INNOVATIVE FOOD HOLDINGS INC 10-K

ITEM 5. Market For Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Prices for our common stock are quoted on the OTCQB. Since March 2004, our common stock has traded under the symbol “IVFH”. Prior thereto, our common stock traded under the symbol “FBSN”. 46,041,751 shares of our common stock were outstanding as of March 1, 2022. Security Holders On March 1, 2022, there were approximately 55 record holders of our common stock. In addition, we believe there are at least several hundred additional beneficial owners of our common stock whose shares are held in “street name.” Dividends We have not paid dividends during the three most recently completed fiscal years and have no current plans to pay dividends on our common stock. We currently intend to retain all earnings, if any, for use in our business. Recent Sales and Other Issuances of Our Equity Securities During the year ended December 31, 2021, the Company had the following equity related, nonregistered transactions: On August 26, 2021 the Company issued 9,375,000 shares of common stock to investors with a fair value of $3,580,372 for cash. During the year ended December 31, 2021, the Company accrued the amount of $385,000 representing 961,897 shares of common stock issuable at an average price of $0.4177 per share to its Chief Executive Officer pursuant to his compensation agreement. During the year ended December 31, 2021, the Company accrued the amount of $17,116 representing 59,016 shares of common stock issuable at an average price of $0.29 per share to its Chief Strategy Officer pursuant to his compensation agreement. During the year ended December 31, 2021, the Company accrued the amount of $90,000 representing 200,282 shares of common stock issuable to two Directors. During the year ended December 31, 2021, the Company issued 74,076 shares with a fair value of $31,861 as a bonus. All of the issuances described above were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 for the following reasons: (1) none of the issuances involved a public offering or public advertising for the payment of any commissions or fees; (2) the issuances to investors were to “accredited investors”; (3) the issuances upon conversion of notes were for notes held at least 12 months and did not involve the payment of any other consideration; and (4) all issuances to affiliates and to non-affiliates holding the securities for less than six months carried restrictive legends. 20 Index Dilutive Securities December 31, 2021 The following table summarizes the options outstanding and the related prices for the options to purchase shares of the Company’s common stock issued by the Company at December 31, 2021: Weighted Average Remaining Exercise Number Contractual Price of Options Life (years) $ 0.60 50,000 3.99 $ 0.62 360,000 2.00 $ 0.85 540,000 2.00 $ 1.00 50,000 3.99 $ 1.20 1,100,000 1.84 $ 0.99 2,100,000 2.01 December 31, 2020 The following table summarizes the options outstanding and the related prices for the options to purchase shares of the Company’s common stock issued by the Company as of December 31, 2020: Weighted Average Remaining Exercise Number Contractual Price of Options Life (years) $ 0.60 50,000 4.99 $ 0.62 360,000 1.00 $ 0.85 540,000 2.84 $ 1.00 50,000 4.99 $ 1.10 75,000 0.37 $ 1.20 1,050,000 2.84 $ 1.50 125,000 1.00 $ 1.02 2,250,000 2.82 Securities Authorized for Issuance Under Equity Compensation Plans As of December 31, 2021, the following shares are issuable pursuant to outstanding stock options, warrants, and rights issued under the 2011 Stock Option Plan: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants, and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders 2,100,000 $ 0.99 92,565,189 Equity compensation plans not approved by shareholders - $ N/A $ N/A 21 Index ITEM 6. [Reserved] ITEM 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto, as well as all other related notes, and financial and operational references, appearing elsewhere in this document. Certain information contained in this discussion and elsewhere in this report may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and is subject to the safe harbor created by that act. The safe harbor created by the Private Securities Litigation Reform Act will not apply to certain “forward looking statements” because we issued “penny stock” (as defined in Section 3(a)(51) of the Securities Exchange Act of 1934 and Rule 3(a)(51-1) under the Exchange Act) during the three year period preceding the date(s) on which those forward looking statements were first made, except to the extent otherwise specifically provided by rule, regulation or order of the Securities and Exchange Commission. We caution readers that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements which may be deemed to have been made in this Report or which are otherwise made by or on our behalf. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “will”, “expect”, “believe”, “explore”, “consider”, “anticipate”, “intend”, “could”, “estimate”, “plan”, “propose” or “continue” or the negative variations of those words or comparable terminology are intended to identify forward-looking statements. Factors that may affect our results include, but are not limited to, the risks and uncertainties associated with: ● Our ability to raise capital necessary to sustain our anticipated operations and implement our business plan, ● Our ability to implement our business plan, ● Our ability to generate sufficient cash to pay our lenders and other creditors, ● Our dependence on one major customer, ● Our ability to employ and retain qualified management and employees, ● Our dependence on the efforts and abilities of our current employees and executive officers, ● Changes in government regulations that are applicable to our current or anticipated business, ● Changes in the demand for our services 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 political and economic events, health pandemics, rising inflation and environmental weather conditions. We are also subject to other risks detailed from time to time in our other filings with the SEC 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. 22 Index 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, operating right to use assets and liabilities, 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, 2021 and 2020. (b) Embedded conversion features of notes payable: There were no outstanding convertible notes outstanding at December 31, 2021 and 2020: (c) Stock options: The Company accounts for options in accordance with FASB ASC 718-40. Options are valued upon issuance utilizing the Black-Scholes valuation model. Option expense is recognized over the requisite service period of the related option award. The following table illustrates certain key information regarding our options and option assumptions at December 31, 2021 and 2020: December 31, 2021 2020 Number of options outstanding 2,100,000 2,250,000 Value at December 31 N/A N/A Number of options issued during the year 50,000 200,000 Value of options issued during the year $ 8,616 $ 16,498 Number of options recognized during the year 50,000 200,000 Number of options exercised or expired during the year 200,000 475,000 Value of options recognized during the year $ 144,274 $ 142,512 Revaluation (gain) during the period $ N/A $ N/A Black-Scholes model variables: Volatility 71.26 % 41.7-82.7 % Dividends 0 0 Risk-free interest rates 0.23 % 0.37-1.37 % Term (years) 2.00 3.00-5.00 Doubtful Accounts Receivable The Company maintained an allowance in the amount of $375,931 and $343,832 for doubtful accounts receivable at December 31, 2021 and 2020. 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. 23 Index Income Taxes The Company has a history of losses, and as such has recorded no liability for income taxes. Until such time as the Company begins to provide evidence that a continued profit is a reasonable expectation, management will not determine that there is a basis for accruing an income tax liability. These estimates have been accurate in the past. At December 31, 2021, the Company has a net operating loss carryforward of approximately $15,800,000. Background We were initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation. From June 1979 through February 2003, we were either inactive or involved in discontinued business ventures. We changed our name to Fiber Application Systems Technology, Ltd in February 2003. In January 2004, we changed our state of incorporation by merging into Innovative Food Holdings, Inc. (“IVFH”), a Florida corporation formed for that purpose. As a result of the merger, we changed our name to that of Innovative Food Holdings, Inc. In January 2004, we also acquired Food Innovations, Inc. (“FII” or “Food Innovations”), a Delaware corporation, for 500,000 shares of our common stock. 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. (“FD”). 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. 24 Index 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 18 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, 2021 Compared to Year Ended December 31, 2020 Revenue Revenue increased by $10,536,120 or approximately 20% to $62,212,148 for the year ended December 31, 2021 from $51,676,028 prior year. The increase in revenues is primarily attributable to an increase in specialty foodservice revenues which was driven by the nationwide opening of restaurants and other foodservice establishments previously affected by COVID-19. As more foodservice establishments and restaurants have re-opened we have experienced improving foodservice revenues, although revenues still remain slightly below historical levels. The increase in specialty foodservice revenue was partially offset with decreases mainly associated with e-commerce revenues. Though e-commerce revenue remains significantly above historical levels, the decreases during the current period were the result of decreases in COVID-19 driven demand in 2021 compared to 2020. 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. 25 Index Cost of goods sold Our cost of goods sold for the year ended December 31, 2021 was $45,261,401, an increase of $7,401,901 or approximately 20% compared to cost of goods sold of $37,859,500 for the year ended December 31, 2020. The increase in cost of goods sold is attributed mainly to increases in revenues. Cost of goods sold was made up of the following expenses for the year ended December 31, 2021: cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $30,492,406; shipping, delivery, handling, and purchase allowance expenses in the amount of $14,208,233; and cost of goods associated with logistics of $560,762. Total gross margin was approximately 27.2% of sales in 2021 compared to approximately 26.7% of sales in 2020. Gross margins as a percentage of sales improved slightly during the current period to 27.2% compared to 26.7% during the comparable period, primarily due to variation in product and revenue mix across our various selling channels. In 2022, we continue to price our products in order to increase sales, gain market share and increase the number of our end users and customers. We currently expect, if market conditions, overall economic conditions, and our product revenue mix remain constant, that our cost of goods sold may increase and may result in a decrease in profit margin. Selling, general, and administrative expenses Selling, general, and administrative expenses increased by $1,008,411 or approximately 5% to $20,540,229 during the year ended December 31, 2021 compared to $19,531,818 for the year ended December 31, 2020. The increase in selling, general, and administrative expenses was primarily due to an increase in payroll and related costs of approximately $915,262 (net of an increase in non-cash compensation in the amount of $142,815), an increase in advertising and marketing costs of $550,770, an increase in insurance costs of $118,119, an increase in office, facilities, and vehicles costs $47,374, and an increase in taxes of $26,868. These increases were partially offset by a decrease in bad debt expense of $223,143, a decrease in amortization and depreciation of $177,087, a decrease in banking and credit card fees of $125,877, a decrease in professional fees of $48,434, a decrease in IT and computer costs of $44,021. 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. Gain on forgiveness of debt During the year ended December 31, 2021, the Company recorded a gain on forgiveness of debt in connection with the PPP Loans in the amount of $3,425,015, consisting of $3,398,635 of principal and $26,380 of accrued interest. 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. There was no such comparable charge during the current period. At December 31, 2021, the net carrying value of other amortizable and unamortizable assets on the Company’s balance sheet is $1,605,040. Impairment of Investment During the year ended December 31, 2021, the founder of one of the food related companies passed away in an untimely tragic accident, and as a result the food related company ceased operations and the Company recognized an impairment in the amount of $209,850 in connection with that investment. Other leasing income On November 8, 2019 the Company purchased a logistics and warehouse facility located in Mountain Top, Pennsylvania and leased portions of this facility to a third party for a cell tower installation. During the year ended December 31, 2021, the Company recognized revenue in the amount of $10,840 in connection with the lease of space in this facility compared to $43,810 during the year ended December 31, 2020 The decrease was due to (i) the Company recognized income in the amount of $22,380 in the current period as revenues in connection with customers for whom the Company provides other logistical services; this category of income was classified as other leasing income during the prior year; (ii) On January 18, 2021, the Company entered into a 50 year easement agreement for total proceeds of $380,000. The 2021 revenue represents the recognition of the proceeds of the easement over the term of the agreement; the Company recognized additional revenues in the amount of $10,879 from the previous short-term cell tower leasing agreement in the prior year. 26 Index 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 $0 during the current period. This type of transaction occurs infrequently. Interest expense, net Interest expense, net of interest income, increased by $51,160 or approximately 17% to $353,854 during the year ended December 31, 2021, compared to $302,576 during the year ended December 31, 2020. 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 $296,897 during the year ended December 31, 2020 to $348,864 during the year ended December 31, 2021. The Company also recorded interest expense in connection with the amortization of prepaid loan fees in the amount of $12,525 during the year ended December 31, 2021 compared to $12,560 during the prior period. Net loss For the reasons above, the Company had a net loss for the year ended December 31, 2021 of $716,331 compared to a net loss of $7,665,024 during the year ended December 31, 2020. The loss for the year ended December 31, 2021 includes a total of $1,449,236 in non-cash charges, including amortization of intangible assets in the amount of $8,912; depreciation expense of $517,942; charges for non-cash compensation in the amount of $668,251; impairment of investment of $209,850; amortization of prepaid loan fees of $12,525; and provision for doubtful accounts of $31,756. These non-cash losses were offset by a gain on forgiveness of debt in the amount of $3,425,015. 