UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒     QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For Quarterly Period Ended June 30, 2021

 

or

 

☐     TRANSITION REPORT UNDER 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)

 

(I.R.S. 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)

 

(201) 471-0988

Registrant’s telephone number, including area code

 

___________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant (1) has 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 check mark 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 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

  

As of August 12, 2021, the number of shares outstanding of the registrant’s class of common stock was 25,527,847, par value of $0.001 per share.

 

 

 

 

TABLE OF CONTENTS

 

 

Pages

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020

 

3

 

Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2021 and 2020

 

4

 

Condensed Consolidated Statements of Changes in Deficit for the Three and Six Months ended June 30, 2021 and 2020

 

5

 

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2021 and 2020

 

6

 

Notes to Condensed Consolidated Financial Statements

 

7

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

Item 4.

Controls and Procedures

 

29

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

30

 

Item 1A.

Risk Factors

 

30

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

 

Item 3.

Defaults Upon Senior Securities

 

30

 

Item 4.

Mine Safety Disclosures

 

30

 

Item 5.

Other Information

 

30

 

Item 6.

Exhibits

 

31

 

SIGNATURES

 

32

 

 
2

Table of Contents

   

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

First Foods Group, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

June 30,

2021

 

 

December 31,

2020

 

ASSETS

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$ 168,782

 

 

$ 50,386

 

Restricted cash

 

 

23,490

 

 

 

 

Accounts receivable

 

 

23,654

 

 

 

 

Inventory, net

 

 

55,613

 

 

 

46,240

 

Merchant cash advances, net of allowance $147,394 and $291,380, respectively

 

 

53,875

 

 

 

121,079

 

Prepaid expenses and other current assets

 

 

118,022

 

 

 

148,805

 

TOTAL CURRENT ASSETS

 

 

443,436

 

 

 

366,510

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

214,749

 

 

 

242,438

 

Operating lease right-of-use assets

 

 

209,054

 

 

 

239,247

 

TOTAL ASSETS

 

$ 867,239

 

 

$ 848,195

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND DEFICIT

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 876,973

 

 

$ 645,092

 

Accounts payable and accrued liabilities- related party

 

 

608,290

 

 

 

465,506

 

Put liability

 

 

23,490

 

 

 

-

 

Deferred revenue

 

 

90,837

 

 

 

105,058

 

Loans, net of unamortized debt discount

 

 

1,349,150

 

 

 

966,155

 

Related party loans, net of unamortized debt discount

 

 

470,478

 

 

 

685,279

 

Operating lease liabilities

 

 

63,840

 

 

 

60,403

 

TOTAL CURRENT LIABILITIES

 

 

3,483,058

 

 

 

2,927,493

 

 

 

 

 

 

 

 

 

 

Loans, net of unamortized debt discount - long term

 

 

153,600

 

 

 

300,024

 

Operating lease liabilities - long term

 

 

145,973

 

 

 

179,053

 

TOTAL LIABILITIES

 

 

3,782,631

 

 

 

3,406,570

 

 

 

 

 

 

 

 

 

 

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, 25,415,756 and 22,367,179 shares issued and outstanding, respectively

 

 

25,304

 

 

 

22,367

 

Additional paid-in capital

 

 

11,484,143

 

 

 

10,515,601

 

Accumulated deficit

 

 

(14,246,137 )

 

 

(12,954,696 )

Total First Foods Group, Inc. Deficit

 

 

(2,735,557 )

 

 

(2,415,595 )

 

 

 

 

 

 

 

 

 

Noncontrolling interests

 

 

(179,835 )

 

 

(142,780 )

Total deficit

 

 

(2,915,392 )

 

 

(2,558,375 )

TOTAL LIABILITIES AND DEFICIT

 

$ 867,239

 

 

$ 848,195

 

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
3

Table of Contents

 

First Foods Group, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For The Three Months Ended June 30,

 

 

For The Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Product sales, net

 

$ 240,439

 

 

$ 8,778

 

 

$ 256,464

 

 

$ 12,383

 

Merchant cash advance income, net

 

 

7,102

 

 

 

15,933

 

 

 

33,415

 

 

 

109,302

 

Total Revenues

 

 

247,541

 

 

 

24,711

 

 

 

289,879

 

 

 

121,685

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

162,343

 

 

 

4,703

 

 

 

166,084

 

 

 

5,451

 

Professional fees

 

 

2,097

 

 

 

17,896

 

 

 

3,096

 

 

 

30,327

 

General and administrative

 

 

446,423

 

 

 

358,176

 

 

 

933,810

 

 

 

968,062

 

Provision for merchant cash advances

 

 

(6,840 )

 

 

76,853

 

 

 

(144,338 )

 

 

479,885

 

Total Operating Expenses

 

 

604,023

 

 

 

457,628

 

 

 

958,652

 

 

 

1,483,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(356,482 )

 

 

(432,917 )

 

 

(668,773 )

 

 

(1,362,040 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

-

 

 

 

1,000

 

 

 

-

 

 

 

1,000

 

Loss on extinguishment of loans payable

 

 

(299,773 )

 

 

-

 

 

 

(299,773 )

 

 

-

 

Interest expense

 

 

(174,461 )

 

 

(170,704 )

 

 

(359,950 )

 

 

(324,077 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(830,716 )

 

 

(602,621 )

 

 

(1,328,496 )

 

 

(1,685,117 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(830,716 )

 

 

(602,621 )

 

 

(1,328,496 )

 

 

(1,685,117 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlling interest share of loss

 

 

10,748

 

 

 

17,926

 

 

 

37,055

 

 

 

31,275

 

Deemed dividends

 

 

(139,690 )

 

 

-

 

 

 

(139,690 )

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributed to shareholders of First Foods Group, Inc.

