UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|
☒
|
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the fiscal year ended December 31,
2020
|
☐
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
For the transition period from ___________ to _____________
Commission file number: 333-206260
|
FIRST FOODS GROUP, INC.
|
|
(Exact name of
registrant as specified in its charter)
|
|
Nevada
|
|
47-4145514
|
|
(State or other
jurisdiction of
incorporation or
organization)
|
|
IRS Employer
(Identification No.)
|
|
|
|
|
|
First Foods
Group, Inc.
c/o Incorp
Services, Inc.,
3773 Howard
Hughes Parkway, Suite 500S
Las Vegas,
NV
|
|
89169-6014
|
|
(Address of principal
executive offices)
|
|
(Zip Code)
|
Registrant’s telephone number, including area code:
(201) 471-0988
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the
Securities Exchange Act: None
Indicate by checkmark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes
☐ No ☒
Indicate by checkmark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act.
Yes ☒ No ☐
Indicate by checkmark whether the registrant has (1) filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files). Yes ☒ No ☐
Indicate by checkmark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☐
Indicate by checkmark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
|
Large accelerated
filer
|
☐
|
Accelerated filer
|
☐
|
|
Non-accelerated
filer
|
☒
|
Smaller reporting
company
|
☒
|
|
Emerging growth
company
|
☐
|
|
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes ☐ No
☒
Securities registered pursuant to section 12(b) of the Act:
|
Title of each
class
|
|
Trading
Symbol(s)
|
|
Name of each
exchange on which registered
|
|
|
|
|
None
|
The aggregate market value of voting stock held by non-affiliates
of the registrant was approximately $1,909,951 as of June 30, 2020
(computed by reference to the last sale price of a share of the
registrant’s common stock on that date as reported).
There were 22,628,610 shares of the registrant’s common
stock outstanding as of March 2, 2021.
TABLE OF
CONTENTS
PART
I
Item 1.
Business.
First Foods Group, Inc. (the “Company” or “First Foods”) is a
smaller reporting company focused on developing its specialty
chocolate product line through its Holy Cacao subsidiary and
participating in merchant cash advances (“MCAs”) through its
1st Foods Funding Division. First Foods continues to
pursue new brands and concepts, including the wholesaling of
various health-related products.
Holy Cacao is a majority owned subsidiary that is dedicated to
producing, packaging, distributing and selling specialty chocolate
products, including specialty chocolate products infused with a
hemp-based ingredient in accordance with the Company’s
understanding of the Agricultural Act of 2014 (the “2014 Farm
Bill”) and/or the Agriculture Improvement Act of 2018 (the “2018
Farm Bill,” and together with the 2014 Farm Bill, collectively, the
“Farm Bill”), which renders the production of hemp in compliance
with the provisions of the Farm Bill federally lawful. The Company
has not been, is not, and has no current plans to be involved in
producing, packaging, distributing or selling any product that is
infused with a marijuana-based ingredient, although it intends to
revisit the matter as regulations change in jurisdictions in which
it operates.
The Company is also dedicated to licensing its intellectual
property (“IP”), including its name, brand, and packaging, to third
parties. The Company may license its IP to third parties that may
produce, package, and distribute hemp-based products pursuant with
the Company’s understanding of the Farm Bill. The Company may
license its IP to third parties that may produce, package, and
distribute marijuana-based products, but only as such licensing is
legal. Holy Cacao holds two trademarks for the brands, “The
Edibles’ Cult.” and “Purely Irresistible” and the Company has
submitted multiple trademark applications to the United States
Patent and Trademark Office (the “USPTO”) for additional brand
names, including “Mystere” and “Southeast Edibles” among
others.
During the year ended December 31, 2020, the Company’s Board of
Directors made a strategic decision to broaden the appeal of its
hemp-based chocolate products to a wider base of customers, who are
particularly discerning about the cleanliness of the Company’s
manufacturing facility and purity of its hemp-based chocolate
products, by successfully obtaining worldwide Kosher certification
from the Union of Orthodox Jewish Congregations of America,
Kashruth Division (the “OU”), which is the largest and most
recognized certification of its kind in the world. On March 9,
2020, the Company retained Tartikov Beth Din (“BD”) to allow BD to
supervise the hemp-based chocolate products produced by the Company
in accordance with OU certification standards. The Company also
retained Moises Davidovits as its full-time Master Chocolatier. Mr.
Davidovits is a third-generation chocolatier who is responsible for
the manufacturing, packaging and distribution of the Company’s
chocolate product line, as well as the formulation of all of the
Company’s proprietary chocolate recipes. On October 19, 2020, the
Company entered into a chocolate sales agreement with B&A
Brokerage for the greater metropolitan New York area. The Company
also signed a lease agreement for a fully staffed and fully
equipped state of the art manufacturing facility to produce its
specialty chocolate product line for sale to retailers,
manufacturing and wholesaling companies, and on-line customers.
Michael Kaplan was appointed to the Board of Directors and, as of
August 1, 2020, accepted the role of Chief Marketing Officer with
authority to oversee the Company’s retail and wholesale sales and
marketing operations, and responsibility for developing oversight
processes and procedures.
The Company currently has a contract with TIER Merchant Advances
LLC (“TIER”) to participate in the purchase of future receivables
from qualified TIER merchants for the purpose of generating
near-term and long-term revenue for the Company. The Company also
provides cash advances directly to merchants through its First
Foods Funding Division.
OUR PRINCIPAL PRODUCTS AND SERVICES
We are primarily focused on developing our specialty chocolate
product line and related IP through our Holy Cacao subsidiary. We
have developed twenty-three (23) proprietary recipes for our
specialty chocolate product line that we have tested in a fully
staffed and fully equipped state of the art manufacturing facility.
We actively market our specialty chocolate product line on a
full-time basis through multiple distribution and sales agreements,
as well as through multiple industry specific trade shows, through
our on-line website presence, and through our ongoing collaboration
with a diverse team of leading industry consultants who specialize
in media relations, public relations, and investor relations.
We are secondarily involved in merchant cash advance participations
through our First Foods Funding Division. The Company participates
in the merchant cash advance industry by directly advancing sums to
a merchant or a merchant advance provider, TIER, who in turn
advances sums to merchants or other merchant cash advance
providers.
TARGET MARKET AND OUR NICHE WITHIN
Our highest priority target market consists of chocolate
wholesalers who have a desire to distribute our specialty chocolate
products infused with a hemp-based ingredient to select retailers
throughout the United States.
Our secondary target market consists of merchant cash advance
participations. We are aware of an increasing demand for lending
services and products for small businesses, and we believe the
merchant cash advance market is in a growth mode that presents us
with significant opportunity. Furthermore, we believe the small
business lending market is underserved and the ability of small
businesses to obtain credit with traditional banking institutions
is difficult. Our niche approach is to participate with other
syndicated participants in a broad range of merchant cash advances,
as well as selectively issue merchant cash advances directly to
merchants we know well.
COMPETITION, OUR COMPETITIVE STRATEGY AND METHODS OF
COMPETITION
Our competition consists of companies that operate in the specialty
hemp-based chocolate industry. Our competitive strategy is to
target the consumers of specialty, high-end chocolate products
infused with a hemp-based ingredient.
MARKETING, MARKETING OBJECTIVES AND STRATEGIES
The Company markets its specialty chocolate products, which are
infused with a hemp-based ingredient, to existing and emerging food
service companies, focusing specifically on brand development.
Our Marketing Objectives are as follows:
|
|
• |
Establishing and
promoting our presence in our selected targeted market; and
|
|
|
•
|
Building a network of
food service industry professional relationships and referrals.
|
To promote and market our products, we have invoked the following
strategies:
|
|
•
|
Continued to enhance
our online presence via our Company website reflecting our scope of
products offered.
|
|
|
•
|
Continued online retail
sales through our Southeast Edibles website.
|
|
|
•
|
Continued to expand our
public relations (PR) campaign to obtain publicity and increase
visibility for our business.
|
|
|
•
|
Retained Michael Kaplan as our Chief
Marketing Officer.
|
Currently, the Company’s officers and directors promote our
specialty hemp-based chocolate products, through various channels,
including networking at local industry events and Internet sources.
The Company does not actively market its merchant cash advance
participation because all marketing activities are performed by
TIER. We anticipate that, as the Company grows over the next twelve
months, pools of expertise will be acquired by recruiting within
the food service and health-based wholesaling industry and by using
technical and operational consultants, which will allow qualified
individuals to join our management team and Board of Directors.
RESEARCH AND DEVELOPMENT
The Company has engaged market and branding consultants to assist
its Master Chocolatier with the research and development of
specialty hemp-based chocolate products targeted to particular
states within the US.
EMPLOYEES
The Company’s employees consist of, Mark J. Keeley, who is a
director and our Chief Financial Officer, Moises Davidovits, who is
the Company’s Master Chocolatier, and three production assistants
who report to Moises. Harold Kestenbaum is a director consultant
serving in the role of interim Chief Executive Officer. Abraham
Rosenblum is a director serving in the role of Secretary. Michael
Kaplan is a director serving in the role of Chief Marketing
Officer. These individuals, along with director Hershel Weiss, are
responsible for overall Company operations, product development,
sales and marketing, fund raising, implementation of our general
strategy and execution of our business plan. Additionally, our
Master Chocolatier, Moises Davidovits, runs the day-to-day
manufacturing, packaging and distribution of the Company’s
specialty hemp-based chocolate product line.
Our future business and operating results depend significantly on
the continued contributions and active participation of the
aforementioned individuals. These individuals would be difficult or
impossible to replace. The loss of these key contributors, or their
failure to perform, could materially and adversely affect our
Company’s operations. While we may obtain Key Man insurance, such
insurance may not be sufficient to cover the loss incurred in the
event these individuals are lost.
Our officers and directors receive compensation for their services
and are reimbursed for any out-of-pocket expenses they may incur on
our behalf. We anticipate adding a permanent Chief Operations
Officer over the next twelve (12) months and other employees and
consultants as deemed necessary. We do not currently have any
benefits, such as health or life insurance, available to our
employee or directors.
Item 1A.
Risk Factors.
Our current and prospective investors should carefully consider
the following risks and all other information contained in this
report, including our audited consolidated financial statements and
the related notes, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and the “Cautionary
Note Regarding Forward-Looking Statements,” before making
investment decisions regarding our securities. The risks and
uncertainties described below are not the only ones we face, but
include the most significant factors currently known by us.
Additional risks and uncertainties that we are unaware of, or that
we currently believe are not material, also may become important
factors that affect us. If any of the following risks materialize,
our business, financial condition and results of operations could
be materially harmed. In that case, the trading price of our
securities could decline, and you may lose some or all of your
investment.
Risks Related to Our Business:
We have limited operating history, our financial
position is not robust, and we lack profitable operations to
date.
The Company has incurred net losses since inception and will likely
continue to incur net losses while it builds its business and as
such it may not achieve or maintain profitability. The Company’s
limited operating history makes it difficult to evaluate its
business and prospects, and there is no assurance that the business
of the Company will grow or that it will become profitable. As of
December 31, 2020, the Company had a purchase concentration of 49%
and 14% from two vendors. The concentration of the Company’s
purchases creates a potential risk to future supply in the event
that the Company is not able to obtain supplies from other
vendors.
We have limited cash on hand which creates substantial
doubt about our ability to continue as a going
concern.
In their reports for the years ended December 31, 2020 and 2019,
our auditors have expressed that substantial doubt exists about our
ability to continue as a going concern. We have incurred operating
losses since our formation and expect to incur losses and negative
operating cash flows for the twelve months following the audit
report. We also expect to continue to incur significant operating
and capital expenditures and anticipate that our expenses will
increase substantially in the foreseeable future. As a result, we
will need to generate significant revenues or otherwise raise funds
in order to achieve and maintain profitability. Our failure to
achieve or maintain profitability could negatively impact the value
of our common stock.
We will need additional financing which may not be
available.
Since our formation, we have raised substantial equity and debt
financing to support the growth of our business. Because we intend
to continue to make investments to support the growth of our
business, we require additional capital to pursue our business
objectives and growth strategy and respond to business
opportunities, challenges or unforeseen circumstances, including
participating in merchant cash advances. Accordingly, on a regular
basis we need, or we may need, to engage in equity or debt
financings to secure additional funds. However, additional funds
may not be available when we need them, in amounts we need, on
terms that are acceptable to us or at all. Volatility in the credit
markets in general or in the market for small business or merchant
cash advances in particular may also have an adverse effect on our
ability to obtain debt financing. Furthermore, the cost of our
borrowing may increase due to market volatility, changes in the
risk premiums required by lenders or if traditional sources of debt
capital are unavailable. Volatility or depressed valuations or
trading prices in the equity markets may similarly adversely affect
our ability to obtain equity financing. If we raise additional
funds through further issuances of equity or convertible debt
securities, our existing stockholders could suffer significant
dilution and any new equity securities we issue could have rights,
preferences and privileges superior to those of holders of our
common stock. In particular, we may require additional access to
capital to support our merchant cash advance participation. In
order to participate in merchant cash advances, we have used, and
expect to continue to use, our available cash on hand. If we are
unable to adequately maintain our cash resources, we may delay
non-essential capital expenditures; implement cost cutting
procedures; delay or reduce future hiring; or reduce our rate of
future participation compared to the current level. There can be no
assurance that we can obtain sufficient sources of external capital
to support the growth of our business. Delays in doing so or
failure to do so may require us to reduce merchant cash advance
participation or reduce our operations, which would harm our
ability to pursue our business objectives as well as harm our
business, operating results and financial condition.
We may not be successful in our potential business
combinations.
The Company may, in the future, pursue acquisitions of other
complementary businesses. The Company may also pursue strategic
alliances and joint ventures that leverage its core industry
experience to expand its product offerings and geographic presence.
The Company has limited experience with respect to acquiring other
companies and limited experience with respect to forming
collaborations, strategic alliances and joint ventures. If the
Company were to make any acquisitions, it may not be able to
integrate these acquisitions successfully into its existing
business and could assume unknown or contingent liabilities. Any
future acquisitions the Company makes could also result in large
and immediate write-offs or the incurrence of debt and contingent
liabilities, any of which could harm the Company’s operating
results. Integrating an acquired company also may require
management resources that otherwise would be available for ongoing
development of the Company’s existing business.
If we fail to attract and retain key personnel, our
business and operating results may be harmed.
Our future success depends to a significant degree on the skills,
experience and efforts of key personnel in our senior management,
whose vision for our company, knowledge of our business and
expertise would be difficult to replace. If any one of our key
personnel leaves, is unable to work, or fails to perform and we are
unable to find a qualified replacement, we may be unable to execute
our business strategy.
The specialty food industry is very competitive, which
may result in limited revenue for us, as well as increased expenses
associated with marketing our products.
The specialty food business is highly competitive. We have retained
a Chief Marketing Officer to expand our wholesale and retail market
presence. We plan to compete against other providers of quality
foods, some of which sell their services globally, and some of
these providers have considerably greater resources than we have.
These competitors may have greater marketing and sales capacity,
established distribution networks, significant goodwill and global
name recognition.
We may license our Holy Cacao name, brand, and recipes,
and sell the Company’s Holy Cacao packaging material in those
states where such activity is legal.
New legislation or regulation, or the application of existing laws
and regulations to the medical and consumer hemp industries could
add additional costs and risks to doing business. We and our
licensees, if any, will be subject to regulations applicable to
businesses generally and laws or regulations directly applicable to
communications over the Internet and access to e-commerce. It is
reasonable to assume that as hemp use becomes more mainstream that
the FDA and or other federal, state and local governmental agencies
will impose regulations covering the purity, privacy, quality
control, security and many other aspects of the industry, all of
which will likely raise the cost of compliance thereby reducing
profits or even making it more difficult to continue operations,
either of which scenarios, if they occur, could have a negative
impact on our business and operations.
The market may not readily accept our
products.
Demand and market acceptance for our licensed brand and packaging
for our hemp infused products are subject to a high level of
uncertainty. This will also be true as we try to expand into the
wholesaling of additional health-related products. The successful
introduction of any new product requires a focused, efficient
strategy to create awareness of and desire for the products. Our
marketing strategy may be unsuccessful and is subject to change as
a result of a number of factors, including changes in market
conditions (including the emergence of new market segments which in
our judgment can be readily exploited through the use of our
technology), the nature of possible license and distribution
arrangements and strategic alliances which may become available to
us in the future and general economic, regulatory and competitive
factors. There can be no assurance that our strategy will result in
successful product commercialization or that our efforts will
result in initial or continued market acceptance for our buyer’s
proposed products. We currently have only limited resources to
enhance our technology or to develop new products.
If we are unable to protect our intellectual property
rights, competitors may be able to use our technology or
trademarks, which could weaken our competitive
position.
We rely on a combination of copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual
property rights. We also intend to enter into confidentiality or
license agreements with our employees, consultants and customers,
and control access to and distribution of our packaging and other
proprietary information. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products.
We have entered into the Merchant Cash Advance (“MCA”)
business which carries separate risk from the food
industry.
Reliance on proprietary merchant cash advance credit models, which
involve the use of qualitative factors that are inherently
judgmental, could result in merchant defaults which would affect
our profitability.
The MCA participations and MCA’s that we own will be
relatively illiquid, and we may not be able to liquidate those
investments in a timely manner.
Any MCA participations and MCA’s that we make or otherwise acquire
will likely be relatively illiquid with no established market for
their purchase and sale, and there can be no assurance that we will
be able to liquidate those investments in a timely manner. Although
these investments will likely generate income, the return of
capital and the realization of gains, if any, from such investments
generally will occur only upon the partial or complete disposition
of such MCA participation or advance, or its repayment or
collection.
Our MCA participations and advances may become
uncollectible, and large amounts of uncollectible participations
and advances may materially affect our
performance.
Our MCA participations and advances will be relatively illiquid and
substantial risks are involved. Most, and possibly all, of the
merchants who receive cash advances from the MCA providers we use
are required to sign a confession of judgement, which legally
requires the merchant to pay back the advance, as long as the
merchant continues as a going concern. Although we use background
checks and other forms of due-diligence information to mitigate the
risk of uncollectible debt resulting from bankruptcy, no assurance
can be made that we will be able to do so. If our MCA portfolio
contains a large portion of uncollectible debt, our performance
will likely be negatively affected. In addition, if any business
defaults on an MCA transaction, we may be required to expend monies
in connection with foreclosure proceedings and other remedial
actions, which expenditures could materially and adversely affect
our financial performance. Although our MCA’s, both direct and
syndicated, will be structured so as not to be characterized as
loans, MCA’s present many of the same risks. For example, we may be
unable to collect the full amount of the merchant cash advance
receivable we acquire through an advance. In any such case, here
again we may be required to expend monies in connection with
remedial actions, which expenditures could materially and adversely
affect our financial performance.
We will have the right to obtain credit lines as part
of our investment strategy, even though we presently do not intend
to do so. Any leverage we incur in building and growing our
business may substantially increase our risk of
loss.
Although we do not presently have intentions to obtain credit
lines, we will not be restricted from doing so and we may in the
future determine that this is an effective way to capitalize the
Company. In such a case, the use of leverage (debt) may increase
both net returns as well as risk since we may not be able to pay
interest obligations associated with our own borrowing.
Our MCA participations may be concentrated, which could
lead to increased risk.
Our MCA participations may be concentrated in a limited number of
investments or investments to one business or affiliated
businesses. Thus, our stockholders may have limited
diversification. In addition, if we make an investment in a single
transaction with the intent of refinancing or selling a portion of
the investment, there is a risk that we will be unable to
successfully complete such a refinancing or sale. This could lead
to increased risk as a result of having an unintended long-term
investment and reduced diversification.
If third parties default or file for bankruptcy, we
could suffer losses.
We could suffer losses if our MCA recipients were to default. Any
such default or bankruptcy could have a material and adverse impact
on our results of operation, our financial condition and our
business prospects.
We will incur increased costs and demands upon
management as a result of complying with the laws and regulations
affecting public companies, which could harm our results of
operations and our ability to attract and retain qualified
executives and board members.
