57% of total sales in each of the years ended December 31, 2020 and 2019;

and approximately 32% of total sales in the fourth quarter of 2020 compared to 50% of total sales in the fourth quarter of 2019.

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 directly between Food Innovations, Inc., our wholly-owned subsidiary, and U.S.

The term of the Agreement was from January 1, 2015 through December 31, 2016 and provided for a limited number of automatic annual renewals thereafter if no party gives the other 30 days' notice of its intent not to renew.

Based on the terms, the Agreement was extended through 2018.

Effective January 1, 2018 the Agreement was further amended to remove the cap on renewals, and provide for an unlimited number of additional 12-month terms unless either party notifies the other in writing, 30 days prior to the end date, of its intent not to renew.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity