Item 5. Market for Registrant’s Common Equity
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”. At March 17, 2024, there were 49,714,929 shares of our common stock outstanding.
Security Holders
On March 17, 2024, there were approximately 59 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
On February 1, 2023, the Company issued 875,000 shares of common stock to its previous CEO and a board member in connection with his compensation agreement. These shares were previously accrued at an average price of $0.22 per share.
On February 28, 2023, the Company issued a total of 267,030 shares of common stock at a price of $0.42 per share to three employees as compensation.
On April 26, 2023, the Company issued 400,000 shares of common stock to its previous CEO and a board member pursuant to a separation agreement. These shares were previously accrued at a price of $0.42 per share.
On July 7, 2023, the Company issued 178,626 shares to its previous CEO pursuant to his compensation plan. These shares were previously accrued at a price of $0.23 per share. This issuance did not increase the number of shares outstanding.
On August 31, 2023, the Company issued 14,754 shares to its previous Director of Strategic Acquisitions pursuant to his compensation plan. These shares were previously accrued at a price of $0.23 per share. This issuance did not increase the number of shares outstanding.
On September 6, 2023, the Company issued an aggregate of 459,211 shares to two board members pursuant to their compensation plan. These shares were previously accrued at a price of $0.23 per share. This issuance did not increase the number of shares outstanding.
On September 6, 2023, the Company issued 320 shares to a previous employee as a bonus. These shares were previously accrued at a price of $0.44 per shares. This issuance did not increase the number of shares outstanding.
On October 2, 2023, 30,000 shares were issued to a service provider. These shares were previously accrued at a price of $1.30 per share. This issuance did not increase the number of shares outstanding.
On November 7, 2023, the Company issued 678,302 shares, net of 265,229 shares withheld for taxes, at a price of $0.59 per shares to its CEO pursuant to his compensation plan.
On December 30, 2023, the Company issued an aggregate of 57,560 shares were issued to two board members, its previous CEO, and its previous Director of Strategic Acquisitions for the cashless exercise of 360,000 stock options at a price of $0.62 per share.
On February 15, 2024, 150,000 shares were issued to a previous board member for options previously exercised at a price of $0.44 per shares. The issuance of these shares was previously accrued. This issuance did not increase the number of shares outstanding.
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.
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Dilutive Securities
December 31, 2023
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, 2023:
Weighted
Average
Remaining
Exercise
Number
Contractual
Prices
Of Options
Life (years)
$
0.41
125,000
0.32
$
0.50
125,000
0.32
$
0.60
50,000
1.99
$
1.00
50,000
1.99
350,000
0.80
December 31, 2022
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, 2022:
Weighted
Average
Remaining
Exercise
Number
Contractual
Price
of Options
Life (years)
$
0.41
125,000
1.32
$
0.50
125,000
1.32
$
0.60
50,000
2.99
$
0.62
360,000
1.00
$
0.85
540,000
1.00
$
1.00
50,000
2.99
$
1.20
1,050,000
0.90
$
0.93
2,300,000
1.07
Securities Authorized for Issuance Under Equity Compensation Plans
As of December 31, 2023, 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
Equity compensation plans approved by security holders
350,000
$
0.55
97,782,500
Equity compensation plans not approved by shareholders
-
$
N/A
$
N/A
ITEM 6. [Reserved]
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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, bank failures, 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.
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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, among others, doubtful accounts receivable, valuation of stock-based services, operating right of 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, 2023 and 2022.
(b) Embedded conversion features of notes payable:
There were no outstanding convertible notes outstanding at December 31, 2023 and 2022:
(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, 2023 and 2022:
December 31,
2023
2022
Number of options outstanding
350,000
2,300,000
Value at December 31
N/A
N/A
Number of options issued during the year
-
250,000
Value of options issued during the year
$
N/A
$
2,092
Number of options recognized during the year
-
250,000
Number of options exercised or expired during the year
360,000
50,000
Value of options recognized during the year
$
-
$
8,738
Revaluation (gain) during the period
$
N/A
$
N/A
Black-Scholes model variables:
Volatility
-
%
24.43
%
Dividends
-
0
Risk-free interest rates
-
%
2.63
%
Term (years)
-
2.00
Provision for Doubtful Accounts Receivable
The Company maintained an allowance in the amount of $46,477 and $340,225 for doubtful accounts receivable at December 31, 2023 and 2022, respectively. 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.
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Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with accounting principles generally accepted in the United States of America. The estimated fair values approximate their carrying value because of the short-term maturity of these instruments or the stated interest rates are indicative of market interest rates. These fair values have historically varied due to the market price of the Company’s stock at the date of valuation.
Income Taxes
The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, is not expected to be realized. At December 31, 2023, the Company has a net operating loss carryforward of approximately $5,104,000.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included on the face of the condensed consolidated balance sheet. Finance lease ROU assets are presented within other assets, and finance lease liabilities are presented within accrued liabilities.
ROU assets represent the right of use to an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. For lease agreements with terms less than 12 months, the Company has elected the short-term lease measurement and recognition exemption, and it recognizes such lease payments on a straight-line basis over the lease term.
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.
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 20 to the Consolidated Financial Statements, and (3) in Business – Relationship with U.S. Foods, and (4) as the second item under Risk Factors.
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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, 2023 Compared to Year Ended December 31, 2022
Revenue
Revenue decreased by $6,685,179 or approximately 8% to $72,218,996 for the year ended December 31, 2023 from $78,904,175 in the prior year. Our decrease in revenues is attributed to two major factors. First, one of our largest customers implemented a sales platform change affecting the customers’ ability to find and purchase the IVFH products they were used to purchasing. Second, as a result of executing phase one of our outlined three phased strategy, a conscious decision was made to scale back our direct-to-consumer eCommerce businesses which included a reduction of dedicated resources and marketing spend required to support such 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, 2023 was $54,693,359, a decrease of $6,684,025 or approximately 11% compared to cost of goods sold of $61,377,384 for the year ended December 31, 2022. Cost of goods sold was made up of the following expenses for the year ended December 31, 2023: cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $39,512,072; shipping, delivery, handling, and purchase allowance expenses in the amount of $14,595,564; and cost of goods associated with logistics of $585,723. Gross margins as a percentage of sales improved during the current period to 24.3% compared to 22.2% during the comparable period, as we continued implementing improved cost controls, better managed pricing, and focused more on product mix.
In 2024, we will 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 decreased by $943,152 or approximately 5% to $17,389,351 during the year ended December 31, 2023 compared to $18,332,503 for the year ended December 31, 2022. The decrease in selling, general, and administrative expenses was primarily due to a decrease in advertising and digital marketing costs in the amount of $1,157,945; a decrease in office, facilities, and vehicles cost of $461,559; a decrease in computer and IT costs of $101,761; and a decrease in banking and credit card fees of $80,665. These decreases were partially offset by an increase in payroll and related costs in the amount of $618,090, including an increase of $83,545 in non-cash compensation; an increase in insurance costs of $90,369; an increase in bad debt expense of $75,211; an increase in taxes of $43,333; and an increase in professional and legal fees of $42,253. The decrease in sales, general, and administrative expenses represent the results of our overall cost-cutting efforts as well as the restructuring of our marketing and advertising programs.
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Separation costs – executive officers
During the year ended December 31, 2023, the Company entered into the following separation agreements: (i) a separation agreement with its Prior CEO and current board member with a total cost of $1,819,199 consisting of cash payments of $250,000, a non-interest bearing note payable to Mr. Klepfish in the amount of $1,000,000, $1,199 of Cobra health insurance payments, and stock grants with a value of $568,000; (ii) a separation agreement with its prior Director of Strategic Acquisitions and prior board member with a total cost of $126,451 consisting of cash payments of $100,000 and $26,451 of Cobra health insurance payments; (iii) a separation agreement with its prior CFO with a total cost of $128,413 consisting of cash payments of $113,918 and $14,495 of Cobra health insurance payments. The aggregate separation costs for the year ended December 31, 2023 was $2,074,063; there were no such costs during the prior year.
Impairment of intangible assets
During the year ended December 31, 2023, the Company recorded an impairment of intangible assets in the amount of $1,315,822 consisting of impairment charges in the amount of $1,055,400 and $260,422 against the tradenames held by igourmet and Mouth, respectively. Due to our strategic decision to allocate fewer resources to our direct-to-consumer business, the determination was made that the cost of these assets was unlikely to be recovered.
Interest expense, net
Interest expense, net of interest income, increased by $289,167 or approximately 49% to $876,452 during the year ended December 31, 2023, compared to $587,285 during the year ended December 31, 2022. 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 $404,186 due to higher interest rates and higher loan balances. The increase in interest expense was partially offset by a decrease in the amortization of loan fees in the amount of $112,463, from $115,760 in the prior year to $3,297 during the current year. In addition, interest income increased by $2,556, from $6,480 in the prior year to $9,036 in the current year.
Loss on sale of subsidiaries
On December 29, 2023, the Company sold 100% of their equity interests in Organic Food Brokers, LLC and Oasis Sales Corp. to a single buyer for a purchase price of $75,000. The Company recorded a loss in the amount of $45,022 on this transaction. There were no comparable transactions in the prior year.
Other income
During the year ended December 31, 2023, the Company recognized other income in the amount of $14,925 from the sale of a subscription based D2C revenue stream. During the year ended December 31, 2022, the Company recognized other income in the amount of $294,000 in connection with the termination of the interest rate swap.
Gain on sales of assets
During the year ended December 31, 2023, the Company recognized a gain in the amount of $9,360 in connection with the sale of a vehicle. There was no comparable transaction in the prior year.
Other leasing income
During the year ended December 31, 2023, the Company recognized income in the amount of $7,600 in connection with the lease of space in our Mountaintop warehouse facility, a decrease of $3,626 or approximately 32% compared to $11,226 during the year ended December 31, 2022.
Gain on contingent liabilities
During the year ended December 31, 2022, the Company recorded a total of $295,600 in gains on contingent liabilities. This was composed of two contingent liabilities recorded in connection with the igourmet acquisition on January 24, 2018, with a total remaining balance in the amount of $175,600; and two contingent liabilities recorded in connection with the Mouth acquisition on July 6, 2018, with a total remaining balance in the amount of $120,000. In each instance, the contingent event was not met, and the payment period has passed; accordingly, the Company has reversed these liabilities. There were no comparable transactions in the current year.
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Impairment of Investment
During the year ended December 31, 2022, we made the determination that our investments in seven food-related companies were unlikely to be recovered, and we recorded an impairment on these investments in the aggregate amount of $286,725. There were no comparable transactions in the current year.
Loss on extinguishment of debt
During the year ended December 31, 2022, we entered into a revolving line of credit agreement and two term loan agreements with MapleMark Bank, replacing our revolving line of credit and term loans with Fifth Third Bank. We wrote off the existing discounts to the Fifth Third Bank loans in the amount of $40,556 resulting in a loss on extinguishment of debt. There was no comparable transaction during the current year.
Income tax expense
During the year ended December 31, 2023, the Company paid federal income taxes in the amount of $15,834 in connection with an audit of the year ended December 31, 2017. There was no such charge during the prior period.
Net loss from continuing operations
For the reasons above, the Company had a net loss from continuing operations for the year ended December 31, 2023 of $4,159,022, an increase of $3,039,570 or approximately $271% compared to a net loss from continuing operations of $1,119,452 during the year ended December 31, 2022. The loss for the year ended December 31, 2023 includes a net total of $2,355,220 in non-cash charges, including charges for non-cash compensation in the amount of $405,503; depreciation expense of $526,274; impairment of intangible assets of $1,315,822; amortization of prepaid loan fees of $3,297; amortization of intangible assets in the amount of $30,994; and provision for doubtful accounts of $73,330 The loss for the year ended December 31, 2022 includes a total of $1,580,162 in non-cash charges, including charges for non-cash compensation in the amount of $576,964; depreciation expense of $520,848; impairment of investment of $286,725; provision for doubtful accounts of $(1,915); amortization of prepaid loan fees of $115,760; loss on extinguishment of debt of $40,556, and amortization of intangible assets in the amount of $41,224.
Net loss from discontinued operations
During the year ended December 31, 2023, the Company had a net loss from discontinued operations in the amount of $196,130, a decrease in the amount of $34,420 or approximately 15% compared to a net loss from discontinue operations in the amount of $230,550 during the prior year.
Liquidity and Capital Resources at December 31, 2023
As of December 31, 2023, the Company had current assets of $13,641,149, consisting of cash and cash equivalents of $5,327,016; trade accounts, net receivable of $4,307,726; inventory of $2,973,134; other current assets of $287,528; assets held for sale of $649,884, and current assets of discontinued operations of $95,861. Also at December 31, 2023, the Company had current liabilities of $8,640,993, consisting of trade payables and accrued liabilities of $6,252,951; accrued separation costs, related parties of $463,911; accrued interest of $95,942, deferred revenue of $1,312,837, stock appreciation rights liability of $255,020; current portion of notes payable of $121,041, current portion of operating lease liability of $17,131, current portion of financing lease liability of $115,738; and current liabilities of discontinued operations of $6,422.
During the year ended December 31, 2023, the Company had cash used in operating activities of $435,562. Cash flow used in operations consisted of the Company’s consolidated net loss of $4,355,152 less impairment of intangible assets of $1,315,822; depreciation and amortization of $557,268; stock-based compensation in the amount of $405,503; value of stock appreciation rights of $255,020; provision for inventory of $189,582; provision for doubtful accounts of $73,330; amortization of right of use asset of $51,756; loss on sale of subsidiaries of $45,022; amortization of discount on notes payable of $3,297; and gain on the disposition of assets of $(9,360). In addition, the Company’s cash position increased by $1,032,350 as a result of changes in the components of current assets and current liabilities.
The Company had cash used in investing activities of $36,332 for the year ended December 31, 2023, which consisted of cash paid for the acquisition of property and equipment in the amount of $122,403, partially offset by cash received from the sale of subsidiaries of $75,000 and cash received from the sale of assets of $11,071.
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The Company had cash provided by financing activities of $994,831 for the year ended December 31, 2023, which consisted of cash received from notes payable, net in the amount of $3,285,588; partially offset by principal payments on the line of credit in the amount of $2,014,333; principal payments on debt of $187,611; and principal payments on financing leases of $88,813.
The Company had net working capital of $5,000,156 as of December 31, 2023. The Company had cash used in operating activities during the year ended December 31, 2023 in the amount of $435,562, compared to $599,086 during the year ended December 31, 2022. 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 Note 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.
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. As we seek to increase our sales of new items and enter new markets, acquire new businesses as well as identify new and other consumer and food service oriented products and services, we may use existing cash reserves, long-term financing, or other means to finance such diversification.
If the Company’s cash flow from operations is insufficient to fully implement its business plan disclosed below, 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.
2024 Plans
As discussed in our earnings calls and press releases over the past year, we are dividing our journey into three distinct phases: 1) Stabilization, 2) Laying the Foundation for Growth, and 3) Build and Scale.
Our first phase is focused on the stabilization of our business. We need to build a track record of consistently delivering a profitable business model and positive cash flow. This is why we’ve been focused so heavily on right sizing our margins, expenses, and uses of cash. During this phase we have been clear that we expected revenues to decline as we worked through some revenue headwinds at one key customer, and exited unprofitable or non-core businesses, helping us focus the business on the core, profitable Professional Chef business. We expect to return to revenue growth by the back half of 2024 as we complete the stabilization phase.
We’re calling our second phase “Laying the Foundation for Growth,” which will entail considering making several strategic investments to build a next generation business model. Our goal will be to design a best-in-class value proposition that serves our customers in a differentiated way, and transparently demonstrates the profitable business model we expect to build. We anticipate this phase will last 12-18 months. Our growth focus during this phase falls into three buckets: 1) growing our business with existing customers with a more structured sales team with appropriate incentives, expanding our assortment of products with a much higher focus on fresh categories, and working to lower prices through improved sourcing and negotiation tactics; 2) establishing relationships with new customers to prove out the broader appeal of our value proposition, and de-risk our customer concentration; and 3) launching or buying entirely new sales channels which serve incremental customers and market share opportunities.
Then we’ll move to phase three, which we’re calling: “Build and Scale.” By this point, we will have a clear view of where we’re headed, and the outsized benefits of getting there. This measured approach to growth will ensure we only scale business models we can prove will drive accretive growth for the company.
As we move through these three phases, we believe that there are lateral opportunities in the food industry and related markets. We may consider the possibility of acquiring specialty food manufacturers, specialty food distributors, or specialty food brands. We anticipate that any acquisition could potentially involve the issuance of additional shares of our common stock or third party financing, which may not be available on acceptable terms. No acquisition will be consummated without thorough due diligence. No assurance can be given that we will be able to identify and successfully conclude negotiations with any potential target.
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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 had a material effect on the Company’s financial condition and results of its operations. The Company has seen inflation across its costs for fuel, shipping, cost of goods, and marketing. Balancing the management of these increases with the willingness of our customers to pay higher prices will be a key focus for the Company this year. However, no assurance can be given that we will be successful and inflationary pressure on our profits will likely continue into 2024.
Transactions with Major Customers
The Company's largest customer, U.S. Foods, Inc. and its affiliates, accounted for approximately 47% and 49% of total sales in the years ended December 31, 2023 and 2022, respectively; and approximately 47% of total sales in the fourth quarter of 2023 compared to 46% of total sales in the fourth quarter of 2022. 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.
In addition, during the year ended December 31, 2023 and 2022, sales to Gate Gourmet accounted for approximately 15% and 13% of total sales, respectively.
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Index
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