As a public company we incur significant legal, accounting, and
other expenses and these expenses will increase after we cease to
be a “smaller reporting company.” In addition, the Sarbanes-Oxley
Act and rules subsequently implemented by the Securities and
Exchange Commission (“SEC”), Nasdaq and the New York Stock Exchange
(“NYSE”), impose various requirements on public companies,
including requiring changes in corporate governance practices. Our
management and other personnel will need to devote a substantial
amount of time to these compliance initiatives. Moreover, we expect
these rules and regulations and future regulations will continue to
increase our legal, accounting and financial compliance costs and
will make some activities more time consuming and costly. For
example, we expect these rules and regulations to make it more
difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to accept reduced
policy limits and coverage or to incur substantial costs to
maintain the same or similar coverage. These rules and regulations
could also make it more difficult for us to attract and retain
qualified persons to serve on our board of directors or our board
committees or as executive officers. In addition, the
Sarbanes-Oxley Act requires, among other things, that we assess the
effectiveness of our internal control over financial reporting
annually and the effectiveness of our disclosure controls and
procedures quarterly. In particular, we are required to perform
system and process evaluation and testing of our internal control
over financial reporting to allow management to report on, and our
independent registered public accounting firm potentially to attest
to, the effectiveness of our internal control over financial
reporting, as required by Section 404 of the Sarbanes-Oxley Act, or
“Section 404.” As long as we remain a “smaller reporting company”
we may elect to avail ourselves of the exemption from the
requirement that our independent registered public accounting firm
attest to the effectiveness of our internal control over financial
reporting under Section 404. However, we may no longer avail
ourselves of this exemption when we cease to be a “smaller
reporting company” and, when our independent registered public
accounting firm is required to undertake an assessment of our
internal control over financial reporting, the cost of our
compliance with Section 404 will correspondingly increase. Our
compliance with applicable provisions of Section 404 will require
that we incur substantial accounting expense and expend significant
management time on compliance-related issues as we implement
additional corporate governance practices and comply with reporting
requirements. Moreover, if we are not able to comply with the
requirements of Section 404 applicable to us in a timely manner, or
if we or our independent registered public accounting firm
identifies deficiencies in our internal control over financial
reporting that are deemed to be material weaknesses, the market
price of our stock could decline and we could be subject to
sanctions or investigations by the SEC or other regulatory
authorities, which would require additional financial and
management resources. Furthermore, investor perceptions of our
company may suffer if deficiencies are found, and this could cause
a decline in the market price of our stock. Irrespective of
compliance with Section 404, any failure of our internal control
over financial reporting could have a material adverse effect on
our stated operating results and harm our reputation. We expect to
have in place accounting, internal audit and other management
systems and resources that will allow us to maintain compliance
with the requirements of the Sarbanes-Oxley Act at the end of any
phase-in periods permitted by Nasdaq, the NYSE, the SEC and the
JOBS Act. If we are unable to implement these changes effectively
or efficiently, it could harm our operations, financial reporting
or financial results and could result in an adverse opinion on
internal control from our independent registered public accounting
firm.
Our business is subject to regulation, and changes in
laws and regulations governing our business, or changes in the
interpretation of such laws and regulations, could negatively
affect our business.
Over the last few years, federal and state regulatory and other
policymaking entities have taken an increased interest in
marketplace and online lending, including online small business
lending. For example, in July 2015, the U.S. Department of the
Treasury issued a public request for information regarding
expanding access to credit through online marketplace lending.
Activity in various states has also increased, including in the
states of California and New York. In December 2015, the California
Department of Business Oversight announced an inquiry into the
marketplace lending industry and requested information from
fourteen marketplace and online lenders. The New York Department of
Financial Services opened a formal investigation of marketplace and
online lending in March 2019. In May 2019, the Federal Trade
Commission held a forum, “Strictly Business,” that explored small
business lending practices, regulations, and policies. The forum
consisted of three panels: (1) Overview of the Small Business
Financing Marketplace, (2) Case Study on Merchant Cash Advances,
and (3) Consumer Protection Risks and the Path Ahead. These
initiatives were presented as information gathering projects to
assist federal and state officials in better understanding, among
other things, the methods, role and impact of online and
marketplace lending on credit markets. These initiatives either
have resulted, or are expected to result, in policy recommendations
that could impact merchant cash advance business practices and
operations, if the recommendations result in new laws or
regulations. As of December 31, 2020, the above federal and state initiatives have not
resulted in formal regulation that could foreclose the future of
merchant cash advances as a viable financial product. However, the
aforementioned regulatory authorities have continued to respond to
complaints that provide a glimpse into what merchant cash advance
companies should expect in a regulated future for the industry. In
particular, authorities consistently warn against the
recharacterization of merchant cash advances as loans, which
provides significant guidance for not only the drafting of MCA
agreements, but also the underwriting and marketing of MCA. Also,
if a federal or state regulatory authority were to enact
legislation requiring licensure by commercial lenders or imposing
certain applicable rate caps or other provisions inconsistent with
current merchant cash advance business practices and alternative
solutions were not available, we could be required to reevaluate
our participation in merchant cash advances. We expect these and
other types of legislative and regulatory activities to continue in
the future as marketplace and online lending grow and become the
subject of greater public interest. For example, with the prospect
of easing regulatory burdens at the federal level under the current
administration, some states have indicated their intention to take
more aggressive regulatory action. We cannot predict the outcome of
these or other comparable future activities, when or whether they
will lead to new laws, regulations or other actions or what they
might be. However, the impact and cost of any possible future
changes to laws or regulations could be substantial and could also
require us to change our business practices and operations in a
manner that adversely impacts our business. Changes in laws or
regulations, including recent changes under the Tax Cuts and Jobs
Act of 2017 (and any related Treasury regulations, rules or
interpretations, if and when issued), or the regulatory application
or judicial interpretation of the laws and regulations applicable
to us could adversely affect our ability to operate in the manner
in which we currently conduct business or make it more difficult or
costly for us to participate in merchant cash advances. A material
failure to comply with any such laws or regulations could result in
regulatory actions, lawsuits and damage to the merchant cash
advance industry, which could have a material adverse effect on our
business and financial condition. A proceeding relating to one or
more allegations or findings of our merchant cash advance
provider’s violation of such laws could impair the ability to
collect payments on advances or to participate in additional
advances.
Public perception of merchant cash advance businesses
as predatory or abusive could adversely affect our
business.
In recent years, much of the media reporting on the merchant cash
advance industry has focused on the cost to a small business for
this type of financing arrangement, which is higher than the
interest typically charged by traditional banking institutions in
situations where they are willing to engage in traditional credit
transactions. On occasion, media reports have characterized
merchant cash advance businesses as predatory or abusive toward
small business clients. If this negative characterization of our
business becomes widely accepted, demand for our services could
significantly decrease, which could adversely affect our results of
operations primarily by decreasing our revenues. Negative
perception of our business activities could also result in our
industry being subject to more restrictive laws and regulations and
greater exposure to litigation.
General economic conditions will likely affect our
charge-offs and demand for our services, and accordingly, our
results of operations could be adversely affected by a general
economic slowdown or other negative economic
conditions.
Provision for MCA participation losses and MCA losses, net of
recoveries, may comprise one of our largest operating expenses. Any
changes in economic factors that adversely affect MCA customers,
such as an economic downturn or high unemployment, could result in
higher loss experiences than anticipated, which could in turn
adversely affect our charge-offs. Moreover, a sustained
deterioration in the economy would likely cause a decrease in
demand for merchant cash advance services. Any general economic
conditions negatively affecting our charge-offs or demand for our
services could materially and adversely affect our operating
results.
When we make MCA’s either by ourselves or as part of a
syndicated group, we will be subject to the risk of fraud by small
business clients seeking the advance.
We will be subject to fraud risk whenever we make an MCA by
ourselves or as part of a syndicated group. Small business
recipients of the advance may, for example, present information
that is false. In any such case, we will likely be unable to
collect our receivable relating to an MCA. Widespread fraud of this
type could adversely affect our operating results and the prospects
for our business. This could also be a concern with respect to our
MCA participations.
Coronavirus (“COVID-19”)
creates significant uncertainty regarding potential business
disruptions that could have a material adverse impact on the
Company’s financial position.
In December 2019, a novel strain of coronavirus (“COVID-19”)
surfaced. The spread of COVID-19 around the world in 2020 has
caused significant volatility in U.S. and international markets.
There is significant uncertainty around the breadth and duration of
business disruptions related to COVID-19, as well as its impact on
the U.S. and international economies and, as such, the Company is
unable to determine if it will have a material impact to its
operations in the future. The Company’s operations have been
affected by the recent and ongoing outbreak of COVID-19 which in
March 2020, was declared a pandemic by the World Health
Organization. The ultimate disruption which may be caused by the
outbreak is uncertain; however, it has resulted in a material
adverse impact on the Company’s financial position, MCA operations
and cash flows. COVID-19 has not had an adverse impact on the
Company’s primary operations; Holy Cacao. As of December 31, 2019,
the Company disclosed areas that either have or may be affected
include, but are not limited to, disruption to the Company’s
customers and revenue, labor workforce, unavailability of products
and supplies used in operations, and the decline in value of assets
held by the Company, including, inventories and merchant cash
advance receivables.
Risks Related to the Securities Markets and
Ownership of Our Common and Preferred Stock
Our Common Stock is Subject to the “Penny Stock” Rules
of the SEC and the Trading Market in our Securities is Limited,
Which Makes Transactions in Our Stock Cumbersome and May Reduce the
Value of an Investment in Our Stock.
The SEC has adopted Rule 15g-9 which establishes the definition of
a “penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or
with an exercise price, for warrants or options or conversion price
for convertible notes, of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require:
|
·
|
that a broker or dealer
approve a person’s account for transactions in penny stocks;
and
|
|
·
|
the broker or dealer
receives from the investor a written agreement to the transaction,
setting forth the identity and quantity of the penny stock to be
purchased.
|
In order to approve a person’s account for transactions in penny
stocks, the broker or dealer must:
|
·
|
Obtain financial
information and investment experience objectives of the person;
and
|
|
·
|
Make a reasonable
determination that the transactions in penny stocks are suitable
for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
|
The broker or dealer must also deliver, prior to any transaction in
a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form:
|
·
|
Sets forth the basis on
which the broker or dealer made the suitability determination,
and
|
|
·
|
That the broker or
dealer received a signed, written agreement from the investor prior
to the transaction.
|
Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and
about the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities
and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have
to be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny
stocks.
Generally, brokers may be less willing to execute transactions in
securities subject to the “penny stock” rules. This may make it
more difficult for investors to dispose of our common stock and
cause a decline in the market value of our stock.
Shares eligible for future sale under Rule 144 and/or
Rule 905 may adversely affect the market for our
securities.
From time to time, certain of our stockholders who hold restricted
securities may be eligible to sell all or some of their shares of
common stock by means of ordinary brokerage transactions in the
open market pursuant to and reliant upon certain exceptions
promulgated under the Securities Act. Although current stockholders
may have no current intention or ability to sell their shares, any
substantial sales by holders of our common stock in the future
pursuant to such exceptions may have a material adverse effect on
the market price of our securities.
The price of our common stock is subjected to
volatility.
The market for the Company’s common stock may be highly volatile.
The trading price of the Company’s common stock is subject to wide
fluctuations in response to, among other things, quarterly
variations in operating and financial results, and general economic
and market conditions. In addition, statements or changes in
opinions, ratings, or earnings estimates made by brokerage firms or
industry analysts relating to their markets or relating to the
Company could result in an immediate and adverse effect on the
market price of our common stock. The highly volatile nature of the
Company’s stock prices may cause investment losses for their
shareholders. If securities class action litigation is brought
against the Company, such litigation could result in substantial
costs while diverting management’s attention and resources.
Our Board of Directors has sole discretion to create
new classes of preferred stock.
Our Certificate of Incorporation authorizes the issuance of
preferred stock with such rights and preferences as our Board of
Directors may determine from time to time in its sole discretion.
Accordingly, under the Certificate of Incorporation, the Board may
designate and issue preferred stock with dividend, liquidation,
conversion, voting, redemption or other rights that could impact
the rights of the holders of our common shares.
Disruptions in global financial markets and
deteriorating global economic conditions could cause lower returns
to investors.
Disruptions in global financial markets and deteriorating global
economic conditions could adversely affect the value of the
Company’s common stock. The current state of the economy and the
implications of future potential weakening may negatively impact
market fundamentals, resulting in lower revenues and values for the
Company’s business opportunities and investments.
If we fail to remain current on our reporting
requirements, we could be removed from quotation by the OTCQB,
which would limit the ability of broker-dealers to sell our
securities and the ability of shareholders to sell their securities
in the secondary market.
Companies quoted on the OTCQB must be current in their publicly
filed reports containing information mandated under Section 13 of
the Exchange Act, in order to maintain price quotation privileges
on the OTCQB. If we fail to remain current on our reporting
requirements, we could be removed from the OTCQB. As a result, the
market liquidity for our securities could be adversely affected by
limiting the ability of broker-dealers to sell our securities and
the ability of shareholders to sell their securities in the
secondary market.
We have not voluntarily implemented various corporate
governance measures.
Federal legislation, including the Sarbanes-Oxley Act of 2002, has
resulted in the adoption of various corporate governance measures
designed to promote the integrity of the corporate management and
the securities markets. Some of these measures have been adopted in
response to legal requirements. Others have been adopted by
companies in response to the requirements of national securities
exchanges, such as the NYSE or Nasdaq, on which their securities
are listed. As directed by Section 404 of the Sarbanes-Oxley Act of
2002 (“SOX 404”), the SEC has adopted rules requiring public
companies to include a report of management on the Company’s
internal control over financial reporting in its annual reports.
While we expect to expend significant resources in developing the
necessary documentation and testing procedures required by SOX 404,
the Company as of this filing does not have effective controls. At
present, there is no precedent available with which to measure
compliance adequately. In the event we identify significant
deficiencies or material weaknesses in our internal control over
financial reporting that we cannot remediate in a timely manner,
investors and others may lose confidence in the reliability of our
financial statements and our ability to obtain equity or debt
financing could suffer. Also, among the corporate governance
measures that are required under the rules of national securities
exchanges are those that address board of directors’ independence,
audit committee oversight and the adoption of a Code of Ethics. The
Company has not adopted exchange-mandated corporate governance
measures and, since our securities are not listed on a national
securities exchange, we are not required to do so. It is possible
that if we were to adopt some or all of these corporate governance
measures, stockholders would benefit from somewhat greater
assurances that internal corporate decisions were being made by
disinterested directors and that policies had been implemented to
define responsible conduct. For example, in the absence of audit,
nominating and compensation committees comprised of at least a
majority of independent directors, decisions concerning matters
such as compensation packages to our senior officers and
recommendations for director nominees may be made by a majority of
directors who have an interest in the outcome of the matters being
decided. Prospective investors should bear in mind our current lack
of corporate governance measures in formulating their investment
decisions.
We have a large number of authorized but unissued
shares of our common and preferred stock.
We have a large number of authorized but unissued shares of common
and preferred stock, which our management may issue without further
stockholder approval, thereby causing dilution of your holdings of
our common stock. Our management will continue to have broad
discretion to issue shares of our common and preferred stock in a
range of transactions, including capital-raising transactions,
mergers, acquisitions and other transactions, without obtaining
stockholder approval. If our management determines to issue shares
of our common or preferred stock with conversion rights or special
voting rights from the large pool of authorized but unissued shares
for any purpose in the future, your ownership position would be
diluted without your further ability to vote on that transaction.
Under the Company’s Certificate of Incorporation, the Board of
Directors may designate and issue preferred stock with dividend,
liquidation, conversion, voting, redemption or other rights that
are senior in right to common stock. For example, the Company’s
Class A Preferred Stock provides 50% voting rights to the Company’s
two founding Directors.
Shares of our common stock may continue to be subject
to illiquidity because our shares may continue to be thinly traded
and may never become eligible for trading on a national securities
exchange.
While we may at some point be able to meet the requirements
necessary for our common stock to be listed on a national
securities exchange, we cannot assure you that we will ever achieve
a listing of our common stock on a national securities exchange.
Our shares are currently only eligible for quotation on the OTCQB,
which is not an exchange. Initial listing on a national securities
exchange is subject to a variety of requirements, including minimum
trading price and minimum public “float” requirements, and could
also be affected by the general skepticism of such markets
concerning companies that are the result of mergers with inactive
publicly-held companies. There are also continuing eligibility
requirements for companies listed on public trading markets. If we
are unable to satisfy the initial or continuing eligibility
requirements of any such market, then our stock may not be listed
or could be delisted. This could result in a lower trading price
for our common stock and may limit your ability to sell your
shares, any of which could result in you losing some or all of your
investments.
The market valuation of our business may fluctuate due
to factors beyond our control and the value of your investment may
fluctuate correspondingly.
The market valuation of smaller reporting companies, such as us,
frequently fluctuate due to factors unrelated to the past or
present operating performance of such companies. Our market
valuation may fluctuate significantly in response to a number of
factors, many of which are beyond our control, including:
|
|
i.
|
changes in securities
analysts’ estimates of our financial performance, although there
are currently no analysts covering our stock;
|
|
|
ii.
|
fluctuations in stock
market prices and volumes, particularly among securities of
emerging growth companies;
|
|
|
iii.
|
changes in market
valuations of similar companies;
|
|
|
iv.
|
announcements by us or
our competitors of significant contracts, acquisitions, commercial
relationships, joint ventures or capital commitments;
|
|
|
v.
|
variations in our
quarterly operating results;
|
|
|
vi.
|
fluctuations in related
commodities prices;
|
|
|
vii.
|
additions or departures
of key personnel; and
|
|
|
viii.
|
new industry
regulations associated with hemp.
|
As a result, the value of your investment in us may fluctuate.
We have never paid dividends on our common
stock.
We have never paid cash dividends on our common stock and do not
presently intend to pay any dividends in the foreseeable future.
Investors should not look to dividends as a source of income. In
the interest of reinvesting initial profits back into our business,
we do not intend to pay cash dividends in the foreseeable future.
Consequently, any economic return will initially be derived, if at
all, from appreciation in the fair market value of our stock, and
not as a result of dividend payments.
Insiders have substantial control over us, which could
limit your ability to influence the outcome of key transactions,
including a change of control.
Two of our directors have perpetual voting rights with respect to
all company matters. They may have interests that differ from yours
and may vote in a way with which you disagree and which may be
adverse to your interests. This concentration of voting power may
have the effect of delaying, preventing or deterring a change of
control of our company, could deprive our stockholders of an
opportunity to receive a premium for their common stock as part of
a sale of our company and might ultimately affect the market price
of our common stock.
Item 1B.
Unresolved Staff Comments.
The Company has no SEC staff comments.
Item 2.
Properties.
The Company does not own property. The Company pays a fee to Incorp
Services, Inc. to maintain a corporate office headquartered at 3773
Howard Hughes Parkway, Suite 500S, Las Vegas, NV 89169-6014. All
directors and officers of the Company work remotely at no cost to
the Company. The Company has access to and uses a fully staffed and
fully equipped state of the art manufacturing facility to produce
its specialty chocolate product line.
Item 3.
Legal Proceedings.
As of March 3, 2021, we were not a party to any legal proceedings
that could have a material adverse effect on the Company’s
business, financial condition or operating results. Further, to the
Company’s knowledge, no such proceedings have been threatened
against the Company.
Item 4. Mine
Safety Disclosures.
Not applicable
PART
II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issue Purchases of Equity Securities.
Market Information
Our common stock is quoted on the OTC Markets (“OTCQB”) under the
symbol “FIFG.”
The closing sales price of the Company’s common stock on March 1,
2021 was $0.30 per share.
Holders
As of the date of this report there were approximately 49 holders
of record of Company common stock. This does not include an
indeterminate number of persons who hold our common stock in
brokerage accounts and otherwise in “street name.”
Dividends
Holders of common stock are entitled to receive such dividends as
may be declared by the Company’s Board of Directors. The Company
did not declare or pay dividends on our common stock during the
year ended December 31, 2020.
Transfer Agent and Registrar
The transfer agent and registrar for First Foods’ common stock is
Manhattan Transfer Registrar Co., 38B Sheep Pasture Rd. Port
Jefferson, NY 11777, telephone 631-928-7655.
Authorization of Our Securities
On October 25, 2017, and as amended on November 2, 2018, the Board
of Directors of the Company designated 100,000,000 authorized
common shares and 20,000,000 authorized preferred shares to have
preferences and terms as shall be determined by the Board of
Directors from time to time. The preferred shares were authorized
into three series: Series A Convertible Preferred Shares was
designated with one share, which share is issued and outstanding;
Series B Convertible Preferred Shares was designated with 4,999,999
shares, of which 473,332 shares are outstanding; and Series C
Convertible Preferred Shares was designated with 3,000,000 shares,
of which 660,000 shares are outstanding.
The Series A Convertible Preferred Share has voting rights equal to
fifty percent (50%) of the voting rights of all outstanding classes
of capital stock of the Company and the share is convertible into
five (5) shares of the Company’s common stock, including
liquidation preference over common stock.
Series B Convertible Preferred Shares have voting rights equal to
five (5) votes per share and each share is convertible into five
(5) shares of the Company’s common stock, including liquidation
preference over common stock.
Series C Convertible Preferred Shares have voting rights equal to
one (1) vote per share and each share is convertible into one (1)
share of the Company’s common stock, including liquidation
preference over common stock.
Repurchases of Our Securities
None of the shares of our common stock were repurchased by the
Company during the year ended December 31, 2020.
Unregistered Sales of Securities
The Company issued warrants to purchase up to 3,496,000 and
1,060,000 shares of the Company’s common stock during the years
ended December 31, 2020 and 2019, respectively.
The Company issued warrants to purchase up to 500,000 and 600,000
shares of the Company’s preferred series B stock during the year
ended December 31, 2020 and 2019, respectively.
The unregistered sales of the warrants were issued pursuant to
Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Act”). No underwriters were retained to serve as placement agents
for the sales and the warrants. The Preferred Shares were sold
directly through our management. No commission or other
consideration was paid in connection with the sales of the warrants
and there was no advertisement or general solicitation made in
connection with the offer and sales of the warrants.
Item 6.
Selected Financial Data.
First Foods is a smaller reporting company as defined by Rule 12b-2
of the Exchange Act and is not required to provide the information
under this item.
Item 7.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
Cautionary Statements.
This annual report contains “forward-looking statements,” as that
term is used in federal securities laws, about First Foods Group,
Inc.’s financial condition, results of operations and business.
These statements include, among others:
|
•
|
statements concerning
the potential benefits that First Foods Group, Inc. (“First Foods”,
“we”, “our”, “us”, the “Company”, or “management”) may experience
from its business activities and certain transactions it
contemplates or has completed; and
|
|
•
|
statements of First
Foods’ expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical
facts. These statements may be made expressly in this Form 10-K.
You can find many of these statements by looking for words such as
“believes,” “expects,” “anticipates,” “estimates,” “opines,” or
similar expressions used in this Form 10-K. These forward-looking
statements are subject to numerous assumptions, risks and
uncertainties that may cause First Foods’ actual results to be
materially different from any future results expressed or implied
by First Foods in those statements. The most important facts that
could prevent First Foods from achieving its stated goals include,
but are not limited to, the following:
|
|
|
(a)
|
volatility or decline
of First Foods’ stock price;
|
|
|
(b)
|
potential fluctuation
of quarterly results;
|
|
|
(c)
|
failure of First Foods
to earn significant revenues or profits;
|
|
|
(d)
|
inadequate capital to
continue or expand its business, and inability to raise additional
capital or financing to implement its business plans;
|
|
|
(e)
|
decline in demand for
First Foods’ products and services;
|
|
|
(f)
|
rapid adverse changes
in markets;
|
|
|
(g)
|
litigation with or
legal claims and allegations by outside parties against First
Foods, including but not limited to challenges to First Foods’
intellectual property rights;
|
|
|
(h)
|
reliance on proprietary
merchant advance credit models, which involve the use of
qualitative factors that are inherently judgmental and which could
result in merchant defaults; and
|
|
|
(i)
|
New regulations
impacting the business.
|
In addition, there is no assurance that (i) First Foods will be
profitable, (ii) First Foods will be able to successfully develop,
manage or market its products and services, (iii) First Foods will
be able to attract or retain qualified executives and personnel,
(iv) First Foods will be able to obtain customers for its products
or services, (v) additional dilution in outstanding stock ownership
will not be incurred due to the issuance of more shares, warrants
and stock options, or the exercise of outstanding warrants and
stock options, and (vi) there are no other risks inherent in First
Foods’ business.
Because the forward-looking statements are subject to risks and
uncertainties, actual results may differ materially from those
expressed or implied by the forward-looking statements. First Foods
cautions you not to place undue reliance on the statements, which
speak only of management’s plans and expectations as of the date of
this Form 10-K. The cautionary statements contained or referred to
in this section should be considered in connection with any
subsequent written or oral forward-looking statements that First
Foods or persons acting on its behalf may issue. First Foods does
not undertake any obligation to review or confirm analysts’
expectations or estimates or to release publicly any revisions to
any forward-looking statements to reflect events or circumstances
after the date of this Form 10-K, or to reflect the occurrence of
unanticipated events.
General
First Foods is currently a “smaller reporting company” under the
JOBS Act. A company loses its “smaller reporting company” status on
(i) the day its public float becomes greater than or equal to
$250,000,000 or (ii) had annual revenues of less than $100,000,000
and either: (A) had no public float or (B) had a public float of
less than $700,000,000. As a “smaller reporting company,” First
Foods is exempt from certain obligations of the Exchange Act,
including those found in Section 14A(a) and (b) related to
shareholder approval of executive compensation and golden parachute
compensation and Section 404(b) of the Sarbanes-Oxley Act of 2002
related to the requirement that management assess the effectiveness
of the Company’s internal control for financial reporting.
Furthermore, Section 103 of the JOBS Act provides that as a
“smaller reporting company”, First Foods is not required to comply
with the requirement to provide an auditor’s attestation of ICFR
under Section 404(b) of the Sarbanes-Oxley Act for as long as First
Foods qualifies as a “smaller reporting company.” In addition, a
“smaller reporting company” may include less extensive narrative
disclosure than required of other reporting companies, particularly
in the description of executive compensation and provide audited
financial statements for two fiscal years, in contrast to other
reporting companies, which must provide audited financial
statements for three fiscal years. However, a “smaller reporting
company” is not exempt from the requirement to perform management’s
assessment of internal control over financial reporting.
First Foods is focused on developing its specialty chocolate
product line and participating in merchant cash advances through
its 1st Foods Funding Division. First Foods continues to
pursue new brands and concepts, including the wholesaling of
various health-related products.
Holy Cacao is a majority owned subsidiary that is dedicated to
producing, packaging, distributing and selling specialty chocolate
products, including specialty chocolate products infused with a
hemp-based ingredient in accordance with the Company’s
understanding of the Agricultural Act of 2014 (the “2014 Farm
Bill”) and/or the Agriculture Improvement Act of 2018 (the “2018
Farm Bill,” and together with the 2014 Farm Bill, collectively, the
“Farm Bill”), which renders the production of hemp in compliance
with the provisions of the Farm Bill federally lawful. The Company
has not been, is not, and has no current plans to be involved in
producing, packaging, distributing or selling any product that is
infused with a marijuana-based ingredient, although it intends to
revisit the matter as regulations change in jurisdictions in which
it operates.
The Company is also dedicated to licensing its intellectual
property (“IP”), including its name, brand, and packaging, to third
parties. The Company may license its IP to third parties that may
produce, package, and distribute hemp-based products pursuant with
the Company’s understanding of the Farm Bill. The Company may
license its IP to third parties that may produce, package, and
distribute marijuana-based products, but only as such licensing is
legal. Holy Cacao holds two trademarks for the brands, “The
Edibles’ Cult.” and “Purely Irresistible” and the Company has
submitted multiple trademark applications to the United States
Patent and Trademark Office (the “USPTO”) for additional brand
names, including “Mystere” and “Southeast Edibles” among
others.
During the year ended December 31, 2020, the Company’s Board of
Directors made a strategic decision to broaden the appeal of its
hemp-based chocolate products to a wider base of customers, who are
particularly discerning about the cleanliness of the Company’s
manufacturing facility and quality of its hemp-based chocolate
products, by successfully obtaining worldwide Kosher certification
from the Union of Orthodox Jewish Congregations of America,
Kashruth Division (the “OU”), which is the largest and most
recognized certification of its kind in the world. On March 9,
2020, the Company retained Tartikov Beth Din (“BD”) to allow BD to
supervise the hemp-based chocolate products produced by the Company
in accordance with OU certification standards. The Company also
retained Moises Davidovits as its full-time Master Chocolatier. Mr.
Davidovits is a third-generation chocolatier who is responsible for
the manufacturing, packaging and distribution of the Company’s
chocolate product line, as well as the formulation of all of the
Company’s proprietary chocolate recipes. On October 19, 2020, the
Company entered into a chocolate sales agreement with B&A
Brokerage for the greater metropolitan New York area. The Company
also signed a lease agreement for a fully staffed and fully
equipped state of the art manufacturing facility to produce its
specialty chocolate product line for sale to retailers,
manufacturing and wholesaling companies, and on-line customers.
Michael Kaplan was appointed to the Board of Directors and, as of
August 1, 2020, accepted the role of Chief Marketing Officer with
authority to oversee the Company’s retail and wholesale sales and
marketing operations, and responsibility for developing oversight
processes and procedures.
The Company currently has a contract with TIER Merchant Advances
LLC (“TIER”) to participate in the purchase of future receivables
from qualified TIER merchants for the purpose of generating
near-term and long-term revenue for the Company. The Company also
provides cash advances directly to merchants through its First
Foods Funding Division.
The Company is quoted on the OTCQB under “FIFG.”
The Company’s principal executive offices are located at First
Foods Group, Inc. c/o Incorp Services, Inc., 3773 Howard Hughes
Parkway, Suite 500S, Las Vegas, NV 89169-6014. Our telephone number
is (201) 471-0988.
As of December 31, 2020, our cash balance was $50,386 with current
liabilities of $2,927,493.
Results of Operations
Results of Operations for the Year Ended December 31, 2020
compared to the Year Ended December 31, 2019
We had $208,167 of revenue for the year ended December 31, 2020
compared to $326,285 in revenue for the year ended December 31,
2019, a decrease of $118,118 or 36%. Our decrease in revenue was
the result of a decrease in participation in merchant cash
advances, partially offset by an increase in our product sales.
Cost of product sales for the year ended December 31, 2020 was
$35,077 compared to $21,003 for the year ended December 31, 2019.
The increase in cost of product sales was due to an increase in
product sales.
Professional fees for the year ended December 31, 2020 was $61,641
compared to $72,860 for the year ended December 31, 2019. This
decrease in professional fees was due to lower legal expenses.
General and administrative expenses for the year ended December 31,
2020 was $1,993,427 compared to $2,642,684 for the year ended
December 31, 2019. The decrease in general and administrative
expenses was primarily due to decreased costs associated with
stock-based compensation, consulting and accounting fees,
advertising and promotion, charitable contributions, lower fees and
commissions for our cash advances and travel.
Provision for merchant cash advances for the year ended December
31, 2020 was $141,790 compared to $87,154 for the year ended
December 31, 2019. The increase in provision for merchant cash
advances was due to an increase in our reserve allowance for our
merchant cash advances related to COVID-19.
Liquidity and Capital Resources
Net cash used in operating activities amounted to $163,541 for the
year ended December 31, 2020 and $1,013,873 for the year ended
December 31, 2019. This resulted in a working capital deficit of
$(1,810,983) at December 31, 2020 and $(732,653) at December 31,
2019. This decrease in working capital was due primarily to an
increase in accounts payable and accrued expenses and a decrease in
merchant cash advances.
Net cash used in investing activities amounted to $199,328 for the
year ended December 31, 2020 and $0 for the year ended December 31,
2019. This was due to the purchase of equipment in 2020.
Net cash provided by financing activities amounted to $388,902 for
the year ended December 31, 2020 and $1,007,800 for the year ended
December 31, 2019. This was due to a decrease of proceeds from the
issuance of loans in 2020 as compared to 2019.
Concentration Risks
The Company recognizes the concentration of its merchant cash
advances, which could inherently create a potential risk to future
working capital in the event that the Company is not able to
collect all, or a majority, of the outstanding merchant cash
advances. The Company actively mitigates its portfolio
concentration risk by monitoring its merchant cash advance
provider’s ability to participate in merchant cash advances from
alternative providers and spreading merchant cash advance
participation across various merchants.
As of December 31, 2020, the Company’s receivables from merchant
cash advances included $59,719 from two merchants ($25,929 and
$33,790), representing 49.3% of the Company’s merchant cash
advances. The Company earned $84,525 and $27,175 of MCA income from
two merchants, representing 53.5% and 17.2%, respectively of the
Company’s MCA income for the twelve months ended December 31,
2020.
As of December 31, 2019, the Company’s receivables from merchant
cash advances included $713,124 from two merchants ($179,853 and
$533,271), representing 81.3% of the Company’s merchant cash
advances. The Company earned $130,243 of MCA income from one
merchant, representing 44.2% of the Company’s MCA income for the
twelve months ended December 31, 2019.
As of December 31, 2020 and 2019, there was no accounts payable
concentration other than amounts owed to related parties which
makes up 74% and 61% of the balance, respectively.
For the year ended December 31, 2020, the Company had purchase
concentrations of 49% and 14% from two vendors.
For the year ended December 31, 2019, the Company had purchase
concentrations of 34%, 26%, 15% and 12% from four vendors.
Going Concern
The Company’s consolidated financial statements are prepared using
generally accepted accounting principles in the United States of
America applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal
course of business.
The Company has not yet established an ongoing source of revenues
sufficient to cover its operating costs and allow it to continue as
a going concern. The ability of the Company to continue as a going
concern is dependent on the Company obtaining adequate capital to
fund operating losses until it becomes profitable. If the Company
is unable to obtain adequate capital, it could be forced to cease
operations.
In order to continue as a going concern, the Company will need,
among other things, additional capital resources. Management’s plan
is to obtain such resources for the Company by obtaining capital
from management and significant shareholders sufficient to meet its
operating expenses and seeking equity and/or debt financing.
However, neither any members of management nor any significant
shareholders are currently committed to invest funds with us and;
therefore, we cannot provide any assurances that the Company will
be successful in accomplishing any of its plans.
The Company does not have sufficient cash flow for the next twelve
months from the issuance of these audited consolidated financial
statements. The ability of the Company to continue as a going
concern is dependent upon its ability to successfully accomplish
the plans described in the preceding paragraph and eventually
secure other sources of financing and attain profitable operations.
The accompanying audited consolidated financial statements do not
include any adjustments that might be necessary, if the Company is
unable to continue as a going concern.
In December 2019, a novel strain of coronavirus surfaced
(COVID-19). The spread of COVID-19 around the world in 2020 has
caused significant volatility in U.S. and international markets.
There is significant uncertainty around the breadth and duration of
business disruptions related to COVID-19, as well as its impact on
the U.S. and international economies. The Company’s financial
position, MCA operations, and cash flows as of December 31, 2020
have been adversely affected, and may be further affected in the
future, by the recent and ongoing outbreak of COVID-19. The
ultimate disruption which may be caused by the outbreak is
uncertain; however, it may result in a material adverse impact on
the Company’s financial position, operations and cash flows.
Possible areas that may be affected include, but are not limited
to, disruption to the Company’s labor workforce, unavailability of
products and supplies used in operations, and the decline in value
of assets held by the Company. As of December 31, 2020 and through
the filing date of the financial statements, the Company has
continued to collect its receivables from its cash advances but has
experienced an increase in payment delinquencies and has had two
customers renegotiate the terms of their cash advance due to
COVID-19. COVID-19 has not had an adverse impact on the Company’s
primary operations; Holy Cacao. As of December 31, 2020, the
Company’s primary operations have experienced no disruption in
customers and revenue, labor workforce, availability of products
and supplies used in operations, and the value of assets held by
the Company, including inventories. On the contrary, the Company’s
Holy Cacao sales increased from $32,183 to $48,983 or 52%.
Off-Balance Sheet Arrangements
No off-balance sheet arrangements exist.
Contractual Obligations
N/A.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results
of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation
of these consolidated 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. We monitor our estimates on an
on-going basis for changes in facts and circumstances, and material
changes in these estimates could occur in the future. Changes in
estimates are recorded in the period in which they become known. We
base our estimates on historical experience and other assumptions
that we believe to be reasonable under the circumstances. Actual
results may differ from our estimates, if past experience or other
assumptions do not turn out to be substantially accurate.
Certain of our accounting policies are particularly important to
the portrayal and understanding of our financial position and
results of operations and require us to apply significant judgment
in their application. As a result, these policies are subject to an
inherent degree of uncertainty. In applying these policies, we use
our judgment in making certain assumptions and estimates. Our
critical accounting policies are outlined in Note 1 in the Notes to
the Consolidated Financial Statements.
Item 7A.
Quantitative and Qualitative Disclosures About Market
Risk.
First Foods is a smaller reporting company as defined by Rule 12b-2
of the Exchange Act and is not required to provide the information
under this item.
Item 8.
Financial Statements and Supplementary Data.
FIRST FOODS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF
CONTENTS
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of First Foods Group, Inc. and Subsidiary
Opinion on the Consolidated Financial
Statements
We have audited the accompanying consolidated balance sheets of
First Foods Group, Inc. and Subsidiary (the “Company”) as of
December 31, 2020 and 2019, and the related consolidated statements
of operations, changes in deficit, and cash flows for each of the
years in the two-year period ended December 31, 2020, and the
related notes (collectively referred to as the consolidated
financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and 2019, and the
results of its operations and its cash flows for each of the years
in the two-year period ended December 31, 2020, in conformity with
accounting principles generally accepted in the United States of
America.
Substantial Doubt about the Company’s Ability to Continue
as a Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, the Company has recurring losses from operations which
raises substantial doubt about its ability to continue as a going
concern. Management’s evaluation of the events and conditions and
management’s plans regarding those matters also are described in
Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Our opinion is not modified with respect to that matter.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on
our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to
the board of directors and that: (1) relate to accounts or
disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the
critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which
they relate.
Stock Based Compensation – Initial Measurement of Fair
Value
Description of the Matter
As described in Note 1 of the consolidated financial statements,
the Company measures and recognizes compensation expense for all
stock-based payments at fair value over the requisite service
period. The Company uses the Black-Scholes option pricing model to
determine the weighted average fair value of options and warrants.
In particular, management’s estimates were sensitive to assumptions
about the volatility of the Company’s stock price, expected
exercise term and fair value determination method.
How We Addressed the Matter in Our Audit
Our audit procedures related to the initial measurement of fair
value of the compensation included the following procedures, among
others. We evaluated the expertise and experience of the accounting
consultant who determined the fair value measurements on behalf of
the Company. We reviewed the methodologies employed by the
consultant in determining the value of the compensation and
determined whether the use of a Black Scholes model was reasonable.
We reviewed the key assumptions utilized in the valuation,
including volatility, the expected impact of dilution, the
risk-free rate, and discounts for illiquidity by comparing them to
the terms of the compensation agreements, historical information
and market data. We also conducted an independent expectation to
assist us in evaluating the appropriateness and reasonableness of
the Black Scholes calculations.
Allowance for credit Losses – Merchant Cash
Advances
Description of the Matter
As described in Note 1 of the consolidated financial statements,
the Company reviews the carrying value of merchant cash advances
(“MCA’s”) and determines to what extent an impairment reserve is
necessary. The Company uses an assessment of actual historic
performance and current status of the MCA. Management’s estimates
of allowance for credit losses involved subjectivity based on the
underlying estimates that rely on industry and economic factors. In
particular, the COVID-19 pandemic has had a significant and adverse
impact on the credit worthiness of the Company’s MCAs due to the
small business nature of a majority of the MCA’s.
How We Addressed the Matter in Our Audit
Our audit procedures related to the allowance of credit losses –
merchant cash advances included the following procedures, among
others. We obtained an understanding and evaluated the Company’s
allowance for doubtful accounts review process, including
management’s review of historical write-off percentages experienced
and current collection trends. To test the estimated allowance for
doubtful accounts, we performed audit procedures that included,
among others, testing the Company’s write-off percentages and the
data used by the Company in its calculation. Additionally, we
evaluated events subsequent to the balance sheet date in assessing
the reasonableness of management’s estimates.
Assessment of Impairment on Long Lived
Assets
Description of the Matter
As described in Note 1 of the consolidated financial statements,
the Company’s long lived tangible assets are stated at cost, less
accumulated depreciation and amortization. The Company’s right of
use assets and operating lease liability are stated at the present
value of remaining lease payments over the lease term using the
Company’s secured incremental borrowing rates, less current period
non cash lease expense and amortization. The Company evaluates its
long-lived assets for impairment whenever events or changes in
circumstances indicate the carrying value of an asset or group of
assets may not be recoverable. If these circumstances exist,
recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset group to future
undiscounted net cash flows expected to be generated by the asset
group.
How We Addressed the Matter in Our Audit
Our audit procedures related to the assessment of impairment on
long lived assets included the following procedures, among others.
We obtained an understanding and evaluated the procedures over
management’s impairment review process. We reviewed management’s
significant assumptions and data inputs utilized in the calculation
of future undiscounted and discounted cash flows. To test the
Company’s estimated future cash flows used to test for the
recoverability of the respective assets and, if applicable, the
measurement of an impairment loss, we performed audit procedures
that included, among others, testing the significant assumptions
discussed above and the underlying data used by the Company in its
impairment analyses, evaluating the methodologies applied by
management, and recalculating the total undiscounted and discounted
cash flows, if applicable, for each asset analyzed. We compared the
significant assumptions used by management to historical sales
data, sales trends, and observable market-specific data. We
assessed the historical accuracy of management’s estimates and
performed sensitivity analyses of significant assumptions to
evaluate the changes in the fair value of the assets that would
result from changes in the assumptions.
|
/S/ Friedman LLP
|
|
|
|
|
We have served as the Company’s auditor since
2017.
|
|
|
|
|
Marlton, New Jersey
March 3, 2021
|
|
|
|
December
31,
2020
|
|
|
December
31,
2019
|
|
|
ASSETS
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$ |
50,386 |
|
|
$ |
24,353 |
|
|
Accounts receivable, net
|
|
|
424 |
|
|
|
13,487 |
|
|
Inventory, net
|
|
|
46,240 |
|
|
|
10,556 |
|
|
Merchant cash advances, net of
allowance $291,380 and $97,495, respectively
|
|
|
121,079 |
|
|
|
877,457 |
|
|
Prepaid expenses and other
current assets
|
|
|
148,144 |
|
|
|
56,935 |
|
|
Deferred merchant advance
commissions
|
|
|
237 |
|
|
|
15,290 |
|
|
TOTAL CURRENT ASSETS
|
|
|
366,510 |
|
|
|
998,078 |
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
242,438 |
|
|
|
- |
|
|
Operating lease right-of-use
assets
|
|
|
239,247 |
|
|
|
- |
|
|
TOTAL ASSETS
|
|
$ |
848,195 |
|
|
$ |
998,078 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
DEFICIT
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$ |
1,110,598 |
|
|
$ |
751,675 |
|
|
Deferred revenue
|
|
|
105,058 |
|
|
|
193,163 |
|
|
Loans, net of unamortized debt
discount
|
|
|
966,155 |
|
|
|
165,270 |
|
|
Related party loans, net of
unamortized debt discount
|
|
|
685,279 |
|
|
|
620,623 |
|
|
Operating lease liabilities
|
|
|
60,403 |
|
|
|
- |
|
|
TOTAL CURRENT
LIABILITIES
|
|
|
2,927,493 |
|
|
|
1,730,731 |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net of unamortized debt
discount - long term
|
|
|
300,024 |
|
|
|
483,240 |
|
|
Operating lease liabilities -
long term
|
|
|
179,053 |
|
|
|
- |
|
|
TOTAL LIABILITIES
|
|
|
3,406,570 |
|
|
|
2,213,971 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
DEFICIT
|
|
|
|
|
|
|
|
|
|
FIRST FOODS GROUP, INC. DEFICIT:
|
|
|
|
|
|
|
|
|
|
Preferred stock, 20,000,000
shares authorized:
|
|
|
|
|
|
|
|
|
|
Series A convertible preferred
stock: $0.001 par value, 1 share authorized, 1 issued and
outstanding ($577,005 liquidation preference)
|
|
|
- |
|
|
|
- |
|
|
Series B convertible preferred
stock: $0.001 par value, 4,999,999 shares authorized, 473,332
issued and outstanding ($160,000 liquidation preference)
|
|
|
473 |
|
|
|
473 |
|
|
Series C convertible preferred
stock: $0.001 par value, 3,000,000 shares authorized, 660,000
shares issued and outstanding ($165,000 liquidation preference)
|
|
|
660 |
|
|
|
660 |
|
|
Common stock: $0.001 par
value,100,000,000 shares authorized, 22,367,179 and 20,313,771
shares issued and outstanding, respectively
|
|
|
22,367 |
|
|
|
20,314 |
|
|
Additional paid-in capital
|
|
|
10,515,601 |
|
|
|
9,116,998 |
|
|
Accumulated deficit
|
|
|
(12,954,696 |
) |
|
|
(10,293,260 |
) |
|
Total First Foods Group,
Inc. Deficit
|
|
|
(2,415,595 |
) |
|
|
(1,154,815 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
(142,780 |
) |
|
|
(61,078 |
) |
|
Total
deficit
|
|
|
(2,558,375 |
) |
|
|
(1,215,893 |
) |
|
TOTAL LIABILITIES AND
DEFICIT
|
|
$ |
848,195 |
|
|
$ |
998,078 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
|
|
|
For the Years
Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
Product sales, net
|
|
$ |
48,983 |
|
|
$ |
32,183 |
|
|
Merchant cash advance income,
net
|
|
|
159,184 |
|
|
|
294,102 |
|
|
Total Revenues
|
|
|
208,167 |
|
|
|
326,285 |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
35,077 |
|
|
|
21,003 |
|
|
Professional fees
|
|
|
61,641 |
|
|
|
72,860 |
|
|
General and administrative
|
|
|
1,993,427 |
|
|
|
2,642,684 |
|
|
Provision for merchant cash
advances
|
|
|
141,790 |
|
|
|
87,154 |
|
|
Total Operating Expenses
|
|
|
2,231,935 |
|
|
|
2,823,701 |
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(2,023,768 |
) |
|
|
(2,497,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
1,000 |
|
|
|
2,500 |
|
|
Interest expense
|
|
|
(720,370 |
) |
|
|
(230,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2,743,138 |
) |
|
|
(2,725,691 |
) |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(2,743,138 |
) |
|
|
(2,725,691 |
) |
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest share of loss
|
|
|
81,702 |
|
|
|
69,460 |
|
|
Dividends on preferred stock
|
|
|
- |
|
|
|
(11,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss attributed to shareholders of First
Foods Group, Inc.
|
|
$ |
(2,661,436 |
) |
|
$ |
(2,667,781 |
) |
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER COMMON
SHARE ATTRIBUTABLE TO FIRST FOODS GROUP, INC.
STOCKHOLDERS
|
|
$ |
(0.12 |
) |
|
$ |
(0.14 |
) |
|
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ATTRIBUTABLE TO FIRST FOODS GROUP, INC.
STOCKHOLDERS
|
|
|
21,449,269 |
|
|
|
18,523,221 |
|
|
The accompanying notes
are an integral part of these consolidated financial
statements.
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Total First
|
|
|
Non-
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
paid-in
capital
|
|
|
Accumulated deficit
|
|
|
Foods Group, Inc. deficit
|
|
|
controlling interests
|
|
|
Total
deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2019
|
|
|
1,133,333 |
|
|
$ |
1,133 |
|
|
|
20,313,771 |
|
|
$ |
20,314 |
|
|
$ |
9,116,998 |
|
|
$ |
(10,293,260 |
) |
|
$ |
(1,154,815 |
) |
|
$ |
(61,078 |
) |
|
$ |
(1,215,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash to a
related party
|
|
|
- |
|
|
|
- |
|
|
|
499,998 |
|
|
|
500 |
|
|
|
99,500 |
|
|
|
- |
|
|
|
100,000 |
|
|
|
- |
|
|
|
100,000 |
|
|
Common stock issued to
consultants for services
|
|
|
- |
|
|
|
- |
|
|
|
600,000 |
|
|
|
600 |
|
|
|
130,750 |
|
|
|
- |
|
|
|
131,350 |
|
|
|
- |
|
|
|
131,350 |
|
|
Common stock issued for related
party loan
|
|
|
- |
|
|
|
- |
|
|
|
579,410 |
|
|
|
579 |
|
|
|
125,823 |
|
|
|
- |
|
|
|
126,402 |
|
|
|
- |
|
|
|
126,402 |
|
|
Common stock issued with loans
payable
|
|
|
- |
|
|
|
- |
|
|
|
374,000 |
|
|
|
374 |
|
|
|
99,258 |
|
|
|
- |
|
|
|
99,632 |
|
|
|
- |
|
|
|
99,632 |
|
|
Stock based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
170,644 |
|
|
|
- |
|
|
|
170,644 |
|
|
|
- |
|
|
|
170,644 |
|
|
Warrants issued for director
services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
501,911 |
|
|
|
- |
|
|
|
501,911 |
|
|
|
- |
|
|
|
501,911 |
|
|
Warrants issued with loan
payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,717 |
|
|
|
- |
|
|
|
20,717 |
|
|
|
- |
|
|
|
20,717 |
|
|
Warrants issued in lieu of
deferred compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
250,000 |
|
|
|
- |
|
|
|
250,000 |
|
|
|
- |
|
|
|
250,000 |
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,661,436 |
) |
|
|
(2,661,436 |
) |
|
|
(81,702 |
) |
|
|
(2,743,138 |
) |
|
Balance at December 31,
2020
|
|
|
1,133,333 |
|
|
$ |
1,133 |
|
|
|
22,367,179 |
|
|
$ |
22,367 |
|
|
$ |
10,515,601 |
|
|
$ |
(12,954,696 |
) |
|
$ |
(2,415,595 |
) |
|
$ |
(142,780 |
) |
|
$ |
(2,558,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2018
|
|
|
1,133,333 |
|
|
$ |
1,133 |
|
|
|
17,709,087 |
|
|
$ |
17,709 |
|
|
$ |
7,081,559 |
|
|
$ |
(7,637,029 |
) |
|
$ |
(536,628 |
) |
|
$ |
8,382 |
|
|
$ |
(528,246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to
consultants for services
|
|
|
- |
|
|
|
- |
|
|
|
1,342,174 |
|
|
|
1,342 |
|
|
|
347,508 |
|
|
|
- |
|
|
|
348,850 |
|
|
|
- |
|
|
|
348,850 |
|
|
Common stock issued to
consultants for services - related party
|
|
|
- |
|
|
|
- |
|
|
|
75,000 |
|
|
|
75 |
|
|
|
18,675 |
|
|
|
- |
|
|
|
18,750 |
|
|
|
- |
|
|
|
18,750 |
|
|
Common stock issued for
services
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
100 |
|
|
|
29,900 |
|
|
|
- |
|
|
|
30,000 |
|
|
|
- |
|
|
|
30,000 |
|
|
Common stock issued for loans
payable
|
|
|
- |
|
|
|
- |
|
|
|
1,062,500 |
|
|
|
1,063 |
|
|
|
308,650 |
|
|
|
- |
|
|
|
309,713 |
|
|
|
- |
|
|
|
309,713 |
|
|
Common stock issued for related
party loan
|
|
|
- |
|
|
|
- |
|
|
|
25,000 |
|
|
|
25 |
|
|
|
5,225 |
|
|
|
- |
|
|
|
5,250 |
|
|
|
- |
|
|
|
5,250 |
|
|
Warrants issued for director
services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,010,186 |
|
|
|
- |
|
|
|
1,010,186 |
|
|
|
- |
|
|
|
1,010,186 |
|
|
Warrants issued for consultant
services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
34,179 |
|
|
|
- |
|
|
|
34,179 |
|
|
|
- |
|
|
|
34,179 |
|
|
Warrants issued with loan
payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
292,666 |
|
|
|
- |
|
|
|
292,666 |
|
|
|
- |
|
|
|
292,666 |
|
|
Dividend on preferred stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(11,550 |
) |
|
|
- |
|
|
|
(11,550 |
) |
|
|
- |
|
|
|
(11,550 |
) |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,656,231 |
) |
|
|
(2,656,231 |
) |
|
|
(69,460 |
) |
|
|
(2,725,691 |
) |
|
Balance at December 31,
2019
|
|
|
1,133,333 |
|
|
$ |
1,133 |
|
|
|
20,313,761 |
|
|
$ |
20,314 |
|
|
$ |
9,116,998 |
|
|
$ |
(10,293,260 |
) |
|
$ |
(1,154,815 |
) |
|
$ |
(61,078 |
) |
|
$ |
(1,215,893 |
) |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
|
|
|
For the Years
Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net Loss
|
|
$ |
(2,743,138 |
) |
|
$ |
(2,725,691 |
) |
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
|
Non-employee stock based
compensation
|
|
|
131,350 |
|
|
|
413,029 |
|
|
Non-employee stock based
compensation - related party
|
|
|
- |
|
|
|
18,750 |
|
|
Employee stock based
compensation
|
|
|
672,555 |
|
|
|
1,010,186 |
|
|
Amortization of debt
discount
|
|
|
499,986 |
|
|
|
124,308 |
|
|
Depreciation and amortization
expense
|
|
|
37,077 |
|
|
|
- |
|
|
Change in merchant allowance
|
|
|
193,885 |
|
|
|
15,140 |
|
|
Provision for merchant cash
advances
|
|
|
141,790 |
|
|
|
87,154 |
|
|
Non-cash lease expense
|
|
|
28,457 |
|
|
|
- |
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
13,063 |
|
|
|
(27,469 |
) |
|
Inventory
|
|
|
(5,870 |
) |
|
|
(10,556 |
) |
|
Merchant cash advances
|
|
|
420,703 |
|
|
|
(417,263 |
) |
|
Deferred merchant advance
commissions
|
|
|
15,053 |
|
|
|
35,469 |
|
|
Prepaid expenses and other
current assets
|
|
|
(72,985 |
) |
|
|
(20,429 |
) |
|
Operating lease liabilities
|
|
|
(28,248 |
) |
|
|
- |
|
|
Accounts payable and accrued
liabilities
|
|
|
620,886 |
|
|
|
466,451 |
|
|
Deferred revenue
|
|
|
(88,105 |
) |
|
|
17,048 |
|
|
Net cash used in
operating activities
|
|
|
(163,541 |
) |
|
|
(1,013,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(199,328 |
) |
|
|
- |
|
|
Net cash used in
investing activities
|
|
|
(199,328 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common
stock
|
|
|
100,000 |
|
|
|
- |
|
|
Dividend payment
|
|
|
- |
|
|
|
(29,700 |
) |
|
Proceeds from loans
|
|
|
351,200 |
|
|
|
1,037,500 |
|
|
Repayment of loans
|
|
|
(136,709 |
) |
|
|
- |
|
|
Proceeds from related party
loans
|
|
|
174,411 |
|
|
|
- |
|
|
Repayments of related party
loans
|
|
|
(100,000 |
) |
|
|
- |
|
|
Net cash provided by
financing activities
|
|
|
388,902 |
|
|
|
1,007,800 |
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
26,033 |
|
|
|
(6,073 |
) |
|
CASH AT BEGINNING OF YEAR
|
|
|
24,353 |
|
|
|
30,426 |
|
|
CASH AT END OF YEAR
|
|
$ |
50,386 |
|
|
$ |
24,353 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
NON-CASH FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Common stock issued with
loans
|
|
$ |
99,632 |
|
|
$ |
309,713 |
|
|
Common stock issued with related
party loans
|
|
$ |
126,402 |
|
|
$ |
5,250 |
|
|
Warrants issued with loans
|
|
$ |
20,717 |
|
|
$ |
292,665 |
|
|
Warrants issued in lieu of
deferred compensation
|
|
$ |
250,000 |
|
|
$ |
- |
|
|
Purchase of assets and
settlement of accrued expenses through issuance of loan payable
|
|
$ |
140,188 |
|
|
$ |
- |
|
|
Right-of-use assets obtained in
exchange for liabilities
|
|
$ |
267,704 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
137,519 |
|
|
$ |
105,667 |
|
|
Income taxes
|
|
$ |
- |
|
|
$ |
- |
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
NOTE 1 –
BUSINESS SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND
LIQUIDITY
Nature of Business
First Foods Group, Inc. (the “Company” or “First Foods”) is a
smaller reporting company focused on developing its specialty
chocolate product line through its Holy Cacao subsidiary and
participating in merchant cash advances (“MCAs”) through its
1st Foods Funding Division. First Foods continues to
pursue new brands and concepts, including the wholesaling of
various health-related products.
Holy Cacao is a majority owned subsidiary that is dedicated to
producing, packaging, distributing and selling specialty chocolate
products, including specialty chocolate products infused with a
hemp-based ingredient in accordance with the Company’s
understanding of the Agricultural Act of 2014 (the “2014 Farm
Bill”) and/or the Agriculture Improvement Act of 2018 (the “2018
Farm Bill,” and together with the 2014 Farm Bill, collectively, the
“Farm Bill”), which renders the production of hemp in compliance
with the provisions of the Farm Bill federally lawful. The Company
has not been, is not, and has no current plans to be involved in
producing, packaging, distributing or selling any product that is
infused with a marijuana-based ingredient, although it intends to
revisit the matter as regulations change in jurisdictions in which
it operates.
The Company is also dedicated to licensing its intellectual
property (“IP”), including its name, brand, and packaging, to third
parties. The Company may license its IP to third parties that may
produce, package, and distribute hemp-based products pursuant with
the Company’s understanding of the Farm Bill. The Company may
license its IP to third parties that may produce, package, and
distribute marijuana-based products, but only as such licensing is
legal. Holy Cacao holds two trademarks for the brands, “The
Edibles’ Cult.” and “Purely Irresistible” and the Company has
submitted multiple trademark applications to the United States
Patent and Trademark Office (the “USPTO”) for additional brand
names, including “Mystere” and “Southeast Edibles” among
others.
During the year ended December 31, 2020, the Company’s Board of
Directors made a strategic decision to broaden the appeal of its
hemp-based chocolate products to a wider base of customers, who are
particularly discerning about the cleanliness of the Company’s
manufacturing facility and quality of its hemp-based chocolate
products, by successfully obtaining worldwide Kosher certification
from the Union of Orthodox Jewish Congregations of America,
Kashruth Division (the “OU”), which is the largest and most
recognized certification of its kind in the world. On March 9,
2020, the Company retained Tartikov Beth Din (“BD”) to allow BD to
supervise the hemp-based chocolate products produced by the Company
in accordance with OU certification standards. The Company also
retained Moises Davidovits as its full-time Master Chocolatier. Mr.
Davidovits is a third-generation chocolatier who is responsible for
the manufacturing, packaging and distribution of the Company’s
chocolate product line, as well as the formulation of all of the
Company’s proprietary chocolate recipes. On October 19, 2020, the
Company entered into a chocolate sales agreement with B&A
Brokerage for the greater metropolitan New York area. The Company
also signed a lease agreement for a fully staffed and fully
equipped state of the art manufacturing facility to produce its
specialty chocolate product line for sale to retailers,
manufacturing and wholesaling companies, and on-line customers.
Michael Kaplan was appointed to the Board of Directors and, as of
August 1, 2020, accepted the role of Chief Marketing Officer with
authority to oversee the Company’s retail and wholesale sales and
marketing operations, and responsibility for developing oversight
processes and procedures.
The Company currently has a contract with TIER Merchant Advances
LLC (“TIER”) to participate in the purchase of future receivables
from qualified TIER merchants for the purpose of generating
near-term and long-term revenue for the Company. The Company also
provides cash advances directly to merchants through its First
Foods Funding Division.
Liquidity and Going Concern
The Company’s audited consolidated financial statements are
prepared using generally accepted accounting principles in the
United States of America applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has not
yet established an ongoing source of revenues sufficient to cover
its operating costs and allow it to continue as a going concern.
The ability of the Company to continue as a going concern is
dependent on the Company obtaining adequate capital to fund
operating losses until it becomes profitable. If the Company is
unable to obtain adequate capital, it could be forced to cease
operations.
In order to continue as a going concern, the Company will need,
among other things, additional capital resources. As of December
31, 2020, the Company had approximately $966,000 in third-party
short-term debt that is due within the next twelve months.
Management’s plan is to use anticipated increased revenues to repay
such debt as it becomes due and to the extent any shortfall exists,
to obtain such additional resources for the Company by obtaining
capital from management and significant shareholders sufficient to
meet its operating expenses and seeking equity and/or debt
financing. However, we are not assured of any significant increases
in revenues nor are any members of management nor any significant
shareholders currently committed to invest funds with us and;
therefore, we cannot provide any assurances that the Company will
be successful in accomplishing any of its plans.
The Company does not have sufficient cash flow for the next twelve
months from the date of this report. The ability of the Company to
continue as a going concern is dependent upon its ability to
successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and
attain profitable operations. The accompanying audited consolidated
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles in the United States
of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Basis of Presentation
The Company’s consolidated financial statements are presented in
accordance with generally accepted accounting principles in the
United States of America (“GAAP”).
The noncontrolling interest represents the proportionate share of
the proceeds received and also the income and loss pickup from the
fifteen-percent sale of equity interest in our wholly owned
subsidiary; Holy Cacao.
Principles of Consolidation
The consolidated financial statements represent the consolidation
of the accounts of the Company and its subsidiary in conformity
with GAAP. All intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments
with an original maturity of twelve months or less to be cash
equivalents. At December 31, 2020 and 2019, the Company had no cash
equivalents.
The Company’s cash is held with financial institutions, and the
account balances may exceed the Federal Deposit Insurance
Corporation (FDIC) insurance limit at times. Accounts are insured
by the FDIC up to $250,000 per financial institution. The Company
has not experienced any losses in such accounts with these
financial institutions.