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, and allowance for doubtful accounts of $218,862. Liquidity and Capital Resources at December 31, 2021 As of December 31, 2021, the Company had current assets of $12,803,526, consisting of cash and cash equivalents of $6,122,671; trade accounts receivable of $3,256,764 inventory of $3,109,984; and other current assets of $314,107. Also at December 31, 2021, the Company had current liabilities of $10,197,532, consisting of trade payables and accrued liabilities of $5,702,905, accrued interest of $29,349, deferred revenue of $1,631,406, line of credit of $2,000,000, current portion of notes payable (net of discount) of $412,961, current portion of operating leases of $74,088, current portion of financing leases of $159,823, and current portion of contingent liabilities of $187,000. During the year ended December 31, 2021, the Company had cash used in operating activities of $3,661,569. Cash flow used in operations consisted of the Company’s consolidated net loss of $716,331 subtracted by the depreciation and amortization of $526,854, non-cash compensation in the amount of $668,251, amortization of right-of-use assets of $102,715, provision for doubtful accounts of $31,756, and amortization of prepaid loan fees in the amount of $12,525. These amounts were partially offset by a gain on the forgiveness of debt of $3,425,015, and proceeds from the sale of common stock. The Company’s cash position increased by $1,072,174 as a result of changes in the components of current assets and current liabilities. The Company had cash used in investing activities of $24,511 for the year ended December 31, 2021, which consisted of cash paid for the acquisition of property and equipment in the amount of $24,511. The Company had cash provided by financing activities of $4,748,736 for the year ended December 31, 2021, which consisted of proceeds from a PPP loan in the amount of $1,748,414 and proceeds from the sale of common stock, net of issuances costs of $3,580,372; these amounts were partially offset by principal payments on loans and notes payable in the amount of $433,087 and principal payments on financing leases in the amount of $146,963. The Company had net working capital of $2,605,994 as of December 31, 2021. The Company had cash used in operations during the year ended December 31, 2021 in the amount of $3,661,569, compared to cash used in operating activities of $1,759,883 during the year ended December 31, 2020. 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 and improving operating efficiencies. Currently, we do not have any material long-term obligations other than those described in Notes 11, 12 and 13 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. 27 Index 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. 2022 Plans Since 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 and into 2021, experienced unprecedented declines. As the pandemic has begun to decline in the United States and foodservice establishments have begun to reopen, we have experienced improving foodservice revenues although our revenues have not yet reached its previous historical levels for the full year. While the decline in the pandemic and the re-opening of bricks and mortar stores resulted in a decline of e-commerce revenues compared to the comparable quarter in 2020, ecommerce revenues remained significantly above pre-pandemic historical levels. In April 2020 we applied for and received a loan of approximately $1,650,221 under a program established under a 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. During the year ended December 31, 2021, the Company received notifications from Fifth Third Bank, N.A. that principal and accrued interest in the aggregate amounts of $3,398,635 and $26,380, respectively, due under the PPP Loans had been forgiven; at December 31, 2021, the balance due under the PPP loans was $0. Between cash on hand, access to outside capital, and our current expectations of incoming revenues, we believe we have sufficient resources to continue operating for at least the next 12 months. However, inasmuch as we cannot predict the timing and the effect of the pandemic on general economic activities, we cannot predict the trajectory of the pandemic and the amount of economic stress we could experience if the pandemic were to worsen in the United States and worldwide. 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 2022, if at all, that we can then again consider fully implementing portions of the plans described below. During 2022, we plan to expand our business by expanding our focus to additional specialty foods markets and by leveraging our e-commerce platform to launch and grow, either organically and/or through acquisition, new D2C brands and e-commerce sites within targeted consumer areas, on the Company’s e-commerce platform. In addition, we will continue exploring potential acquisition and partnership opportunities with influencers and other celebrities to 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 its overall capabilities in the consumer space, including leveraging its direct to consumer e-commerce platform 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. 28 Index Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Inflation In the opinion of management, inflation has not had a material effect on the Company’s financial condition or results of its operations. Transactions with Major Customers The Company's largest customer, U.S. Foods, Inc. and its affiliates, accounted for approximately 46% and 40% of total sales in each of the years ended December 31, 2021 and 2020, respectively; and approximately 40% of total sales in the fourth quarter of 2021 compared to 32% of total sales in the fourth quarter of 2020. 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. Foods, Inc. 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. 29 Index