 

$ (959,658 )

 

$ (584,695 )

 

$ (1,431,131 )

 

$ (1,653,842 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED LOSS PER COMMON SHARE ATTRIBUTABLE TO FIRST FOODS GROUP, INC. STOCKHOLDERS

 

$ (0.04 )

 

$ (0.03 )

 

$ (0.06 )

 

$ (0.08 )

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ATTRIBUTABLE TO FIRST FOODS GROUP, INC. STOCKHOLDERS

 

 

24,167,311

 

 

 

21,226,672

 

 

 

23,397,874

 

 

 

20,916,568

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
4

Table of Contents

 

First Foods Group, Inc. and Subsidiary

Condensed Consolidated Statements of Changes in Deficit

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional paid-in

 

 

Accumulated

 

 

Total First Foods Group,

 

 

Non-controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 capital

 

 

 deficit

 

 

 Inc. deficit

 

 

interests

 

 

deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash to a related party

 

 

-

 

 

 

-

 

 

 

249,999

 

 

 

250

 

 

 

49,750

 

 

 

-

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

Common stock issued to consultants for services

 

 

-

 

 

 

-

 

 

 

36,765

 

 

 

37

 

 

 

4,963

 

 

 

-

 

 

 

5,000

 

 

 

-

 

 

 

5,000

 

Common stock issued for related party loan

 

 

-

 

 

 

-

 

 

 

140,000

 

 

 

140

 

 

 

28,520

 

 

 

-

 

 

 

28,660

 

 

 

-

 

 

 

28,660

 

Common stock issued with loans payable

 

 

-

 

 

 

-

 

 

 

18,000

 

 

 

18

 

 

 

4,662

 

 

 

-

 

 

 

4,680

 

 

 

-

 

 

 

4,680

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

65,542

 

 

 

-

 

 

 

65,542

 

 

 

-

 

 

 

65,542

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

43,693

 

 

 

-

 

 

 

43,693

 

 

 

-

 

 

 

43,693

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(471,473 )

 

 

(471,473 )

 

 

(26,307 )

 

 

(497,780 )

Balance at March 31, 2021

 

 

1,133,333

 

 

$ 1,133

 

 

 

22,811,943

 

 

$ 22,812

 

 

$ 10,712,731

 

 

$ (13,426,169 )

 

$ (2,689,493 )

 

$ (169,087 )

 

$ (2,858,580 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash to a related party

 

 

-

 

 

 

-

 

 

 

249,999

 

 

 

250

 

 

 

49,750

 

 

 

-

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

Common stock issued to consultants for services - put liability

 

 

-

 

 

 

-

 

 

 

112,390

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock issued for related party loan

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

50

 

 

 

10,450

 

 

 

-

 

 

 

10,500

 

 

 

-

 

 

 

10,500

 

Common stock issued for conversion of loans payable

 

 

-

 

 

 

-

 

 

 

191,424

 

 

 

192

 

 

 

31,067

 

 

 

-

 

 

 

31,259

 

 

 

-

 

 

 

31,259

 

Common stock issued for conversion of loans payable  - related party

 

 

-

 

 

 

-

 

 

 

2,000,000

 

 

 

2,000

 

 

 

458,000

 

 

 

-

 

 

 

460,000

 

 

 

-

 

 

 

460,000

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

74,253

 

 

 

-

 

 

 

74,253

 

 

 

-

 

 

 

74,253

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

44,179

 

 

 

-

 

 

 

44,179

 

 

 

-

 

 

 

44,179

 

Warrants issued for related party loan

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,200

 

 

 

-

 

 

 

20,200

 

 

 

-

 

 

 

20,200

 

Warrants issued for conversion of loan payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

83,513

 

 

 

-

 

 

 

83,513

 

 

 

-

 

 

 

83,513

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(819,968 )

 

 

(819,968 )

 

 

(10,748 )

 

 

(830,716 )

Balance at June 30, 2021

 

 

1,133,333

 

 

$ 1,133

 

 

 

25,415,756

 

 

$ 25,304

 

 

$ 11,484,143

 

 

$ (14,246,137 )

 

$ (2,735,557 )

 

$ (179,835 )

 

$ (2,915,392 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 to consultants for services

 

 

-

 

 

 

-

 

 

 

400,000

 

 

 

400

 

 

 

95,600

 

 

 

-

 

 

 

96,000

 

 

 

-

 

 

 

96,000

 

Common stock issued for loans payable

 

 

-

 

 

 

-

 

 

 

224,000

 

 

 

224

 

 

 

53,908

 

 

 

-

 

 

 

54,132

 

 

 

-

 

 

 

54,132

 

Common stock issued for related party loan

 

 

-

 

 

 

-

 

 

 

25,000

 

 

 

25

 

 

 

4,975

 

 

 

-

 

 

 

5,000

 

 

 

-

 

 

 

5,000

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

197,348

 

 

 

-

 

 

 

197,348

 

 

 

-

 

 

 

197,348

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,069,147 )

 

 

(1,069,147 )

 

 

(13,349 )

 

 

(1,082,496 )

Balance at March 31, 2020

 

 

1,133,333

 

 

$ 1,133

 

 

 

20,962,771

 

 

$ 20,963

 

 

$ 9,739,546

 

 

$ (11,362,407 )

 

$ (1,600,765 )

 

$ (74,427 )

 

$ (1,675,192 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to consultants for services

 

 

-

 

 

 

-

 

 

 

150,000

 

 

 

150

 

 

 

25,200

 

 

 

-

 

 

 

25,350

 

 

 

-

 

 

 

25,350

 

Common stock issued for related party loan

 

 

-

 

 

 

-

 

 

 

445,000

 

 

 

445

 

 

 

94,699

 

 

 

-

 

 

 

95,144

 

 

 

-

 

 

 

95,144

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

72,348

 

 

 

-

 

 

 

72,348

 

 

 

-

 

 

 

72,348

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(584,695 )

 

 

(584,695 )

 

 

(17,926 )

 

 

(602,621 )

Balance at June 30, 2020

 

 

1,133,333

 

 

$ 1,133

 

 

 

21,557,771

 

 

$ 21,558

 

 

$ 9,931,793

 

 

$ (11,947,102 )

 

$ (1,992,618 )

 

$ (92,353 )

 

$ (2,084,971 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

  

 
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First Foods Group, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For The Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net Loss

 

$ (1,328,496 )

 

$ (1,685,117 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Non-employee stock based compensation

 

 

5,000

 

 

 

121,350

 

Employee stock based compensation

 

 

227,666

 

 

 

269,696

 

Loss on extinguishment of loan payable

 

 

299,773

 

 

 

-

 

Amortization of debt discount

 

 

253,549

 

 

 

219,320

 

Depreciation and amortization expense

 

 

28,566

 

 

 

12,741

 

Change in merchant allowance

 

 

(143,986 )

 

 

456,984

 

Merchant cash advance direct write off

 

 

(1,312 )

 

 

479,885

 

Non-cash lease expense

 

 

30,193

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(23,654 )

 

 

13,063

 

Inventory

 

 

(9,373 )

 

 

(11,205 )

Merchant cash advances

 

 

212,502

 

 

 

(219,408 )

Deferred merchant advance commissions

 

 

-

 

 

 

13,896

 

Prepaid expenses and other current assets

 

 

30,783

 

 

 

(21,606 )

Operating lease liabilities

 

 

(29,643 )

 

 

-

 

Accounts payable and accrued liabilities

 

 

231,881

 

 

 

230,662

 

Accounts payable and accrued liabilities – related party

 

 

142,784

 

 

 

112,257

 

Put liability

 

 

23,490

 

 

 

-

 

Deferred revenue

 

 

(14,221 )

 

 

7,042

 

Net cash used in operating activities

 

 

(64,498 )

 

 

(440 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

(877 )

 

 

(156,605 )

Net cash used in investing activities

 

 

(877 )

 

 

(156,605 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from sale of common stock - related party

 

 

100,000

 

 

 

-

 

Proceeds from loans

 

 

103,601

 

 

 

301,200

 

Repayment of loans

 

 

(33,429 )

 

 

(50,000 )

Proceeds from related party loans

 

 

112,500

 

 

 

80,000

 

Repayments of related party loans

 

 

(75,411 )

 

 

-

 

Net cash provided by financing activities

 

 

207,261

 

 

 

331,200

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH AND RESTRICTED CASH

 

 

141,886

 

 

 

174,155

 

CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

 

50,386

 

 

 

24,353

 

CASH AND RESTRICTED CASH AT END OF PERIOD

 

$ 192,272

 

 

$ 198,508

 

 

 

 

 

 

 

 

 

 

CASH AND RESTRICTED CASH CONSIST OF THE FOLLOWING:

 

 

 

 

 

 

 

 

END OF PERIOD

 

 

 

 

 

 

 

 

Cash

 

$ 168,782

 

 

$ 198,508

 

Restricted cash

 

 

23,490

 

 

 

-

 

 

 

$ 192,272

 

 

$ 198,508

 

BEGINNING OF PERIOD

 

 

 

 

 

 

 

 

Cash

 

$ 50,386

 

 

$ 24,353

 

Restricted cash

 

 

 

 

 

-

 

 

 

$ 50,386

 

 

$ 24,353

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Common stock issued with loans

 

$ 4,680

 

 

$ 54,132

 

Common stock issued with related party loans

 

$ 59,360

 

 

$ 100,144

 

Common stock and warrants issued for conversion of loan payable

 

$ 250,000

 

 

$ -

 

Common stock issued for conversion of loan payable

 

$ 25,000

 

 

$ -

 

Warrants issued with loans

 

$ -

 

 

$ 20,717

 

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

 

$ 83,034

 

 

$ 54,900

 

Income taxes

 

$ -

 

 

$ -

 

    

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

  

 
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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 four trademarks for the brands, “The Edibles’ Cult”, “Purely Irresistible”, “Mystere” and “Southeast Edibles”.

 

The Company also 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.

 

Reclassification

 

Certain reclassifications have been made to the Company’s consolidated financial statements for the period ended December 31, 2020 to conform to the current period’s unaudited condensed consolidated financial statement presentation. Approximately $465,500 worth of related party payables were reclassed to its own line item to confirm with current period presentation. There was no effect on total assets, equity and net loss.

 

Liquidity and Going Concern

 

The Company’s unaudited condensed consolidated financial statements are prepared using generally accepted accounting principles in the United States of America (“GAAP”) 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 June 30, 2021, the Company had approximately $1,349,000 in third-party short-term debt that is due within the next twelve months. Management’s plan is to obtain such resources for the Company by continuing to earn revenue and continuing to obtain capital from management and significant shareholders sufficient to meet its operating expenses, as well as seek 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.

 

 
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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 unaudited condensed 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 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, operations and cash flows as of June 30, 2021 have been adversely affected, and may be further affected in the future, by the ongoing outbreak of COVID-19 which in 2020 was declared a pandemic by the World Health Organization. As of June 30, 2021 and through the filing date of the unaudited condensed consolidated financial statements, the Company has continued to collect receivables from its cash advances but has experienced payment delinquencies. The Company has taken a reserve allowance on its MCA’s. As of June 30, 2021, the Company’s Holy Cacao 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. Possible areas that may be materially 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. 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.”

 

Use of Estimates

 

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP 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 unaudited condensed 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 accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 3, 2021.

 

In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the six months ended June 30, 2021 may not be indicative of results for the full year.

 

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 85% owned subsidiary; Holy Cacao.

 

Principles of Consolidation

 

The unaudited condensed 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.

 

 
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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 June 30, 2021 and December 31, 2020, 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.

 

Restricted Cash

 

As of June 30, 2021 restricted cash included $23,490, which was pursuant to the requirements in the sales consultant agreement entered into November 2020 (see note 8).

 

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 June 30, 2021, the Company reserved $147,394 which is 73% of the outstanding merchant cash advance balance at period end based on the potential impact of COVID 19.  During the six months ended June 30, 2021 the Company wrote off 4 merchant advances for a total of $5,132 and recovered 5 merchant advances for a total of $4,781. During the six months ended June 30, 2020 the Company wrote off 21 merchant advances for a total of $22,901 and there were no recoveries.

  

During the three months ended June 30, 2021 the Company wrote off 3 merchant advances for a total of $4,007 and recovered 3 merchant advances for a total of $2,695. During the three months ended June 30, 2020 the Company wrote off 10 merchant advances for a total of $10,573 and there were no recoveries.

 

Revenue Recognition

 

We completed, related to our merchant cash advance business line, our assessment of the impact of Accounting Standards Codification (“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.

 

 
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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. Aside from reserves established with respect to MCAs, as of June 30, 2021, 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 June 30, 2021 and December 31, 2020:

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Raw Materials

 

$ 38,838

 

 

$ 37,259

 

Work in Process

 

 

10,013

 

 

 

2,790

 

Finished Goods

 

 

6,762

 

 

 

6,191

 

Total

 

$ 55,613

 

 

$ 46,240

 

 

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 unaudited condensed 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. There were no impairments to long-lived assets for the six months ended June 30, 2021 and 2020.

 

 
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Leases

 

The Company determines if an arrangement is a lease at the inception of a contract. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets on the unaudited condensed consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the operating lease liabilities and operating lease liabilities – long term, respectively on the unaudited condensed consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded in the balance sheet.

 

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%.

 

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 six months ended June 30, 2021 and 2020, were approximately $33,000 and $32,000, respectively. The research and development costs for the three months ended June 30, 2021 and 2020, were approximately $16,000 and $28,000, respectively. These expenses are included in general and administrative expenses on the accompanying unaudited condensed 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 unaudited condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, 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 June 30, 2021 and December 31, 2020, the Company had a full valuation allowance against deferred tax assets. With the historical change in ownership, the Company is subject to certain NOL limitations under Section 382 of the Internal Revenue Code.

 

 
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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 June 30, 2021 and 2020 because their effect would be antidilutive.

 

The Company had 5,414,224 and 1,499,750 warrants to purchase common stock outstanding at June 30, 2021 and 2020, respectively. The Company had 4,470,000 warrants to purchase Series B preferred stock outstanding at June 30, 2021 and 2020, 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 at June 30, 2021 and 2020, 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, accounts receivable, 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 unaudited condensed consolidated statements of operations for the six months ended June 30, 2021 and 2020, were approximately $52,000 and $21,000, respectively, and for three months ended June 30, 2021 and 2020, were approximately $27,000 and $5,700, respectively.

 

Non-Controlling Interests in Condensed Consolidated Financial Statements

 

In June 2011, the Financial Accounting Standards Board (“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 condensed 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 unaudited condensed 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 a subscription agreement for the sale of a ten-percent equity interest in its then wholly owned subsidiary, Holy Cacao, for $200,000 in cash proceeds, in the aggregate. During the year ended December 31, 2019, 5% equity was issued to a service provider due to the completion of Holy Cacao’s first sale of its product, as per the agreement with the service provider. The Company’s periodic reporting now includes the results of operations of Holy Cacao, with the fifteen-percent ownership reported as non-controlling interests. For the six months ended June 30, 2021 and 2020, the cost of products sold was $166,084 and $5,451, respectively, and the operating expense for Holy Cacao was approximately $393,000 and $215,000, respectively. There was approximately $256,500 and $12,400 of revenue for Holy Cacao for the six months ended June 30, 2021 and 2020, respectively. For the three months ended June 30, 2021 and 2020, the cost of products sold was $162,343 and $4,703, respectively, and the operating expense for Holy Cacao was approximately $205,000 and $122,000, respectively. There was approximately $240,400 and $8,800 of revenue for Holy Cacao for the three months ended June 30, 2021 and 2020, respectively.

   

The Company conducts 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.

 

 
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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 adopting ASU 2016-13 will have on the Company’s unaudited condensed 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. As of June 30, 2021 and December 31, 2020, the Company has accrued $454,167 and $329,167, respectively, in relation to the employment agreements and $22,397 and $20,578, 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 June 30, 2021, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under a previous agreement.

 

 
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As of June 30, 2021, 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 as of June 30, 2021 and December 31, 2020 was $114,645 and $82,988, respectively.

 

Related Party Loans

 

June 30,

2021

December 31,

2020

1.

Note payable at 12%, matures 10/17/2021.

{a} *

$

100,000

$

100,000

 

2.

Non-interest bearing note payable, matures on 4/24/2022.

{b} *

179,813

179,813

 

3.

Note payable at 12%, matures 10/13/2021. The Company has recorded debt discount and amortized it over the applicable life of the debt.

{c} *

100,000

100,000

 

4.

Note payable at 12%, matured and converted into common stock on 5/10/2021.

{d} *

-

250,000

 

5.

Non-interest bearing note payable, matured and repaid on 1/05/2021.

*

-

74,411

 

6.

Non-interest bearing note payable, matures on 5/04/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.

{e} *

60,000

-

 

7.

Non-interest bearing note payable, matures on 1/08/2022.

*

1,500

-

 

8.

Note payable at 12%, matures 8/31/2021. The Company has recorded debt discount and amortized it over the applicable life of the debt.

{f} *

50,000

-

 

Unamortized debt discount

 

(20,835

)

 

(18,945

)

Total

$

470,478

$

685,279

 

 

{a} - On April 17, 2021, the Company extended the note to October 17, 2021 based on the same terms and conditions.

{b} - On April 24, 2021, the Company extended the note to April 24, 2022 based on the same terms and conditions.

{c} - On July 13, 2021, the Company extended the note to October 13, 2021 based on the same terms and conditions. In association with this and prior extensions the company issued 80,000 shares of common stock with a fair value of $16,000, and 100,000 warrants with a fair value of $15,350 which will be recorded as a debt discount and amortized over the life of the loan. The warrants are valued based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years.

{d} - On May 10, 2021, the loan was converted into 2,000,000 shares of common stock. Additionally, the company granted warrants for the right to purchase 375,000 shares of common stock at an exercise price of $0.23 a share. The warrants are valued at $83,513 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. In association with the conversion of the note to common stock and warrants, the company recognized a loss of $293,513.

{e} - On March 9, 2021, the Company issued a non-interest-bearing promissory note of $60,000. In connection with this note the company issued 60,000 shares of common stock with a fair value of $12,660, which was recorded as a debt discount and amortized over the life of the loan. The Company repaid the loan on July 23, 2021.

{f} - On April 29, 2021, the Company issued a 12% interest bearing promissory note of $50,000. In connection with this note the company issued 50,000 shares of common stock with a fair value of $10,500, which was recorded as a debt discount and amortized over the life of the loan. The loans original maturity date was May 31, 2021 but has been extended on to August 31, 2021. In association with this extension the company granted warrants for the right to purchase 100,000 shares of common stock at an exercise price of $0.21 a share. The warrants are valued at $20,200 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. The Company recorded a debt discount and will amortize it over the life of the loan.

* - unsecured note

 

 
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During the six months ended June 30, 2021 and 2020, the Company recorded $57,470 and $31,468 of interest expense related to the amortization of debt discount and $22,258 and $26,926 of regular interest, respectively.

 

During the three months ended June 30, 2021 and 2020, the Company recorded $24,116 and $21,081 of interest expense related to the amortization of debt discount and $8,942 and $13,463 of regular interest, respectively. As of June 30, 2021 and December 31, 2020, accrued interest was $56,051 and $45,889, respectively.

 

During the six months ended June 30, 2021, the Company converted $250,000 of loan payable in exchange for 2,000,000 shares of common stock and warrants for the right to purchase 375,000 shares of common stock. The aggregate fair value of the common stock shares issued and for the granted warrants was $543,513. The Company recorded a loss on extinguishment of debt of $293,513.

   

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 number 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.

 

 
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The Company issued warrants with respect to 1,280,000 Series B Preferred Stock, in the aggregate. The Company expensed the fair value of these warrants in the amount of $768,000 ratably during the years ended December 31, 2018, 2019 and 2020. There was no expense related to these warrants for the three and six months ended June 30, 2021. For the three and six months ended June 30, 2020, the Company recorded $72,348 and $144,696 as compensation expense related to the warrants, respectively.