Merchant Cash Advances
The Company participates in the merchant cash advance industry by
directly advancing sums to a merchant or a merchant advance
provider, TIER, who in turn advances sums to merchants or other
merchant cash advance providers. Each reporting period, the Company
reviews the carrying value of these advances and determines whether
an impairment reserve is necessary. At December 31, 2020, the
Company reserved an amount equal to 70.6% of the outstanding
merchant cash advance balance at period end based on management’s
assessment of actual historic performance. In addition, throughout
the year the Company wrote off twenty three (23) merchant advances
for a total of $28,061 for the year ended December 31, 2020. These
expenses are included in provision for merchant cash advances
expenses on the accompanying consolidated statements of
operations.
Revenue Recognition
We completed, related to our merchant cash advance business line,
our assessment of the impact of ASC 606 and determined that we
recognize revenue in accordance with ASC 860, Transfers and
Servicing, which is explicitly excluded from the scope of ASC
606. We participate in the servicing of merchant cash advances that
have been provided to third parties, which in accordance with ASC
860, causes us to recognize merchant cash advance (“MCA”) income.
We also have product sales from our Holy Cacao division that follow
ASC 606.
Product sales are measured based on consideration specified in a
contract with a customer that we expect to receive in exchange for
goods, net of any variable considerations (e.g. rights to return
product, sales incentives, etc.). The Company recognizes revenue
when it satisfies a performance obligation by transferring control
of a product to a customer. These criteria are assumed to have been
met upon delivery of the products requested by the customer to the
customer’s carrier. The Company applied the practical expedient
available under ASC 606 to disregard determining significant
financing components, if the good is transferred and payment is
received within one year.
When a merchant cash advance is purchased, the Company records a
merchant cash advance participation receivable for the purchase
price. The purchase price consists of the merchant cash advance
principal plus an up-front commission that is amortized over the
term of the merchant cash advance. The amount of the commission is
negotiated between the Company and TIER for each contract. The
standard commission is 15% of the merchant cash advance principal
but can be reduced depending upon the credit worthiness of the
merchant. The average commission paid by the Company since
inception has been approximately 7%. If a merchant cash advance
contract is signed in one period, but not paid until a subsequent
period, a corresponding liability is established in the current
period.
At the time the Company participates in a merchant cash advance,
the Company records a deferred revenue liability, which is the
total future receivable due to the Company less the principal
amount of the merchant cash advance. Revenue is recognized and the
deferred liability is reduced over the term of the merchant cash
advance.
TIER maintains a bank account on behalf of the Company. Each day,
TIER receives payment, reflected in the bank account, for each
merchant cash advance TIER has purchased on behalf of the Company
from various merchant cash advance providers. The Company reduces
its merchant cash advance balance by the cash received, which is
net of platform fees. Platform fees are a daily charge associated
with the ACH service and the financial and reporting management
software platform provided by TIER. The platform fees are also
negotiated between the Company and TIER for each contract but are
typically 4% of the daily merchant cash advance principal
amount.
For each merchant cash advance entered into by the Company, TIER
receives a daily payment as payments are made on the advance, for
each merchant cash advance TIER has purchased on behalf of the
Company from various merchant cash advance providers. The Company
reduces its merchant cash advance balance by the cash received,
which is net of a 2% commission to TIER.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at original invoice amount less an
estimate made for doubtful accounts based on a review of all
outstanding amounts. Management determines the allowance for
doubtful accounts by regularly evaluating individual customer
receivables and considering a customer’s financial condition,
credit history and current economic conditions and sets up an
allowance for doubtful accounts when collection is uncertain.
Customers’ accounts are written off when all attempts to collect
have been exhausted. The Company considers an invoice past due once
the term of the invoice has passed and payment has not been
received. No interest is charged on past due invoices. Recoveries
of accounts receivable previously written off are recorded as
income when received. As of December 31, 2020, the Company had no
allowance for doubtful accounts.
Inventory
Inventory, consisting of raw materials, work in process and
products available for sale, are accounted for using the first-in,
first-out method, and are valued at the lower of cost or net
realizable value. This valuation requires management to make
judgements based on currently available information, about the
likely method of disposition, such as through sales to individual
customers and returns. The Company has no allowance for inventory
reserves.
Inventory consisted of the following as of December 31, 2020 and
2019:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Raw Materials
|
|
$ |
37,259 |
|
|
$ |
2,854 |
|
|
Work in Process
|
|
|
2,790 |
|
|
|
5,410 |
|
|
Finished Goods
|
|
|
6,191 |
|
|
|
2,292 |
|
|
Total
|
|
$ |
46,240 |
|
|
$ |
10,556 |
|
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Expenditures for maintenance and
repairs are charged to expense when incurred, while renewals and
betterments that materially extend the life of an asset are
capitalized. When assets are sold, retired or otherwise disposed
of, the cost and accumulated depreciation are removed from the
balance sheets and any resulting gain or loss is reflected in the
consolidated statements of operations and members’ deficit in the
period realized.
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets, which are as
follows:
|
Property – Leasehold
improvements
|
4 years
|
|
Equipment
|
5 years
|
Impairment of Long-Lived Assets
Long-lived assets are comprised of property and equipment. The
Company evaluates its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying value of
an asset or group of assets may not be recoverable. If these
circumstances exist, recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
group to future undiscounted net cash flows expected to be
generated by the asset group. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value
of the assets. Management conducted an impairment analysis and
concluded that there were no impairments to long-lived assets for
the year ended December 31, 2020.
Research and Development
The Company’s policy is to engage market and branding consultants
to research and develop specialty chocolate products, including
chocolate products infused with a hemp-based ingredient, and
packaging targeted to particular states within the US. The research
and development costs for the years ended December 31, 2020 and
2019, were approximately $87,000 and $85,000, respectively. These
expenses are included in general and administrative expenses on the
accompanying consolidated statements of operations.
Deferred Financing Costs
The Company records origination and other expenses related to its
debt obligations as deferred financing costs. These expenses are
deferred and amortized over the life of the related debt
instrument. In accordance with Accounting Standards Update (“ASU”)
No. 2015-03, deferred finance costs, net of accumulated
amortization have been included as a contra to the corresponding
loans in the accompanying consolidated balance sheets as of
December 31, 2020 and 2019, respectively.
Stock Based Compensation
The Company measures and recognizes compensation expense for all
stock-based payments at fair value over the requisite service
period. The Company uses the Black-Scholes option pricing model to
determine the weighted average fair value of options and warrants.
For restricted stock grants, fair value is determined as the
closing price of our common stock on the date of grant.
Equity-based compensation expense is recorded in administrative
expenses based on the classification of the employee or vendor. The
determination of fair value of stock-based payment awards on the
date of grant using an option-pricing model is affected by our
stock price, as well as by assumptions regarding a number of
subjective variables. These variables include, but are not limited
to, the expected stock price volatility over the term of the
awards, and actual and projected employee stock option exercise
behaviors.
Income Taxes
The Company provides for income taxes using the asset and liability
approach. Deferred tax assets and liabilities are recorded based on
the differences between the financial statement and tax bases of
assets and liabilities and the tax rates in effect when these
differences are expected to reverse. Deferred tax assets are
reduced by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. As of December 31,
2020 and 2019, the Company had a full valuation allowance against
deferred tax assets. With the historical change in ownership, the
Company is subject to certain net operating loss (NOL) limitations
under Section 382 of the Internal Revenue Code.
Per Share Data
In accordance with “ASC-260 - Earnings per Share”, the basic loss
per common share is computed by dividing net loss available to
common stockholders by the weighted average number of common shares
outstanding. Diluted loss per common share is computed similar to
basic loss per common share except that the denominator is
increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive. There
were no dilutive shares outstanding as of December 31, 2020 and
2019 because their effect would be antidilutive.
The Company had 4,899,750 and 1,403,750 warrants to purchase common
stock outstanding at December 31, 2020 and 2019, respectively. The
Company had 4,470,000 and 3,970,000 warrants to purchase Series B
preferred stock outstanding at December 31, 2020 and 2019,
respectively. The Company has outstanding one (1) Series A
preferred share that is convertible into five (5) shares of the
Company’s common stock. Additionally, the Company has 473,332
Series B preferred shares, and 660,000 Series C preferred shares
outstanding that are convertible into 2,366,660 and 660,000 shares
of common stock, respectively, at December 31, 2020 and 2019,
respectively. The warrants and preferred stock were not included in
the Company’s weighted average number of common shares outstanding
because they would be anti-dilutive.
Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a
specific point in time, based on relevant information about
financial markets and specific financial instruments. As these
estimates are subjective in nature, involving uncertainties and
matters of significant judgment, they cannot be determined with
precision. Changes in assumptions can significantly affect
estimated fair value. The carrying value of cash, merchant cash
advances, prepaid expenses, accounts payable and accrued
liabilities approximate their fair value because of the short-term
nature of these instruments. Management is of the opinion that the
Company is not exposed to significant market or credit risks
arising from these financial instruments.
Advertising and Promotion
Advertising and promotion costs are expensed as incurred.
Advertising and promotion costs recognized in the consolidated
statements of operations in general and administrative expenses for
the years ended December 31, 2020 and 2019, were $35,000 and
$115,000, respectively.
Non-Controlling Interests in Consolidated Financial
Statements
In June 2011, the FASB issued ASC 810-10-65-1, to clarify that a
non-controlling (minority) interest in a subsidiary is an ownership
interest in the entity that should be reported as equity in the
consolidated financial statements. It also requires consolidated
net income to include the amounts attributable to both the parent
and non-controlling interest, with disclosure on the face of the
consolidated income statement of the amounts attributed to the
parent and to the non-controlling interest. In accordance with ASC
810-10-45-21, those losses attributable to the parent and the
non-controlling interest in subsidiaries may exceed their interests
in the subsidiary’s equity. The excess and any further losses
attributable to the parent and the non-controlling interest shall
be attributed to those interests even if that attribution results
in a deficit non-controlling interest balance. During the year
ended December 31, 2017, the Company entered into two subscription
agreements for the sale of 800,000 shares of its common stock and a
ten-percent equity interest in its wholly owned subsidiary, Holy
Cacao, for $200,000 in cash proceeds, in the aggregate. The Company
recorded ten-percent of the cash proceeds or $20,000 as
noncontrolling interests for the year ended December 31, 2017. On
July 16, 2018, the Company entered into a consulting agreement with
a service provider that contained the following terms: 5% equity
ownership in the Company’s Holy Cacao subsidiary will be awarded
immediately upon the successful launch of the Holy Cacao product
line and the sale of the first production run of Holy Cacao
product. During the year ended December 31, 2019, this part of the
agreement was completed, and 5% equity was issued. The Company’s
periodic reporting now includes the results of operations of Holy
Cacao, with the fifteen-percent ownership reported as
noncontrolling interests. The cost of goods sold and operating
expense for Holy Cacao for the years ended December 31, 2020 and
2019 was $35,077 and $511,963, respectively and $21,003 and
$522,967, respectively. For the years ended December 31, 2020 and
2019, revenue for Holy Cacao was $48,983 and $32,183,
respectively.
During 2020 the Company primarily conducted business as two
operating segments, First Foods and Holy Cacao. The Company does
not distinguish between the two segments and has only one
reportable segment based on quantitative thresholds. The accounting
policies of the segments are the same as the accounting policies of
the Company as a whole. The operating results of these business
segments are regularly reviewed by the Company’s chief operating
decision maker.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the
FASB or other standard setting bodies. Unless otherwise discussed,
the Company believes that the impact of recently issued standards
that are not yet effective will not have a material impact on its
consolidated financial position or results of operations upon
adoption.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments –
Credit Losses” to improve information on credit losses for
financial assets and net investment in leases that are not
accounted for at fair value through net income. ASU 2016-13
replaces the current incurred loss impairment methodology with a
methodology that reflects expected credit losses. In April 2019 and
May 2019, the FASB issued ASU No. 2019-04, ”Codification
Improvements to Topic 326, Financial Instruments-Credit Losses,
Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments” and ASU No. 2019-05, ”Financial Instruments-Credit
Losses (Topic 326): Targeted Transition Relief” which provided
additional implementation guidance on the previously issued ASU. In
November 2019, the FASB issued ASU 2019-10, “Financial Instruments
- Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and
Leases (Topic 842),” which defers the effective date for public
filers that are considered small reporting companies (“SRC”) as
defined by the Securities and Exchange Commission to fiscal years
beginning after December 15, 2022, including interim periods within
those fiscal years. Since the Company is an SRC, implementation is
not needed until January 1, 2023. The Company will continue to
evaluate the effect of adopting ASU 2016-13 will have on the
Company’s consolidated financial statements.
NOTE 2 – RELATED PARTY TRANSACTIONS
Employment Agreement
On March 1, 2017, Mark J. Keeley assumed the role of Chief
Financial Officer (“CFO”). Pursuant to his Employment Agreement,
the CFO shall receive $20,833 per month. Additionally, Mr. Keeley
earns an additional $40,000 per year for his role as a Director of
the Board. On March 18, 2020, the Company issued its CFO and
Director warrants to purchase 500,000 shares of Series B Preferred
Stock in lieu of $250,000 of deferred salary (see Note 6). As of
December 31, 2020 and 2019, the Company has accrued $329,167,
respectively, in relation to the employment agreements and $20,578
and $16,953, respectively, in relation to the payroll tax
liability.
Consulting Agreements
On February 27, 2017, Harold Kestenbaum assumed the role of
Chairman of the Board of Directors and Interim Chief Executive
Officer (“Interim CEO”). Mr. Kestenbaum earns $40,000 per year for
his role as Chairman of the Board. As of December 31, 2020, the
Company has accrued a total of $40,000 of compensation for his role
as Interim CEO under a previous agreement.
As of December 31, 2020, the Company has a consulting agreement
with R and W Financial (a company owned by a director) for $5,000 a
month. The agreement is for an indefinite period of time and is
subject to cancellation by either party with written notice of 30
days. The outstanding balance owed to R and W Financial in
connection with the agreement mentioned above as of December 31,
2020 was $82,988.
Related Party Loans
|
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
1.
|
Note
payable at 12%, matures 4/17/2021
|
|
{a} *
|
$ |
100,000 |
|
|
$ |
100,000 |
|
|
2.
|
Non-interest bearing note payable, matures on 4/25/2021
|
|
*
|
|
179,813 |
|
|
|
179,813 |
|
|
3.
|
Note
payable at 12%, matures 3/13/2021. The Company has recorded debt
discount and amortized it over the applicable life of the debt.
|
|
{b} *
|
|
100,000 |
|
|
|
100,000 |
|
|
4.
|
Note
payable at 12%, matures 4/9/2021. The Company has recorded debt
discount and amortized it over the applicable life of the debt.
|
|
{c} *
|
|
250,000 |
|
|
|
250,000 |
|
|
5.
|
Non-interest bearing note payable, matures on 1/05/2021. In
connection with the issuance, the Company has recorded debt
discount and amortized it over the applicable life of the debt.
|
|
{d} *
|
|
74,411 |
|
|
|
- |
|
|
|
Unamortized
debt discount
|
|
|
|
(18,945 |
) |
|
|
(9,190 |
) |
|
|
Total
|
|
|
$ |
685,279 |
|
|
$ |
620,623 |
|
|
|
{a}
|
- On October 16, 2020, the Company
extended the note to April 17, 2021 based on the same terms and
conditions. |
|
|
|
|
|
|
{b}
|
‐ On December 29, 2020, the Company
extended the note to March 13, 2021 based on the same terms and
conditions. In association with this and prior extensions the
company issued 95,000 shares of common stock with a fair value of
$18,944, which will be recorded a debt discount and amortized over
the life of the loan. |
|
|
|
|
|
|
{c}
|
‐ On April 10, 2020, the Company
extended the note to April 9, 2021 based on the same terms and
conditions. In association with the extension the company issued
250,000 shares of common stock with a fair value of $60,000, which
will be recorded a debt discount and amortized over the life of the
loan. |
|
|
|
|
|
|
{d}
|
‐ On December 2, 2020, the Company
issued a non-interest bearing promissory note of $74,411. In
connection with this note the company issued 74,410 shares of
common stock with a fair value of $17,858, which was recorded as a
debt discount and amortized over the life of the loan. On January
5, 2021, the Company fully repaid the loan. |
|
|
|
|
|
|
*
|
‐ unsecured note |
During the year ended December 31, 2020 and 2019, the Company
recorded $116,648 and $24,336 of interest expense related to the
amortization of debt discount and $54,148 and $49,024 of regular
interest, respectively. As of December 31, 2020 and 2019, accrued
interest was $45,889 and $21,753, respectively.
All of the above transactions were approved by disinterested
directors.
Director Agreements
On May 10, 2018, the directors of the Company were awarded
share-based compensation for the service period of May 10, 2018
through December 31, 2020, as a one-time award of the ability to
purchase a particular amount of warrants, ranging from 80,000 to
400,000 (collectively the “Warrants”) with the following terms:
|
|
·
|
Number and Type – Each
Director is entitled to a one-time award of Warrants for the number
of shares of Series B Preferred Stock of the Company. Each share of
Series B Preferred Stock shall have voting rights equal to five (5)
votes per share. Each share of Series B Preferred Stock is
convertible into five (5) shares of the Company’s Common Stock (the
“Common Stock”), including liquidation preference over Common
Stock.
|
|
|
|
|
|
|
·
|
Duration – The Warrants
entitle each Director to purchase the Series B Preferred Stock from
the Company, after January 1, 2019 and before December 31,
2027.
|
|
|
·
|
Purchase Price - The
purchase price is $0.60 per share of Series B Preferred Stock.
|
|
|
|
|
|
·
|
Cashless Exercise - If
on the date the Director surrenders all or a portion of the
Warrants for the purchase of Series B Preferred Stock or the
equivalent number of shares of Common Stock, the per share market
value of one share of Common Stock is greater than the exercise
price of the equivalent Warrant, in lieu of exercising the Warrant
by payment of cash, the Director may exercise the Warrant by a
cashless exercise and shall receive a ratably lower number of
shares of Series B Preferred Stock or the equivalent number of
shares of Common Stock.
|
|
|
|
|
|
·
|
Vesting - The Warrants
are subject to a 32-month period whereby the Warrants vest in equal
monthly increments from May 10, 2018 through December 31, 2020. Any
unvested warrants are forfeited, if the Director ceases to be a
Director.
|
The Company issued warrants with respect to 1,280,000 Series B
Preferred Stock, in the aggregate. The Company will expense the
fair value of these warrants in the amount of $768,000 ratably
during the years ended December 31, 2018, 2019 and 2020. For the
years ended December 31, 2020 and 2019, the Company recorded
$290,981 and $290,186 as compensation expense related to the
warrants, respectively.
On February 26, 2019, the Company entered into director agreements
with each of the Directors of the Company. Pursuant to the
agreements, each Director may be compensated with share-based
and/or cash-based compensation. The Directors’ compensation for the
period January 1, 2019 through December 31, 2019 was $10,000 per
quarter per Director to be paid on a date determined by the Board
of Directors. In addition, the Directors were able to receive a
one-time award of the ability to purchase a particular amount of
warrants, as determined by the Board of Directors.
On January 1, 2020, the director agreements were renewed with the
same terms. As of December 31, 2020 and 2019 the Company has
accrued $320,000 and $160,000, respectively, in relation to the
director agreements.
On December 31, 2019, three of the Directors of the Company were
awarded share-based compensation for services performed during the
service period of January 1, 2019 through December 31, 2019, as a
one-time award to each purchase 200,000 warrants (collectively the
“Warrants”) with the following terms:
|
|
·
|
Number and Type – Each
Director is entitled to a one-time award of Warrants for the number
of shares of Series B Preferred Stock of the Company. Each share of
Series B Preferred Stock shall have voting rights equal to five (5)
votes per share. Each share of Series B Preferred Stock is
convertible into five (5) shares of the Company’s common stock,
including liquidation preference over common stock.
|
|
|
·
|
Duration – The Warrants
entitle each Director to purchase the Series B Preferred Stock from
the Company after December 31, 2019 and before December 30,
2029.
|
|
|
|
|
|
·
|
Purchase Price - The
purchase price is $1.20 per share of Series B Preferred Stock.
These warrants have a price protection clause which was triggered
resulting in the warrants being reset to an exercise price of
$0.75. The effect was immaterial.
|
|
|
|
|
|
·
|
Cashless Exercise - If
on the date the Director surrenders all or a portion of the
Warrants for the purchase of Series B Preferred Stock or the
equivalent number of shares of Common Stock, the per share market
value of one share of Common Stock is greater than the exercise
price of the equivalent Warrant, in lieu of exercising the Warrant
by payment of cash, the Director may exercise the Warrant by a
cashless exercise and shall receive a ratably lower number of
shares of Series B Preferred Stock or the equivalent number of
shares of Common Stock.
|
|
|
|
|
|
·
|
Vesting - The Warrants
are fully vested at issuance.
|
The Company issued warrants with respect to 600,000 Series B
Preferred Stock, in the aggregate. The Company expensed the fair
value of these warrants in the amount of $720,000 during the year
ended December 31, 2019.
On July 7, 2020, our Board of Directors appointed Michael Kaplan to
the Board of Directors.
Mr. Kaplan’s compensation as a director for the initial twelve
months will consist of one million (1,000,000) warrants which will
vest at the rate of 83,333 warrants per month for the initial
eleven months and the balance in the twelfth month, provided he is
a director on each vesting date, with the initial tranche vesting
on the day he takes office and then on each monthly anniversary of
such date thereafter. Each Warrant will be exercisable for 36
months after it vests and will be exercisable at a price of $0.18
per share. The warrants are valued at $177,200 based on the Black
Scholes Model. If he remains in office beyond twelve months,
commencing with month thirteen, his compensation will be similar to
the majority of the directors then in office. For the year ended
December 31, 2020, the Company recorded $85,930 as compensation
expense related to the warrants.
Prior to Mr. Kaplan’s appointment to the Board of Directors, on
July 7, 2020 we entered into (i) a Subscription Agreement with Mr.
Kaplan to sell to him one million (1,000,000) shares of common
stock at a purchase price of $0.20 per share for a total purchase
price of $200,000, which shares shall be purchased in twelve (12)
equal monthly installments of 83,333 shares (the last installment
to cover 83,337 shares) with the initial purchase occurring on the
date thereof and subsequent installments on each monthly
anniversary thereafter (ii) a Consulting Agreement with Mr. Kaplan
to award him, as full compensation for two (2) years of service,
warrants to purchase two million (2,000,000) shares of common stock
at an exercise price of $0.18 per share, which was the closing
price of our common stock on such date. The warrants are valued at
$354,400 based on the Black Scholes Model; and (iii) an arrangement
with Mr. Kaplan that in the event he raises outside investment in
the Company in the amount of $500,000 - $2,000,000, he will receive
a warrant with one underlying share for each dollar he so raises.
For the year ended December 31, 2020, the Company recorded $99,353
as compensation expense related to the warrants.
The warrants shall vest upon the occurrence to the Company of
certain milestone events through the efforts of the consultant.
(See Note 6).
If terminated with cause by the Company, the consultant shall not
thereafter be entitled to any form of compensation, the unvested
warrants shall terminate, and he shall be paid a buyout fee in the
amount of 250,000 fully vested warrants. If terminated without
cause by the Company, all unvested warrants shall be accelerated
and vest in one-half the time it was previously scheduled to
vest.
Effective August 1, 2020, Mr. Kaplan will also have the title Chief
Marketing Officer with authority to oversee the Company’s sales and
marketing operations, and responsibility for developing oversight
processes and procedures.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
Leasehold
improvements
|
|
$ |
40,000 |
|
|
$ |
- |
|
|
Equipment
|
|
|
239,515 |
|
|
|
- |
|
|
Less: Accumulated
depreciation and amortization
|
|
|
(37,077 |
) |
|
|
- |
|
|
Total
|
|
$ |
242,438 |
|
|
$ |
- |
|
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
Accounts payable and accrued liabilities consist of the
following:
|
|
|
December
31,
2020
|
|
|
December
31,
2019
|
|
|
Accounts payable
|
|
$ |
572,496 |
|
|
$ |
305,679 |
|
|
Interest
|
|
|
109,747 |
|
|
|
24,136 |
|
|
Salaries
|
|
|
389,745 |
|
|
|
386,121 |
|
|
Other
|
|
|
38,610 |
|
|
|
35,739 |
|
|
Total
|
|
$ |
1,110,598 |
|
|
$ |
751,675 |
|
NOTE 5 – LOANS AND LONG-TERM LOANS
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
1. |
|
|
Note
payable at 12%, matures 7/24/2021. In connection with the original
issuance, as well as subsequent extension, the Company has recorded
debt discount and amortized it over the applicable life of the
debt.
|
|
{a} *
|
|
$ |
50,000 |
|
|
$ |
100,000 |
|
|
|
2. |
|
|
Note
payable at 12%, matures 1/22/2021. In connection with the original
issuance, as well as subsequent extension, the Company has recorded
debt discount and amortized it over the applicable life of the
debt.
|
|
{b} *
|
|
|
18,000 |
|
|
|
18,000 |
|
|
|
3. |
|
|
Note
payable at 12%, matures 1/8/2022. In connection with the original
issuance, as well as subsequent extension, the Company has recorded
debt discount and amortized it over the applicable life of the
debt.
|
|
{c} *
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
4. |
|
|
Note
payable at 12%, matures 6/11/2021. In connection with the original
issuance, the Company has recorded debt discount and amortized it
over the applicable life of the debt.
|
|
*
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
5. |
|
|
Note
payable at 12%, matures 7/21/2021. In connection with the issuance,
the Company has recorded debt discount and amortized it over the
applicable life of the debt.
|
|
*
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
6. |
|
|
Note
payable at 12%, matures 10/1/2021. In connection with the issuance,
the Company has recorded debt discount and amortized it over the
applicable life of the debt.
|
|
*
|
|
|
410,000 |
|
|
|
410,000 |
|
|
|
7. |
|
|
Note
payable at 12%, matures 10/15/2021. In connection with the
issuance, the Company has recorded debt discount and amortized it
over the applicable life of the debt.
|
|
*
|
|
|
140,000 |
|
|
|
140,000 |
|
|
|
8. |
|
|
Note
payable at 12%, matures 10/30/2021. In connection with the
issuance, the Company has recorded debt discount and amortized it
over the applicable life of the debt.
|
|
*
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
9. |
|
|
Note
payable at 12%, matures 7/9/2021. In connection with the issuance,
the Company has recorded debt discount and amortized it over the
applicable life of the debt.
|
|
*
|
|
|
60,000 |
|
|
|
- |
|
|
|
10. |
|
|
Note
payable at 12%, matures 1/28/2022. In connection with the issuance,
the Company has recorded debt discount and amortized it over the
applicable life of the debt.
|
|
*
|
|
|
96,000 |
|
|
|
- |
|
|
|
11. |
|
|
Note
payable at 3.75%, matures 6/25/2050 - EIDL.
|
|
**
|
|
|
150,000 |
|
|
|
- |
|
|
|
12. |
|
|
Non-interest bearing note payable, matures on 9/30/2021.
|
|
{d} *
|
|
|
53,479 |
|
|
|
- |
|
|
|
13. |
|
|
Note
payable at 12%, matures 3/9/2022. In connection with the issuance,
the Company has recorded debt discount and amortized it over the
applicable life of the debt.
|
|
{e} *
|
|
|
50,000 |
|
|
|
- |
|
|
|
|
|
|
Unamortized
debt discount
|
|
|
|
|
(286,300 |
) |
|
|
(544,490 |
) |
|
|
|
|
|
Total
|
|
|
|
|
1,266,179 |
|
|
|
648,510 |
|
|
|
|
|
|
Less: short term loans, net
|
|
|
|
|
966,155 |
|
|
|
165,270 |
|
|
|
|
|
|
Total
long-term loans, net
|
|
|
|
$ |
300,024 |
|
|
$ |
483,240 |
|
|
|
{a} |
- On July 24, 2020, the Company
extended the note to July 24, 2021 based on the same terms and
conditions. In association with the extension the company issued
50,000 shares of common stock with a fair value on $17,500, which
will be recorded a debt discount and amortized over the new life of
the loan.
|
|
|
{b} |
- On March 1, 2021, the Company
extended the note to July 22, 2021 based on the same terms and
conditions. In association with the extension the company issued
18,000 shares of common stock with a fair value on $5,400, which
will be recorded a debt discount and amortized over the new life of
the loan.
|
|
|
{c} |
- On July 8, 2020, the Company
extended the note to January 8, 2022 based on the same terms and
conditions. In association with the extension the company issued
50,000 shares of common stock with a fair value on $16,000, which
will be recorded a debt discount and amortized over the new life of
the loan.
|
|
|
{d} |
- On June 23, 2020, the Company
issued a non-interest bearing promissory note for $140,188. In
exchange for this note the Company received $80,187 of equipment
and leasehold improvement, $29,814 of inventory, $18,224 of prepaid
expenses and $11,963 of settlement of accrued expenses. During the
period the Company made $86,709 of payments.
|
|
|
{e} |
- On September 10, 2020, the
Company issued a promissory note for $50,000. In connection with
this note the company issued 50,000 shares of common stock with a
fair value of $12,000, which was recorded as a debt discount and
amortized over the life of the loan.
|
|
|
* |
‐ unsecured note
|
|
|
** |
‐ secured note and collateralized
by all tangible and intangible personal property
|
During the years ended December 31, 2020 and 2019, the Company
recorded $383,338 and $99,972 of interest expense related to the
amortization of debt discount and $160,216 and $54,617 of regular
interest, respectively. As of December 31, 2020 and 2019, accrued
interest was $61,099 and $2,383, respectively.
NOTE 6 – STOCKHOLDERS’ DEFICIT
The following table shows the changes in shares of common stock for
2020 and 2019:
|
|
|
2020
|
|
|
2019
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
outstanding, beginning balances
|
|
|
20,313,771 |
|
|
|
|
|
|
17,709,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for
cash to a related party
|
|
|
499,998 |
|
|
$ |
100,000 |
|
|
|
- |
|
|
$ |
- |
|
|
Common stock issued to
consultants for services
|
|
|
600,000 |
|
|
|
131,350 |
|
|
|
1,342,184 |
|
|
|
348,850 |
|
|
Common stock issued to
consultants for services - related party
|
|
|
- |
|
|
|
- |
|
|
|
75,000 |
|
|
|
18,750 |
|
|
Common stock issued with
loans payable
|
|
|
374,000 |
|
|
|
99,632 |
|
|
|
1,062,500 |
|
|
|
309,713 |
|
|
Common stock issued for
related party loan
|
|
|
579,410 |
|
|
|
126,402 |
|
|
|
25,000 |
|
|
|
5,250 |
|
|
Common stock issued for
services
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
30,000 |
|
|
Common stock
outstanding, ending balances
|
|
|
22,367,179 |
|
|
$ |
457,384 |
|
|
|
20,313,771 |
|
|
$ |
712,563 |
|
Warrant Activity
Common Stock Warrants
On February 5, 2019, the Company signed a Consulting Agreement for
a six (6) month term with a consultant to run the day-to-day
manufacturing, packaging and distribution of the Company’s
chocolate product line. The Consulting Agreement has a $7,000
monthly fee. In addition, the Company issued a warrant to the
Consultant to purchase 60,000 shares of the Company’s common stock
at the closing market price of $0.30 on February 5, 2019 with a
term of three (3) years. The Company valued these warrants using
the Black-Scholes option pricing model with the following inputs:
exercise price of $0.30; fair market value of underlying stock of
$0.30; expected term of 3 years; risk free rate of 2.50%;
volatility of 388.56%; and dividend yield of 0%. The total fair
value of these warrants is $17,988 and was expensed at issuance. On
August 4, 2020, the Company entered into an employee agreement with
the consultant.
On July 22, 2019, the Company issued a promissory note of $250,000.
In connection with this note the Company issued a warrant to
purchase 250,000 shares of the Company’s common stock with an
exercise price of $0.25 per share. The warrant was valued at
$99,925 based on the Black Scholes Model and included in the debt
discount. The warrant is fully vested and was fully expensed as of
the issue date with an exercise term of three (3) years.
On October 2, 2019, the Company issued a promissory note for
$410,000. In connection with this note the Company issued warrants
to purchase 205,000 shares of the Company’s common stock with an
exercise price of $0.30 per share. The warrant was valued at
$52,501 based on the Black Scholes Model and included in the debt
discount. The warrant is fully vested and was fully expensed as of
the issue date with an exercise term of three (3) years.
On October 16, 2019, the Company issued a promissory note for
$140,000. In connection with this note the Company issued warrants
to purchase 205,000 and 140,000 shares of the Company’s common
stock with an exercise price of $0.30 and $0.50 per share,
respectively. The warrants were valued at $83,060 based on the
Black Scholes Model and included in the debt discount. The warrants
are fully vested as of the issue date with an exercise term of
three (3) years.
On October 31, 2019, the Company issued a promissory note of
$200,000. In connection with this note the Company issued warrants
to purchase 200,000 shares of the Company’s common stock with an
exercise price of $0.30 per share. The warrants are valued at
$57,180 based on the Black Scholes Model and included in the debt
discount. The warrants are fully vested as of the issue date with
an exercise term of three (3) years.
On January 29, 2020, the Company issued a promissory note of
$96,000 (see Note 5). In connection with this note the Company
issued warrants to purchase 96,000 shares of the Company’s common
stock with an exercise price of $0.22 per share. The warrants are
valued at $20,717 based on the Black Scholes Model and included in
the debt discount. The warrants are fully vested as of the issue
dates with an exercise term of three (3) years.
On July 7, 2020, our Board of Directors appointed Michael Kaplan to
the Board of Directors. Mr. Kaplan’s compensation as a director for
the initial twelve months will consist of one million (1,000,000)
warrants which will vest at the rate of 83,333 warrants per month
for the initial eleven months and the balance in the twelfth month,
provided he is a director on each vesting date, with the initial
tranche vesting on the day he takes office and then on each monthly
anniversary of such date thereafter. Each Warrant will be
exercisable for 36 months after it vests and will be exercisable at
a price of $0.18 per share. The warrants are valued at $177,200
based on the Black Scholes Model.
Prior to Mr. Kaplan’s appointment to the Board of Directors, on
July 7, 2020 the Company entered into a Consulting Agreement with
Mr. Kaplan to award him, as full compensation for two (2) years of
service, warrants to purchase two million (2,000,000) shares of
common stock at an exercise price of $0.18 per share, which was the
closing price of our common stock on such date. The warrants are
valued at $354,400 based on the Black Scholes Model. Due to the
fact that management has assessed the probability of certain
milestones being met as probable, the warrants are being
straight-lined over the term of services, and accelerated whenever
a milestone is met. The probability of the remaining milestone
being met is reviewed by management every quarter. For the year
ended December 31, 2020, the Company recorded $99,353 as
compensation expense related to the warrants.
The warrants shall vest upon the occurrence to the Company of the
following milestone events through the efforts of the
consultant:
|
No. of
Warrants
|
|
Milestone
|
|
100,000
|
|
Acceptance by the
Company of a full go-to market strategy for the Company's products.
This milestone has been achieved as of December 31, 2020.
|
|
100,000
|
|
Acceptance by the
Company of a social marketing platform and PR strategy and
onboarding of such.
|
|
300,000/500,000
|
|
300,000 for each MULO
retailer that is onboarded - regardless of store count carrying the
product; and 500,000, if the onboarded MULO is a national
chain.
|
|
300,000
|
|
Deliverance of full due
diligence package for each potential acquisition for which the
Company requests the consultant perform due diligence
|
|
500,000
|
|
Upon the closing of any
acquisition which the consultant brought to the Company and
provided due diligence.
|
|
500,000
|
|
Additional compensation
in board seat agreement.
|
On July 31, 2020, the Company issued a warrant to purchase 100,000
shares of the Company’s common stock to a consultant for services.
The warrants are valued at $31,500 based on the Black Scholes Model
and were fully vested at issuance.
On August 4, 2020, the Company signed an Employment Agreement for a
term of three years with an annual base salary of eighty-four
thousand dollars ($84,000). As part of the agreement the Company
issued a warrant to the employee to purchase 300,000 shares of the
Company’s common stock with a term of three (3) years. The warrants
are valued at $97,470 based on the Black Scholes Model. In
addition, the employee will receive a warrant to purchase 300,000
of the Company’s common stock for each of the two remaining years
under the Employment Agreement with an exercise price equal to the
closing market price of the Company’s common stock on the first day
of each of such two annual employment periods. The warrants will be
subject to a 12-month period whereby the warrants will vest in
equal monthly increments for each year of the employment period.
Each of the warrants will be exercisable within a three-year period
from the date of issue. Once per quarter, the employee may waive
the right to receive 25,000 warrants and receive in exchange for
$5,000 worth of shares of the Company’s common stock. In the event
the employee’s employment is terminated by the Company without
cause, the employee shall be entitled to receive severance in an
amount equal to the lesser of three month’s salary or the amount of
salary otherwise payable until the termination date. The employee
additionally shall be entitled to retain all warrants scheduled to
vest within the following six months.
A summary of the Company’s warrants to purchase common stock
activity is as follows:
|
|
|
Number
of
Warrants
(in
common
shares)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding, December
31, 2018
|
|
|
343,750 |
|
|
$ |
0.08 |
|
|
Granted
|
|
|
1,060,000 |
|
|
|
0.31 |
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
Forfeited or
cancelled
|
|
|
- |
|
|
|
- |
|
|
Outstanding, December
31, 2019
|
|
|
1,403,750 |
|
|
$ |
0.26 |
|
|
Granted
|
|
|
3,496,000 |
|
|
|
0.20 |
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
Forfeited or
cancelled
|
|
|
- |
|
|
|
- |
|
|
Outstanding, December
31, 2020
|
|
|
4,899,750 |
|
|
$ |
0.21 |
|
As of December 31, 2020, 2,303,917 warrants for common stock were
exercisable and the intrinsic value of these warrants was $71,056,
the weighted average remaining contractual life for warrants
outstanding was 2.87 years and the remaining expense is $403,998
over the remaining amortization period which is 1.50 years.
As of December 31, 2019, 1,403,750 warrants for common stock were
exercisable and the intrinsic value of these warrants was $55,688
and the weighted average remaining contractual life for warrants
outstanding was 2.41 years.
Preferred Stock Warrants
On May 10, 2018, the Company issued warrants to purchase 1,280,000
shares of Series B Preferred Stock, in the aggregate, to its Board
of Directors as compensation expense for services to be performed
for the period May 10, 2018 through December 31, 2020. The warrants
have an exercise price of $0.60, vest over a 32-month period
starting May 10, 2018 through December 31, 2020, and are
exercisable from January 1, 2019 through December 31, 2027. As of
December 31, 2019, there were 800,000 Series B Preferred Stock
warrants exercisable. The Company will expense the fair value of
these warrants in the amount of $768,000 ratably during the years
ended December 31, 2018, 2019 and 2020. For the year ended December
31, 2020 and 2019, the Company recorded $290,981 and $290,186,
respectively, as compensation expense related to the warrants.
On December 30, 2019, the Company issued warrants to purchase
600,000 shares of Series B Preferred Stock, in the aggregate, to
three members of its Board of Directors as compensation expense for
additional services performed during the year ended December 31,
2019. The warrants have an exercise price of $1.20 per share, are
fully vested at issuance, and are exercisable from December 31,
2019 through December 30, 2029. The Company expensed the fair value
of these warrants in the amount of $720,000 during the year ended
December 31, 2019.
On March 18, 2020, the Company issued its CFO and Director warrants
to purchase 500,000 shares of Series B Preferred Stock in lieu of
$250,000 of deferred salary. The warrants have an exercise price of
$0.75 per share, are fully vested at issuance, and are exercisable
from March 18, 2020 through March 17, 2030. The fair value of these
warrants was $375,000 and the additional $125,000 over the deferred
salary amount was recorded as compensation expense during the year
ended December 31, 2020. As a result of this issuance, the price
protection clause on the director’s warrants issued on December 31,
2019 was triggered resulting in the warrants being reset to an
exercise price of $0.75, and the effect was immaterial.
A summary of the Company’s warrants to purchase Series B Preferred
Stock activity is as follows:
|
|
|
Number
of
Warrants
(in Series
B
Preferred
Stock)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding, December
31, 2018
|
|
|
3,370,000 |
|
|
$ |
0.57 |
|
|
Granted
|
|
|
600,000 |
|
|
|
1.20 |
|
|
Outstanding, December
31, 2019
|
|
|
3,970,000 |
|
|
$ |
0.67 |
|
|
Granted
|
|
|
500,000 |
|
|
|
0.75 |
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
Forfeited or
cancelled
|
|
|
- |
|
|
|
- |
|
|
Outstanding, December
31, 2020
|
|
|
4,470,000 |
|
|
$ |
0.68 |
|
As of December 31, 2020, 4,470,000 warrants for Series B preferred
stock were exercisable and the intrinsic value of these warrants
was $1,932,750, the weighted average remaining contractual life for
warrants outstanding was 7.37 years and the warrants have been
fully expensed.
As of December 31, 2019, 3,490,000 warrants for Series B preferred
stock were exercisable and the intrinsic value of these warrants
was $1,826,100. As of December 31, 2019, the weighted average
remaining contractual life was 8.14 years for warrants outstanding
and the remaining expense is $290,981 over the remaining
amortization period which is 1 year.
NOTE 7 – LEASES
On June 23, 2020, the Company entered into an operating lease
agreement with terms of 4 years, and an option to extend for three
years, comprising of office and warehouse space. This option is
included in the lease term when it is reasonably certain that the
option will be exercised and failure to exercise such option will
result in economic penalty and as such the option to extend for the
three year term is not included in the below calculation.
The assets and liabilities from operating leases are recognized at
the commencement date based on the present value of remaining lease
payments over the lease term using the Company’s secured
incremental borrowing rates or implicit rates, when readily
determinable. Short-term leases, which have an initial term of 12
months or less, are not recorded on the consolidated balance
sheet.
The Company’s operating lease does not provide an implicit rate
that can readily be determined. Therefore, the Company uses a
discount rate based on our incremental borrowing rate, which is
determined using the average interest rate of our long-term debt as
of June 23, 2020.
The Company’s weighted-average remaining lease term relating to its
operating leases is 3.33 years, with a weighted-average discount
rate of 12.00%.
For the year ended December 31, 2020, the Company incurred lease
expense for its operating leases of $43,821 which was included in
general and administrative expenses on the accompanying
consolidated statements of operations.
The Company had operating cash flows used in operating leases of
$43,612 for the year ended December 31, 2020.
The Company does not include the non-lease components that are
associated with the lease and accounts for them outside of the
lease in accordance with ASC Topic 842 Leases. The
percentage of cost associated with the lease component was
100%.
The following table presents information about the amount, timing
and uncertainty of cash flows arising from the Company’s operating
leases as of December 31, 2020.
|
Maturity of Lease
Liability
|
|
|
|
|
2021
|
|
$ |
85,860 |
|
|
2022
|
|
|
86,881 |
|
|
2023
|
|
|
89,487 |
|
|
2024
|
|
|
30,122 |
|
|
Total undiscounted operating lease
payments
|
|
$ |
292,350 |
|
|
Less: Imputed interest
|
|
|
52,894 |
|
|
Present value of operating lease
liabilities
|
|
$ |
239,456 |
|
NOTE 8 - COMMITMENTS
On July 16, 2018, the Company entered into a consulting agreement
with a service provider that contains the following terms:
|
|
•
|
A $6,000 per month
advance of Holy Cacao equity distribution will be awarded every
month Holy Cacao earns a net profit over a period of twenty-four
(24) consecutive months following the initial product launch and
production sale.
|
|
|
|
|
|
•
|
300,000 warrants for
shares of the Company’s common stock will be awarded after each of
two consecutive twelve (12) month periods in which Holy Cacao earns
a net profit from gross annual product sales of at least $1M. Each
of the two 300,000 warrant awards will vest equally over a twelve
(12) month period.
|
On August 14, 2019, the Company entered into an agreement with a
CFN Media. In consideration for the services and deliverables
provided by CFN Media, the Company will make three (3) cash
payments to CFN Media totaling $30,000. Payments will be made in
accordance with the following staged schedule:
“Stage 1” - $10,000 due upon the signing of the agreement for the
Stage 1 services and deliverables: the interview, lead generation
system and two (2) articles, including syndication, distribution
and placement. This payment has been made.
“Stage 2” - $10,000 due upon the Company’s receipt of CFN Media’s
invoice issued after CFN Media’s completion of Stage 1 and the
Company’s confirmation they are ready to continue with Stage 2,
which will include CFN Media’s delivery of two (2) Articles with
the embedded interview and lead generation, as well as syndication,
distribution and placement of services and deliverables.
“Stage 3” - $10,000 due upon the Company’s receipt of CFN Media’s
invoice issued after CFN Media’s completion of Stage 2 and the
Company’s confirmation they are ready to continue with Stage 3,
which will include CFN Media’s delivery of two (2) Articles with
the embedded interview and lead generation, as well as syndication,
distribution and placement of services and deliverables.
On October 10, 2019, the Company signed a master distribution
agreement with CBD Unlimited, Inc., which is a public company and a
master distributor, to distribute the Company’s hemp-based
chocolate products. The term of this agreement is four years. The
agreement includes the issuance of 250,000 shares of the Company’s
common stock at the closing market price of $0.26 per share as of
the date of the agreement. Additionally, FIFG shall pay the
distributor a commission for its services hereunder amounting to
applicable percentage of the sales price of any sales or sales
contract with a customer.
On January 14, 2020, the Company entered into an agreement with a
Sales Consultant to further the business purpose of the Company. In
consideration for the services provided by the Consultant, the
Consultant will receive a commission of the gross sales (net of
returns) that were directly generated by the consultant to new
customers.
On October 15, 2020, the Company entered into a chocolate sales
agreement with a sales consultant. The Consultant will receive a
commission of the gross sales (net of returns) that were directly
generated by the consultant to new customers. The Consultant shall
receive a sales commission of the gross sales (net of returns)
directly generated by the Consultant to such distributor and such
distributor shall receive a commission of such gross sales (net of
returns). Commissions shall be paid within 30 days of the end of
the quarter in which they are deemed earned. No commissions are due
as of December 31, 2020. In addition, once Salesman has made
$75,000 of gross sales (net of returns) he shall receive 75,000
shares of the Company’s common stock. This agreement shall continue
for sixty months from the date of the agreement and will
automatically extend for additional successive sixty-month terms
unless written notice is delivered at least thirty days prior to
the end of the current term.
On October 19, 2020, the Company entered into a chocolate sales
agreement with B&A Brokerage for the greater metropolitan New
York area. The term of the agreement is for one year and will
automatically renew itself in one-year increments unless either
party gives written notice of termination at least sixty days prior
to the end of the term. During the initial term, the broker will
receive a minimum monthly commission or a percentage of paid
invoices for all sales in the territory, whichever is greater.
After the initial term, the broker will receive a monthly
commission of paid invoices for all sales in the territory. No
commissions are due as of December 31, 2020.
On November 9, 2020, the Company entered into an agreement with a
consultant. The consultant shall provide the following services:
develop a marketing plan and act as a sales agent with respect to
the wholesale of various products by the Company. As compensation
for the services, the consultant shall receive a cash payment in an
amount in excess of 9% of the profit margin. However, in the event
the average closing price of the Company’s common stock on the
common stock’s primary market over the final ten (10) trading days
of any month is greater than or equal to $0.50, then the cash
compensation for such month shall only be the amount of profit
margin generated by the sales of the products in excess of 14% of
gross sales and the amount of profit margin between 9% and 14% of
gross sales shall completely belong to the Company. Prior to the
payment date of each month, the consultant can elect to receive all
or part of the cash compensation due for such month in the form of
common stock by providing written notice of such election to the
Company. The number of shares to be issued shall be calculated
based upon a per share value equal to 80% of the valuation price.
This agreement shall commence on the effective date and shall
continue for a term of two (2) years. Prior to six months after the
effective date this agreement may not be cancelled without cause.
After six months this agreement may be sooner terminated by either
party upon sixty days written notice.
On November 9, 2020, the Company entered into a grant agreement
with a sales consultant. As compensation for the services, the
Company will issue up to three million (3,000,000) shares to the
sales consultant in monthly installments over the twenty (24) month
term of the agreement. The number of shares to be issued by the
Company to the sales consultant on a monthly basis will be
determined by the amount of net sales of various wholesale products
generated by the sales consultant at the end of each month
multiplied by a fixed percentage of nine percent (9%) divided by
the last closing market price of the shares as of the effective
date. In addition to the shares to be issued, the sales consultant
shall be issued three million (3,000,000) warrants to purchase
shares. One warrant shall be fully vested for every share issued.
The exercise price of each warrant shall be equal to the grant
price and each warrant shall be exercisable for thirty-six (36)
months following the date of vesting. Until such time as the shares
underlying the warrants are registered, the warrants may be
exercised via a cashless exercise.
NOTE 9 – CONCENTRATION RISKS
The Company recognizes the concentration of its merchant cash
advances, which could inherently create a potential risk to future
working capital in the event that the Company is not able to
collect all, or a majority, of the outstanding merchant cash
advances. The Company actively mitigates its portfolio
concentration risk by monitoring its merchant cash advance
provider’s ability to participate in merchant cash advances from
alternative providers and spreading merchant cash advance
participation across various merchants.
As of December 31, 2020, the Company’s receivables from merchant
cash advances included $59,719 from two merchants ($25,929 and
$33,790), representing 49.3% of the Company’s merchant cash
advances. The Company earned $84,525 and $27,175 of MCA income from
two merchants, representing 53.5% and 17.2%, respectively of the
Company’s MCA income for the twelve months ended December 31,
2020.
As of December 31, 2019, the Company’s receivables from merchant
cash advances included $713,124 from two merchants ($179,853 and
$533,271), representing 81.3% of the Company’s merchant cash
advances. The Company earned $130,243 of MCA income from one
merchant, representing 44.2% of the Company’s MCA income for the
twelve months ended December 31, 2019.
As of December 31, 2020 and 2019, there was no accounts payable
concentration other than amounts owed to related parties which
makes up 74% and 61% of the balance, respectively.
For the year ended December 31, 2020, the Company had purchase
concentrations of 49% and 14% from two vendors.
For the year ended December 31, 2019, the Company had purchase
concentrations of 34%, 26%, 15% and 12% from four vendors.
NOTE 10 – SUBSEQUENT EVENTS
On January 1, 2021, the Company issued 40,000 shares of the
Company’s common stock based on the fair market value on the date
of issuance, in connection with the extension of the maturity date
of related party note 3. (See Note 2).
On January 14, 2021, the Company entered into an agreement with a
Sales Consultant to further the business purpose of the Company. In
consideration for the services provided by the Consultant, the
Consultant will receive a commission of the gross sales (net of
returns) that were directly generated by the consultant to new
customers. This agreement shall continue for sixty months from the
date of the agreement and will automatically extend for additional
successive sixty month terms unless written notice is delivered at
least thirty days prior to the end of the current term.
On January 19, 2021, the Company sold 83,333 shares of common stock
at a purchase price of $0.20 per share for a total purchase price
of $16,667.
On February 1, 2021, the Company issued 36,765 shares of common
stock to a consultant at $0.14 per share, which was a 20% discount
to the fair market closing price, for a total of $5,000.
On February 9, 2021, the Company sold 83,333 shares of common stock
at a purchase price of $0.20 per share for a total purchase price
of $16,667.
On March 1, 2021, the Company extended the third party note payable
note 2 to July 22, 2021 based on the same terms and conditions.
(See Note 5).
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable
Item 9A.
Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure
Controls and Procedures
We maintain a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by us in the
reports filed under the Securities Exchange Act, is recorded,
processed, summarized and reported within the time periods
specified by the SEC’s rules and forms. Disclosure controls are
also designed with the objective of ensuring that this information
is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required
disclosure. As further discussed below, we have identified material
weaknesses in the effectiveness, design and operation of our
disclosure controls and procedures.
Management’s Annual Report on Internal Control over
Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in Rule 13a-15(f) or
15d-15(f) promulgated under the Securities Exchange Act of 1934 as
a process designed by, or under the supervision of, the Company’s
principal executive officer and principal financial officer and
effected by our board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with accounting principles
generally accepted in the United States (“U.S. GAAP”) and includes
those policies and procedures that:
|
1.
|
Pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of
the Company;
|
|
2.
|
Provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. GAAP
and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors
of the Company; and
|
|
3.
|
Provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could
have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material
misstatements may not be prevented or detected on a timely basis by
internal control over financial reporting. However, these inherent
limitations are known features of the financial reporting process.
Therefore, it is possible to design into the process safeguards to
reduce, though not eliminate, this risk.
The Company’s management, including the chief executive officer and
chief financial officer, do not expect that its disclosure controls
or internal controls will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. In addition, the design
of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within a company have been detected. These inherent limitations
include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or
mistake.
As of December 31, 2020, management has not completed an effective
assessment of the Company’s internal controls over financial
reporting based on the 2013 Committee of Sponsoring Organizations
(COSO) framework. Management has concluded that, during the period
covered by this report, our internal controls and procedures were
not effective to detect the inappropriate application of U.S. GAAP.
Management identified the following material weaknesses set forth
below in our internal control over financial reporting.
1.
We lack the necessary corporate accounting resources to maintain
adequate segregation of duties.
2.
We did not perform an effective risk assessment or monitor internal
controls over financial reporting.
This annual report does not include an attestation report of the
Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not
subject to attestation by the Company’s registered public
accounting firm pursuant to rules of the SEC that permit the
Company to provide only the management’s report in this annual
report.
Item 9B.
Other Information.
None
PART
III
Item 10.
Directors, Executive Officers and Corporate
Governance.
Identification of Directors and Executive
Officers:
As of March 3, 2021, our Board of Directors consisted of five
members. Each director holds office until his successor is duly
elected by the stockholders. The executive officers serve at the
pleasure of the Board of Directors. Our current directors and
executive officers are:
|
Name
|
|
Age
|
|
Position
|
|
Year
Appointed
|
|
|
|
|
|
|
|
|
Harold Kestenbaum
|
|
71
|
|
Interim Chief Executive
Officer and Chairman of the Board of Directors
|
|
2017
|
|
Mark J. Keeley
|
|
58
|
|
Chief Financial Officer
and Director
|
|
2017
|
|
Abraham Rosenblum
|
|
41
|
|
Secretary and
Director
|
|
2016
|
|
Hershel Weiss
|
|
47
|
|
Director
|
|
2016
|
|
Michael Kaplan
|
|
53
|
|
Chief Marketing Officer
and Director
|
|
2020
|
HAROLD L. KESTENBAUM is an attorney who has
specialized in franchise law and other matters relating to
franchising since 1977. From May 1982 until September 1986, Harold
served as franchise and general counsel to Sbarro, Inc., the
national franchisor of over 1,000 family-style Italian restaurants,
and was a director from March 1985 to December 2006. From September
1983 to October 1989, he served as President and Chairman of the
Board of FranchiseIt Corporation, the first publicly traded company
specializing in providing franchise marketing and consulting
services and equity financing to emerging franchise companies,
which he co-founded. Harold has authored the first book dedicated
to the entrepreneur who wants to franchise his/her business called
“So You Want To Franchise Your Business.” It is a step-by-step
guide to what a business person needs to know and do to properly
roll out a franchise program.
He has served as a Director of numerous nationally and
internationally known franchisors. He has been practicing franchise
law since 1981. He was with Gordon & Rees, a San Francisco
based national law firm, from September 2011 to June 2014. On May
1, 2019, he merged his practice with the Philadelphia based law
firm, Spadea and Lignana and is a partner in that firm.
Harold is a member of the American Bar Association’s Antitrust
Section, a member of the Antitrust Section’s Forum Committee on
Franchising since 1978, a member of the Subcommittee on Franchising
of the American Bar Association’s Corporation Banking and Business
Law Section, is a founding member and past Chairman of the New York
State Bar Association’s Franchise, Distribution and Licensing Law
Section, and he currently serves as Chairman for its Education and
Seminar Subcommittee (he has chaired Statewide seminar programs for
New York State attorneys in 1997, 2000, 2002, 2004 and 2005 and
chaired seminars on Franchise Law for the Nassau and Suffolk County
Bar Associations) and was a member of the International Franchise
Association’s Supplier Forum Advisory Board. He has published many
articles related to franchising and frequently lectures and appears
before numerous organizations and law schools speaking on various
topics in franchising. He has been chosen one of the top 100
franchise attorneys in North America by Franchise Times in
2004-2011 and was named one of the three best franchise attorneys
in the New York metro area by New York Magazine for 2005-2009 and
was named New York Super Lawyer as one of the Top Attorneys in the
New York Metro Area for 2007-2016.
Harold received his Bachelor of Arts Degree in 1971 from Queens
College, Queens, New York and earned his Juris Doctor Degree from
the University of Richmond School of Law, Richmond, Virginia, in
1975, where he was a member of Law Review.
MARK J. KEELEY is a Certified Public Accountant
(CPA) who began his career in public accounting with KPMG LLP in
August 1985, after graduating Summa Cum Laude from the University
of Massachusetts with a Bachelor’s Degree in Accounting and
Computer Science. He obtained a Master’s Degree in Finance from
Boston College in May 1988 and continued his public accounting
career at Coopers & Lybrand LLP in September 1990 and was
admitted to the Partnership when Coopers & Lybrand LLP merged
with Price Waterhouse LLP to become PricewaterhouseCoopers LLP
(PwC) in October 1988. He retired from PwC in July 2014. From April
2015 through November 2016, he served as the Chief Financial
Officer (CFO) of Bradley, Foster & Sargent, Inc.; a Registered
Investment Advisor (RIA) and SEC registrant with over $3B of assets
under management.
Mr. Keeley is a qualified audit committee financial expert and one
of the first holders of the Certified Information Technology
Professional (CITP) designation granted by the American Institute
of Public Accountants (AICPA). He has applied his accounting,
financial management and information technology experience to a
broad range of national and international companies, including the
development of artificial intelligence (AI) solutions for the
restaurant and restaurant franchise industry.
He has regularly worked with the highest levels of senior
management, boards of directors, external auditors, investors, and
regulators to build consensus and reach a common understanding of
complex financial matters. He has testified to the United States
Congress regarding financial accounting and auditing aspects of the
U.S. Federal Government and served as PwC’s representative to
Congressman Mr. Michael Conaway.
ABRAHAM ROSENBLUM began his career in the
automotive industry as a distributor of wholesale parts, and
eventually moved into owning and developing real estate. Mr.
Rosenblum has worked with “A rated” tenants with several large
corporations such as TD Bank, Walgreens and Family Dollar. In 2007,
Mr. Rosenblum began investing in real estate along with
institutional lenders. Mr. Rosenblum was the President of a
telecommunications carrier network, Tandem Transit, which he helped
form and finance for five years. Mr. Rosenblum was educated at YTC
in Brooklyn New York. He served on the Board of Directors for
several technology companies and automotive distribution outlets.
Mr. Rosenblum remains active in several charitable
organizations.
HERSHEL (HERSHY) WEISS is the Co-Founding Member
of First Foods Group Inc. Mr. Weiss has been active in the New
Jersey, Connecticut and Massachusetts real estate market for the
last 21 years. As an employee at Basad Management LLC and as a
principal, Mr. Weiss has been involved in residential, office,
industrial and retail sectors of the market, starting in
maintenance, moving up to renovations and construction,
environmental remediation, then on to financing, including
complicated deal structures with lenders and investors and finally
acquisitions and redevelopment. Mr. Weiss actively negotiates
leases in the commercial and retail sectors and has become very
familiar with the retail food industry by working with tenants
starting out in the industry.
MICHAEL KAPLAN is a highly experienced marketing
executive with over three decades of enterprise retail and
wholesale presence amongst the world’s largest entities. He is a
global sourcing expert who has built merchandising programs on both
private label and licensed brands. He also has strong P&L
management experience coupled with skills in the areas of brand
positioning, marketing strategy, creative new product innovation,
integrated marketing communications and total product lifecycle
management. He has delivered aggressive revenue and earnings growth
across multiple retail and wholesale channels while following
market trends amongst retailers to compare data. He has led teams
across grocery, mass, drug, warehouse and specialty retailers
throughout North America, Europe and the Middle East and produced
multi-billion-dollar sales and royalties.
Penalties or Sanctions
None of our directors or executive officers has been subject to any
penalties or sanctions imposed by a court relating to securities
legislation or by a securities regulatory authority or has entered
into a settlement agreement with a securities regulatory authority
or been subject to any other penalties or sanctions imposed by a
court or regulatory body that would likely be considered important
to a reasonable investor making an investment decision.
Personal Bankruptcies
None of our directors or executive officers, nor any personal
holding company of any such person has, within the last ten years
become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency, or been subject to or instituted any
proceedings, arrangement or compromise with creditors, or had a
receiver, receiver manager or trustee appointed to hold the assets
of that person.
Employment Agreements
Executive Officer (“Interim CEO”). Mr. Kestenbaum earns $40,000 per
year for his role as Chairman of the Board. As of December 31,
2020, the Company has accrued a total of $40,000 of compensation
for his role as Interim CEO under a previous agreement.
On March 1, 2017, Mark J. Keeley assumed the role of Chief
Financial Officer (“CFO”). Pursuant to his Employment Agreement,
the CFO shall receive $20,833 per month. Additionally, Mr. Keeley
earns an additional $40,000 per year for his role as a Director of
the Board. On March 18, 2020, the Company issued its CFO and
Director warrants to purchase 500,000 shares of Series B Preferred
Stock in lieu of $250,000 of deferred salary (see Note 6). As of
December 31, 2020 and 2019, the Company has accrued $329,167 for
each such year in relation to the employment agreements and $20,578
and $16,953 in each such year in relation to the payroll tax
liability.
Family Relationships
There are no family relationships between any of our directors or
executive officers and any other directors or executive
officers.
Term of Office
All directors hold office for a one (1) year period and have been
duly elected and qualified. Directors will be elected at the annual
meetings to serve for one-year terms and until their successors are
duly elected and assume office. Each officer of the Company is
appointed by and serves at the discretion of the Board of
Directors. None of the officers or directors of the Company is
currently an officer or director of a company required to file
reports with the Securities and Exchange Commission, other than the
Company.
Involvement in Certain Legal
Proceedings
During the past five years, none of the following occurred with
respect to a present or former director, executive officer, or
employee: (1) any bankruptcy petition filed by or against any
business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years
prior to that time; (2) any conviction in a criminal proceeding or
being subject to a pending criminal proceeding (excluding traffic
violations and other minor offences); (3) being subject to any
order, judgment or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting
his or her involvement in any type of business, securities or
banking activities; and (4) being found by a court of competent
jurisdiction (in a civil action), the SEC or the Commodities
Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
Board Committees
Audit Committee
We do not have a separately-designated standing audit committee.
The Board of Directors performs the functions of an audit
committee, but no written charter governs the actions of the Board
of Directors when performing the functions that would generally be
performed by an audit committee. The Board of Directors approves
the selection of our independent accountants and meets and
interacts with the independent accountants to discuss issues
related to financial reporting. In addition, the Board of Directors
reviews the scope and results of the audit with the independent
accountants, reviews with management and the independent
accountants our annual operating results, considers the adequacy of
our internal accounting procedures and considers other auditing and
accounting matters, including fees to be paid to the independent
auditor and the performance of the independent auditor.
Compensation and Nominations
Committees
We currently have no compensation or nominating committee or other
board committee performing equivalent functions. Currently, the
members of our Board of Directors participate in discussions
concerning executive officer compensation and nominations to the
Board of Directors.
Shareholder Communications
The Company does not have a process for security holders to send
communications to the board of directors due to the fact that
minimal securities are publicly traded.
Code of Conduct and Ethics
We have not adopted a Code of Ethics, as required by sections 406
and 407 of the Sarbanes-Oxley Act of 2002. Our management believes
that the size of our company and current operations at this time do
not require a code of ethics to govern the behavior of our
officers. We anticipate that we will adopt a code of ethics once we
are in a position to do so.
Item 11.
Executive Compensation.
On February 27, 2017, Harold Kestenbaum assumed the role of
Chairman of the Board of Directors and Interim Chief Executive
Officer (“Interim CEO”). Mr. Kestenbaum earns $40,000 per year for
his role as Chairman of the Board. As of December 31, 2020, the
Company has accrued a total of $40,000 of compensation for his role
as Interim CEO under a previous agreement.
On March 1, 2017, Mark J. Keeley assumed the role of Chief
Financial Officer (“CFO”). Pursuant to his Employment Agreement,
the CFO shall receive $20,833 per month. Additionally, Mr. Keeley
earns an additional $40,000 per year for his role as a Director of
the Board. On March 18, 2020, the Company issued its CFO and
Director warrants to purchase 500,000 shares of Series B Preferred
Stock in lieu of $250,000 of deferred salary (see Note 6). As of
December 31, 2020 and 2019, the Company has accrued $329,167 in
each such year in relation to the employment agreements and $20,578
and $16,953 in each such year in relation to the payroll tax
liability.
Stock Option Plan
We do not have a stock option plan; however, we have issued
warrants to acquire our securities, as detailed in the notes to the
consolidated financial statements.
Employee Pension, Profit Sharing or Other Retirement
Plans
We do not have a defined benefit, pension plan, profit sharing or
other retirement plan, although we may adopt one or more of such
plans in the future.
Director’s Compensation
On May 10, 2018, the directors of the Company were awarded
share-based compensation for the service period of May 10, 2018
through December 31, 2020, as a one-time award of the ability to
purchase a particular amount of warrants, ranging from 80,000 to
400,000 (collectively the “Warrants”) with the following terms:
|
|
·
|
Number and Type – Each
Director is entitled to a one-time award of Warrants for the number
of shares of Series B Preferred Stock of the Company. Each share of
Series B Preferred Stock shall have voting rights equal to five (5)
votes per share. Each share of Series B Preferred Stock is
convertible into five (5) shares of the Company’s Common Stock (the
“Common Stock”), including liquidation preference over Common
Stock.
|
|
|
|
|
|
|
·
|
Duration – The Warrants
entitle each Director to purchase the Series B Preferred Stock from
the Company, after January 1, 2019 and before December 31,
2027.
|
|
|
|
|
|
·
|
Purchase Price - The
purchase price is $0.60 per share of Series B Preferred Stock.
|
|
|
|
|
|
·
|
Cashless Exercise - If
on the date the Director surrenders all or a portion of the
Warrants for the purchase of Series B Preferred Stock or the
equivalent number of shares of Common Stock, the per share market
value of one share of Common Stock is greater than the exercise
price of the equivalent Warrant, in lieu of exercising the Warrant
by payment of cash, the Director may exercise the Warrant by a
cashless exercise and shall receive a ratably lower number of
shares of Series B Preferred Stock or the equivalent number of
shares of Common Stock.
|
|
|
|
|
|
·
|
Vesting - The Warrants
are subject to a 32-month period whereby the Warrants vest in equal
monthly increments from May 10, 2018 through December 31, 2020. Any
unvested warrants are forfeited, if the Director ceases to be a
Director.
|
The Company issued warrants with respect to 1,280,000 Series B
Preferred Stock, in the aggregate. The Company will expense the
fair value of these warrants in the amount of $768,000 ratably
during the years ended December 31, 2018, 2019 and 2020. For the
year ended December 31, 2020 and 2019, the Company recorded
$290,981 and $290,186 as compensation expense related to the
warrants, respectively.
On February 26, 2019, the Company entered into director agreements
with each of the Directors of the Company. Pursuant to the
agreements, each Director may be compensated with share-based
and/or cash-based compensation. The Directors’ compensation for the
period January 1, 2019 through December 31, 2019 was $10,000 per
quarter per Director to be paid on a date determined by the Board
of Directors. In addition, the Directors were able to receive a
one-time award of the ability to purchase a particular amount of
warrants, as determined by the Board of Directors.
On January 1, 2020, the director agreements were renewed with the
same terms. As of December 31, 2020 and 2019 the Company has
accrued $320,000 and $160,000, respectively, in relation to the
director agreements.
On December 31, 2019, three of the Directors of the Company were
awarded share-based compensation for services performed during the
service period of January 1, 2019 through December 31, 2019, as a
one-time award to each purchase 200,000 warrants (collectively the
“Warrants”) with the following terms:
|
|
·
|
Number and Type – Each
Director is entitled to a one-time award of Warrants for the number
of shares of Series B Preferred Stock of the Company. Each share of
Series B Preferred Stock shall have voting rights equal to five (5)
votes per share. Each share of Series B Preferred Stock is
convertible into five (5) shares of the Company’s common stock,
including liquidation preference over common stock.
|
|
|
·
|
Duration – The Warrants
entitle each Director to purchase the Series B Preferred Stock from
the Company after December 31, 2019 and before December 30,
2029.
|
|
|
|
|
|
·
|
Purchase Price - The
purchase price is $1.20 per share of Series B Preferred Stock.
These warrants have a price protection clause which was triggered
resulting in the warrants being reset to an exercise price of
$0.75. The effect was immaterial.
|
|
|
|
|
|
·
|
Cashless Exercise - If
on the date the Director surrenders all or a portion of the
Warrants for the purchase of Series B Preferred Stock or the
equivalent number of shares of Common Stock, the per share market
value of one share of Common Stock is greater than the exercise
price of the equivalent Warrant, in lieu of exercising the Warrant
by payment of cash, the Director may exercise the Warrant by a
cashless exercise and shall receive a ratably lower number of
shares of Series B Preferred Stock or the equivalent number of
shares of Common Stock.
|
|
|
|
|
|
·
|
Vesting - The Warrants
are fully vested at issuance.
|
The Company issued warrants with respect to 600,000 Series B
Preferred Stock, in the aggregate. The Company expensed the fair
value of these warrants in the amount of $720,000 during the year
ended December 31, 2019.
On July 7, 2020, our Board of Directors appointed Michael Kaplan to
the Board of Directors.
Mr. Kaplan’s compensation as a director for the initial twelve
months will consist of one million (1,000,000) warrants which will
vest at the rate of 83,333 warrants per month for the initial
eleven months and the balance in the twelfth month, provided he is
a director on each vesting date, with the initial tranche vesting
on the day he takes office and then on each monthly anniversary of
such date thereafter. Each Warrant will be exercisable for 36
months after it vests and will be exercisable at a price of $0.18
per share. The warrants are valued at $177,200 based on the Black
Scholes Model. If he remains in office beyond twelve months,
commencing with month thirteen, his compensation will be similar to
the majority of the directors then in office.
Prior to Mr. Kaplan’s appointment to the Board of Directors, on
July 7, 2020 we entered into (i) a Subscription Agreement with Mr.
Kaplan to sell to him one million (1,000,000) shares of common
stock at a purchase price of $0.20 per share for a total purchase
price of $200,000, which shares shall be purchased in twelve (12)
equal monthly installments of 83,333 shares (the last installment
to cover 83,337 shares) with the initial purchase occurring on the
date thereof and subsequent installments on each monthly
anniversary thereafter (ii) a Consulting Agreement with Mr. Kaplan
to award him, as full compensation for two (2) years of service,
warrants to purchase two million (2,000,000) shares of common stock
at an exercise price of $0.18 per share, which was the closing
price of our common stock on such date. The warrants are valued at
$354,400 based on the Black Scholes Model; and (iii) an arrangement
with Mr. Kaplan that in the event he raises outside investment in
the Company in the amount of $500,000 - $2,000,000, he will receive
a warrant with one underlying share for each dollar he so
raises.
The warrants shall vest upon the occurrence to the Company of
certain milestone events through the efforts of the consultant.
(See Note 6 in the notes to the consolidated financial
statements.)
If terminated with cause by the Company, the consultant shall not
thereafter be entitled to any form of compensation, the unvested
warrants shall terminate, and he shall be paid a buyout fee in the
amount of 250,000 fully vested warrants. If terminated without
cause by the Company, all unvested warrants shall be accelerated
and vest in one-half the time it was previously scheduled to
vest.
Related Party Transactions
Related party transactions are detailed in Note 2 in the notes to
the consolidated financial statements included elsewhere in this
Annual Report on Form 10-K.
The following table sets out the compensation received for the
years ended December 31, 2020 and 2019 with respect to each of the
individuals who served as the Company’s principal executive officer
and principal financial officer at any time during the last fiscal
year:
SUMMARY COMPENSATION TABLE
|
Name and Principal
Position
|
|
Fiscal
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive Plan Compensation
|
|
|
Non-Qualified
Deferred Plan Compensation
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
Mark J.
|
|
2020
|
|
$ |
(1)250,000
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
250,000 |
|
|
Keeley
|
|
2019
|
|
$ |
241,667 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
241,667 |
|
_____________
(1) On March 18, 2020, the Company issued the CFO and Director
warrants to purchase 500,000 shares of Series B Preferred Stock in
lieu of $250,000 of deferred salary. All remaining salary due was
accrued. No cash was issued.
Equity Compensation Plan Information - Employment
Agreements
Equity compensation issued in employment agreements in place on
December 31, 2020 and 2019 are detailed in Note 2 in the Notes to
the Financial Statements included elsewhere in this Annual Report
on Form 10-K.
Outstanding Equity Awards at Fiscal
Year-End
A summary of the Company’s outstanding warrant awards at fiscal
year end is as follows:
|
|
|
Number of
Securities
Underlying Unexercised
Options
Exercisable
(#)
|
|
|
Number of
Securities
Underlying Unexercised
Options
Unexercisable
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units
of Stock
that have not
Vested
(#)
|
|
|
Market
Value of
Shares or
Units of
Stock that
have not
Vested
(#)
|
|
|
Mark J. Keeley
|
|
|
1,950,000 |
|
|
|
- |
|
|
|
0.51 – 1.20
|
|
|
Various
|
|
|
- |
|
|
|
- |
|
|
Abraham Rosenblum
|
|
|
1,200,000 |
|
|
|
- |
|
|
|
0.51 – 1.20
|
|
|
Various
|
|
|
- |
|
|
|
- |
|
|
Hershel Weiss
|
|
|
1,200,000 |
|
|
|
- |
|
|
|
0.51 – 1.20
|
|
|
Various
|
|
|
- |
|
|
|
- |
|
|
Harold Kestenbaum
|
|
|
120,000 |
|
|
|
- |
|
|
|
0.51 – 1.20
|
|
|
Various
|
|
|
- |
|
|
|
- |
|
|
Michael Kaplan
|
|
|
579,167 |
|
|
|
2,420,833 |
|
|
|
0.18 |
|
|
July 26, 2024
|
|
|
- |
|
|
|
- |
|
Director’s Compensation
The following table sets forth the Company’s fees and compensation
paid or earned by directors for the years ended December 31, 2020
and 2019.
DIRECTORS COMPENSATION
|
Name
|
|
Year
|
|
Fees
Earned
or
Paid
in
Cash
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive
Plan
Compensation
|
|
|
Non-Qualified
Deferred
Plan
Compensation
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
Abraham Rosenblum
|
|
2020
|
|
$ |
40,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
40,000 |
|
|
|
|
2019
|
|
$ |
40,000 |
|
|
$ |
- |
|
|
$ |
240,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
280,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hershel Weiss
|
|
2020
|
|
$ |
40,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
40,000 |
|
|
|
|
2019
|
|
$ |
40,000 |
|
|
$ |
- |
|
|
$ |
240,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
280,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark J. Keeley
|
|
2020
|
|
$ |
40,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
40,000 |
|
|
|
|
2019
|
|
$ |
40,000 |
|
|
$ |
- |
|
|
$ |
240,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
280,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold Kestenbaum
|
|
2020
|
|
$ |
40,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
40,000 |
|
|
|
|
2019
|
|
$ |
40,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Kaplan (*)
|
|
2020
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
177,200 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
177,200 |
|
|
|
|
2019
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
(*) the compensation above is only reflective of the compensation
paid to Michael Kaplan with regard to his Director duties. He is
compensated for other services outside of the scope of his role as
Director, which is expensed through sales, general and
administrative expenses (SG&A).
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
As of March 3, 2021, the Company had 22,628,610 shares of its
common stock issued and outstanding. The following table sets forth
the beneficial ownership of the Company’s common stock as of March
3, 2021 by each person who is known to have beneficial ownership of
more than 5% of any class of First Foods voting securities, and by
each executive officer and director and the directors and executive
officers of the Company as a group:
|
Title of
Class
|
|
Name
of
Beneficial Owner
(1)
|
|
Amount
of
Shares
|
|
|
Percent
of
Class
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Rosenweiss Capital LLC
(4)
|
|
|
8,000,000
|
|
|
34
|
%(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Hershel Weiss
|
|
|
6,591,665
|
|
|
22
|
%(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Abraham Rosenblum
|
|
|
6,591,665
|
|
|
22
|
%(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Harold Kestenbaum
|
|
|
1,941,665
|
|
|
8
|
%(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Mark J. Keeley
|
|
|
11,091,665
|
|
|
33
|
%(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Michael Kaplan
|
|
|
1,579,164
|
|
|
5
|
%(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Officers and Directors
as a group (5 people)
|
|
|
27,962,490
|
|
|
57
|
%
|
|
|
(1)
|
In care of First Foods
Group, Inc. c/o Incorp Services, Inc., 3773 Howard Hughes Parkway,
Suite 500S, Las Vegas, NV 89169-6014
|
|
|
|
(2)
|
Calculated from the
total of outstanding shares of common stock and common stock
equivalents as of March 20, 2021.
|
|
|
|
(3)
|
Rosenweiss Capital LLC
also owns a Series A Preferred Share with fifty percent (50%)
voting rights.
|
|
|
|
(4)
|
Rosenweiss Capital LLC
is owned by Abraham Rosenblum and Hershel Weiss.
|
|
(5)
|
Does not
include the shares owned by Rosenweiss Capital LLC. Does include
591,665 Series B Convertible Preferred Shares and 5,500,000 Series
B Convertible Preferred Share Warrants for each beneficial
owner.
|
|
|
|
|
(6)
|
Includes
591,665 Series B Convertible Preferred Shares and 500,000 Series B
Convertible Preferred Share Warrants.
|
|
|
|
|
(7)
|
Includes
591,665 Series B Convertible Preferred Shares and 9,750,000 Series
B Convertible Preferred Share Warrants.
|
|
|
|
|
(8)
|
Includes 829,167 Common Stock Share
Warrants.
|
Voting Rights
Holders of the Series A Preferred Shares shall have voting rights
equal to fifty percent (50%) of the voting rights of all
outstanding classes of capital stock of the Company. Holders of the
Series B Preferred Shares shall have voting rights equal to five
(5) votes per each share of the Series B Stock. Holders of the
Series C Preferred Shares shall have voting rights equal to one (1)
vote per each share of the Series C Stock.
Security Ownership of Certain Beneficial
Owners
As of March 3, 2021, the Company is not aware of any persons that
beneficially own more than 5% of its outstanding common stock who
are not listed in the above referenced tables.
Change in Control Arrangements
As of March 3, 2021, there are no arrangements that would result in
a change in control of the Company.
Item 13.
Certain Relationships and Related Transactions, and Director
Independence.
Controlling Persons
The Company is not aware of any agreements or understandings by a
person or group of persons that could be construed as a controlling
person.
Related Transactions
Related party transactions are detailed in Note 2 in the notes to
the consolidated financial statements.
Director independence
Currently, the majority of the Board of Directors of the Company
are not considered “independent” board members.
Item 14.
Principal Accounting Fees and Services.
The following table sets forth the aggregate fees paid during the
years ended December 31, 2020 and 2019 for professional services
rendered by Friedman LLP for the 2020 and 2019 reviews and
audits:
Accounting Fees and Services
|
|
|
2020
|
|
|
2019
|
|
|
Audit Fees
|
|
$ |
86,625 |
|
|
$ |
72,150 |
|
|
Audit Related Fees
|
|
|
- |
|
|
|
- |
|
|
Tax Fees
|
|
|
- |
|
|
|
- |
|
|
All Other Fees
|
|
|
- |
|
|
|
- |
|
|
TOTAL
|
|
$ |
86,625 |
|
|
$ |
72,150 |
|
The category of “Audit Fees” includes fees for our annual audit and
services rendered in connection with regulatory filings with the
SEC, such as the issuance of comfort letters and consents.
All above audit services and audit-related services were
pre-approved by the Board of Directors, which concluded that the
provision of such services by all parties was compatible with the
maintenance of the respective firm’s independence in the conduct of
its audits.
PART
IV
Item 15.
Exhibits, Financial Statement Schedules.
___________
|
(1)
|
Filed as an Exhibit to
the Form S-1, filed by First Foods Group, Inc. on August 10, 2015,
and incorporated herein by reference.
|
|
(2)
|
Filed as an Exhibit to
Form 8-K, filed by First Foods Group, Inc. on January 2, 2018, and
incorporated herein by reference.
|
|
(3)
|
Filed as an Exhibit to
Form 8-K, filed by First Foods Group, Inc. on March 2, 2017, and
incorporated herein by reference.
|
|
(4)
|
Filed as an Exhibit to
Form 8-K, filed by First Foods Group, Inc. on March 7, 2017, and
incorporated herein by reference.
|
SIGNATURES
Pursuant to the requirements of Section13or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Date: March 3, 2021
|
By:
|
/s/ Harold
Kestenbaum
|
|
|
|
Name:
|
Harold Kestenbaum
|
|
|
|
Title:
|
Chief Executive Officer
and Director
|
|
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
By:
|
/s/ Harold
Kestenbaum
|
|
Dated: March 3,
2021
|
|
|
|
Harold Kestenbaum,
|
|
|
|
|
|
Chairman of the
Board,
|
|
|
|
|
|
Chief Executive
Officer
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Mark J.
Keeley
|
|
Dated: March 3,
2021
|
|
|
|
Mark J. Keeley,
|
|
|
|
|
|
Chief Financial
Officer
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Hershel
Weiss
|
|
Dated: March 3,
2021
|
|
|
|
Hershel Weiss,
|
|
|
|
|
Director
|
|
|
|
|
By:
|
/s/ Abraham
Rosenblum
|
|
Dated: March 3,
2021
|
|
|
|
Abraham Rosenblum,
|
|
|
|
|
Director
|
|
|
|
|
By:
|
/s/ Michael
Kaplan
|
|
Dated: March 3,
2021
|
|
|
|
Michael Kaplan,
|
|
|
|
|
Director
|
|
|
|
First Foods (QB) (USOTC:FIFG)
Historical Stock Chart
From Apr 2022 to May 2022
First Foods (QB) (USOTC:FIFG)
Historical Stock Chart
From May 2021 to May 2022