 

On January 1, 2020, 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, 2020 through December 31, 2020 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 number of warrants, as determined by the Board of Directors. On January 1, 2021, the director agreements were renewed with the same terms. As of June 30, 2021 and December 31, 2020 the Company has accrued $390,000 and $320,000, respectively, in relation to the director agreements.

 

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. The company is currently in negotiation with Mr. Kaplan regarding his compensation. For the six months ended June 30, 2021 and 2020, the Company recorded $87,872 and $0 as compensation expense related to the warrants, respectively. For the three months ended June 30, 2021 and 2020, the Company recorded $44,179 and $0 as compensation expense related to the warrants, respectively.

 

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 six months ended June 30, 2021 and 2020, the Company recorded $83,478 and $0 as compensation expense related to the warrants, respectively. For the three months ended June 30, 2021 and 2020, the Company recorded $41,970 and $0 as compensation expense related to the warrants, respectively.

 

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.

 

NOTE 3 – PROPERTY AND EQUIPMENT

 

Property and equipment, net consists of the following:

 

 

 

June 30,

2021

 

 

December 31,
2020

 

Leasehold improvements

 

$ 40,000

 

 

$ 40,000

 

Equipment

 

 

240,392

 

 

 

239,515

 

Less: Accumulated depreciation and amortization

 

 

(65,643 )

 

 

(37,077 )

Total

 

$ 214,749

 

 

$ 242,438

 

 

 
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NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities consist of the following:

 

 

 

June 30,

2021

 

 

December 31,

2020

 

Accounts payable

 

$ 204,195

 

 

$ 146,910

 

Interest

 

 

134,241

 

 

 

109,747

 

Salaries

 

 

476,558

 

 

 

349,745

 

Other

 

 

61,979

 

 

 

38,690

 

Related party payables and officer and director fees

 

 

608,290

 

 

 

465,506

 

Total

 

$ 1,485,263

 

 

$ 1,110,598

 

 

NOTE 5 – LOANS AND LONG-TERM LOANS

 

June 30,

2021

December 31,

2020

1.

Note payable at 12%, matures 1/23/2022. 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.

{a} *

$

50,000

$

50,000

 

2.

Note payable at 12%, matures 10/22/2021. 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.

*

50,000

50,000

 

4.

Note payable at 12%, matured and converted into common stock on 6/11/2021.

{c} *

-

25,000

 

5.

Note payable at 12%, matures 1/31/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.

{d} *

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 1/23/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.

{e} *

60,000

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

96,000

 

11.

Note payable at 3.75%, matures 6/25/2050 - Economic injury disaster loan.

**

150,000

150,000

 

12.

Non-interest bearing note payable, matures on 9/30/2021.

*

20,050

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.

*

50,000

50,000

 

14.

Note payable at 12.5%, matures 12/17/2022.

*

3,600

-

 

15.

Note payable at 0%, matures 8/31/2021.

***

100,001

-

 

Unamortized debt discount

(94,901

)

(286,300

)

Total

 

1,502,750

 

1,266,179

 

Less: short term loans, net

150,000

966,155

 

Total long-term loans, net

$

1,352,750

$

300,024

 

 

 

{a} - On August 4, 2021, the Company extended the note to January 23, 2022 based on the same terms and conditions. In association with the extension the company granted warrants with tithe right to purchase 50,000 shares of common stock with a fair value on $7,675, which will be recorded as a debt discount and amortized over the new life of the loan. The warrants are valued based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. 

 

{b} - On August 4, 2021, the Company extended the note to October 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 $8,880, which will be recorded as a debt discount and amortized over the new life of the loan. 

 

{c} - On June 19, 2021, the Company converted the entire value of the note to 191,424 shares of common stock with a fair value of $31,260. In association with the conversion of the note to common stock, the company recognized a loss of $6,260. 

 

{d} - On August 6, 2021, the Company extended the note to January 31, 2022. The current interest rate will continue at 12% per annum, however the amount of interest above a rate of 6% per annum will be deemed paid by being added to capital due from the Company to the creditor. This additional capital amount will not bear interest in the period to January 31, 2022. In association with the extension the company granted warrants with the right to purchase 250,000 shares of common stock with a fair value on $38,375, which will be recorded as a debt discount and amortized over the new life of the loan. The warrants are valued based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. 

 

{e} - On August 4, 2021, the Company extended the note to January 23, 2022 based on the same terms and conditions. In association with the extension the company issued 60,000 shares of common stock with a fair value on $9,600, which will be recorded as a debt discount and amortized over the new life of the loan. 

 

* - unsecured note 

 

**- secured note and collateralized by all tangible and intangible personal property 

 

*** - unsecured note and guaranteed by a Director of the Company 

 

During the three months ended June 30, 2021 and 2020, the Company recorded $99,382 and $95,705 of interest expense related to the amortization of debt discount and $41,687 and $38,863 of regular interest, respectively. During the six months ended June 30, 2021 and 2020, the Company recorded $196,079 and $187,852 of interest expense related to the amortization of debt discount and $82,990 and $76,959 of regular interest, respectively. As of June 30, 2021 and December 31, 2020, accrued interest was $72,627 and $61,099, respectively.

 

As of June 30, 2021 and December 31, 2020, accrued interest associated with the economic injury disaster loan was $5,563 and $2,759, respectively.

 

 
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NOTE 6 – STOCKHOLDERS’ DEFICIT

 

The following table shows the changes in shares of common stock for the six months ending June 30, 2021 and 2020:

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

Common stock outstanding, December 31, 2020

 

 

22,367,179

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash to a related party

 

 

499,998

 

 

$ 100,000

 

Common stock issued to consultants for services

 

 

149,155

 

 

 

28,490

 

Common stock issued for related party loan

 

 

190,000

 

 

 

39,160

 

Common stock issued with loans payable

 

 

18,000

 

 

 

4,680

 

Common stock issued for conversion of loans payable

 

 

191,424

 

 

 

31,259

 

Common stock issued for conversion of loans payable – related party

 

 

2,000,000

 

 

 

460,000

 

Common stock outstanding, June 30, 2021

 

 

25,415,756

 

 

$ 663,589

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

Common stock outstanding, December 31, 2019

 

 

20,313,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to consultants for services

 

 

550,000

 

 

$ 121,350

 

Common stock issued with loans payable

 

 

224,000

 

 

 

54,132

 

Common stock issued for related party loans

 

 

470,000

 

 

 

100,144

 

Common stock outstanding, June 30, 2020

 

 

21,557,771

 

 

$ 275,626

 

 

Warrant Activity

 

Common Stock Warrants

 

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. For the six months ended June 30, 2021 and 2020, the Company recorded $87,872 and $0 as compensation expense related to the warrants, respectively. For the three months ended June 30, 2021 and 2020, the Company recorded $44,179 and $0 as compensation expense related to the warrants, respectively.

 

 
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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 milestones being met is reviewed by management every quarter. For the six months ended June 30, 2021 and 2020, the Company recorded $83,478 and $0 as compensation expense related to the warrants, respectively. For the three months ended June 30, 2021 and 2020, the Company recorded $41,970 and $0 as compensation expense related to the warrants, respectively. 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 June 30, 2021.

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 multi outlet (“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 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. For the six months ended June 30, 2021 and 2020, the Company recorded $48,334 and $0 as compensation expense related to the warrants, respectively. For the three months ended June 30, 2021 and 2020, the Company recorded $24,301 and $0 as compensation expense related to the warrants, respectively. On August 4, 2021, the Company granted the Employee warrants to purchase up to 300,000 shares of common stock in connection with the anniversary clause noted in the agreement. The warrants are valued at $46,050 based on the Black Scholes Model.

 

On November 9, 2020, the Company entered into a grant agreement with a sales consultant (see Note 8). On June 29, 2021, the company granted the sales consultant warrants for the right to purchase39,474 shares of common stock at an exercise price of $0.21 a share. The warrants are valued at $7,982 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. As a result of this issuance, the price protection clause on the director’s warrants issued on December 31, 2019 and on the consultant’s warrant issued on July 31, 2020 and August 4, 2020, were triggered resulting in the warrants being reset to an exercise price of $1.05 and $0.21, respectively. As a result of the modification of the exercise price of these warrants, the Company recognized an incremental value of $139,690, which was recorded as a deemed dividend on the condensed consolidated statement of operations.

 

On May 10, 2021, the Company converted a related party loan (see Note 2). In association with the conversion the company issued 2,000,000 shares of common stock and granted warrants for the right to purchase 375,000 shares of common stock at an exercise price of $0.23 a share. The warrants are valued at $83,513 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years.

 

On June 30, 2021, the Company extended the maturity date on one of its promissory notes (see Note 2). In association with this extension the company granted warrants for the right to purchase 100,000 shares of common stock at an exercise price of $0.21 a share. The warrants are valued at $20,200 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. The Company recorded a debt discount and will amortize it over the life of the loan.

 

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, 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

 

Granted

 

 

514,474

 

 

 

0.22

 

Exercised

 

 

-

 

 

 

-

 

Forfeited or cancelled

 

 

-

 

 

 

-

 

Outstanding, June 30, 2021

 

 

5,414,224

 

 

$ 0.22

 

 

 
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As of June 30, 2021, 3,468,391 warrants for common stock were exercisable and the intrinsic value of these warrants was $76,742, the weighted average remaining contractual life for warrants outstanding was 2.01 years and the remaining expense is $184,313 over the remaining amortization period which is 1.25 years.

 

As of June 30, 2020,1,499,750 warrants for common stock were exercisable and the intrinsic value of these warrants was $27,638 and the weighted average remaining contractual life for warrants outstanding was 1.96 years.

 

Preferred Stock Warrants

 

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 six months ended June 30, 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, 2019

 

 

3,970,000

 

 

$ 0.67

 

Granted

 

 

500,000

 

 

 

0.75

 

Outstanding, December 31, 2020

 

 

4,470,000

 

 

$ 0.68

 

Granted

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

Forfeited or cancelled

 

 

-

 

 

 

-

 

Outstanding, June 30, 2021

 

 

4,470,000

 

 

$ 0.68

 

 

As of June 30, 2021, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $1,739,250, there is no remaining expense and the weighted average remaining contractual life for warrants outstanding was 6.87 years.

    

As of June 30, 2020, 4,230,000 warrants for common stock were exercisable and the intrinsic value of these warrants was $714,060, there is no remaining expense and the weighted average remaining contractual life was 7.89 years for warrants outstanding.

 

NOTE 7 – LEASES

 

On June 23, 2020, the Company entered into an operating lease agreement with a term 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.

 

For the six months ended June 30, 2021 and 2020, the Company incurred lease expense for its operating leases of $43,821 and $0, respectively, which was included in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.

 

For the three months ended June 30, 2021 and 2020, the Company incurred lease expense for its operating leases of $21,910 and $0, respectively, which was included in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.

 

The Company’s weighted-average remaining lease term relating to its operating leases is 2.81 years, with a weighted-average discount rate of 12.00%.

 

 
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The Company had cash payments for operating leases of $43,271 and $0 for the six months ended June 30, 2021 and 2020, respectively and $21,465 and $0 for the three months ended June 30, 2021 and 2020, respectively.

 

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of June 30, 2021.

 

Maturity of Lease Liability

 

 

 

2021- remainder of the year

 

 

42,589

 

2022

 

 

86,881

 

2023

 

 

89,487

 

2024

 

 

30,122

 

Total undiscounted operating lease payments

 

$ 249,079

 

Less: Imputed interest

 

 

39,266

 

Present value of operating lease liabilities

 

$ 209,813

 

 

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, the Company 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.

 

 
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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 shall be paid a fee of ten percent (10%) of each of the consultant’s sales of the Company’s product.

 

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 June 30, 2021. In addition, once the consultant 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. On April 22, 2021, the Company and B&A Brokerage entered into a settlement agreement and mutual general release. The Company shall pay B&A the sum of $7,000 and have a complete settlement of all obligations under the sales agreement.

 

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. Commencing 120 days after the Effective Date, absent an effective registration statement by the Company covering the Shares, the Sales Consultant may “Put” to the Company any vested Shares at a price per share equal to the Grant Price at any time during the Term. The Company shall maintain a separate account with funds to pay for the Put for as long as the Put is exercisable and the Put right shall be subject to the terms governing such account. As of June 30, 2021, the Company has recorded a Put liability of $23,490.

 

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 number 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 one and a half million (1,500,000) warrants to purchase shares. One warrant shall be fully vested for every two shares 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. During the three and six months ended June 30, 2021 the company issued 112,390 shares of common stock and warrants with the right to purchase up to 39,474 shares of common stock as compensation for services. For the three and six months ended the company recorded $31,472 of commission expense in connection to the issuance of the common stock shares and warrants. As of June 30, 2021, there were 2,887,610 shares of common stock and 2,960,526 warrants remaining.

    

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.

 

 
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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 June 30, 2021, the Company’s receivables from merchant cash advances included $31,296 from one merchant, representing 60% of the Company’s merchant cash advances. The Company earned $1,834 of MCA income from the same merchant, representing 26% of the Company’s MCA income for the three months ended June 30, 2021. The Company earned $14,949 and $4,287 of MCA income from two merchants, representing 45% and 13%, respectively, of the Company’s MCA income for the six months ended June 30, 2021.

 

As of June 30, 2021, the Company’s accounts receivables included $23,040 from one customer, representing 97% of the Company’s accounts receivable. As of December 31, 2020, there was no accounts receivable concentration.

 

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% of the Company’s merchant cash advances. The Company earned $7,228 of MCA income from the same two merchants ($5,116 and $2,112), representing 45% of the Company’s MCA income for the three months ended June 30, 2020. The Company earned $82,447 of MCA income from the same two merchants ($57,181 and $25,266), representing 75% of the Company’s MCA income for the six months ended June 30, 2020.

 

As of June 30, 2021, there was no accounts payable concentration other than amounts owed to related parties which makes up 71% of the balance. As of December 31, 2020, there was no accounts payable concentration other than amounts owed to related parties which makes up 74% of the balance.

 

For the three months ended June 30, 2021, the Company had purchase concentrations of 88% from two vendors. For the six months ended June 30, 2021, the Company had purchase concentrations of 88% from two vendors. For the three months ended June 30, 2020, the Company had purchase concentrations of 90% from one vendor. For the six months ended June 30, 2020, the Company had purchase concentrations of 73% and 14% from two vendors.

 

NOTE 10 – SUBSEQUENT EVENTS

 

On July 13, 2021, the Company entered into an agreement with a marketing consultant to further the business purpose of the Company. In consideration for the services provided by the consultant, the Consultant shall be paid a fee of $9,000, half of which is to be paid in cash and half to be paid in common shares at a 20% discount. The company issued the consultant 34,091 shares of common stock at a fair market value of $4,500, using the stock price of $0.13 per share, which represents a 20% discount to the closing price on the day of issuance.

 

On July 13, 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 Company will compensate the consultant with up to 240,000 shares of restricted common stock of the Company based upon the consultant’s performance over a six-month term. The shares will be issued each month if certain performances are met.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Statements

 

This Form 10-Q 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-Q. 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-Q. 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 due to, among other things, war, terrorism, weather conditions, environmental factors, pandemic, economic crisis, legislation, etc.;

 

(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.

 

There is no assurance that First Foods will be profitable, due to, among other potential reasons, that First Foods may not be able to successfully develop, manage or market its products and services, First Foods may not be able to attract or retain qualified executives and personnel, First Foods may not be able to obtain customers for its products or services, additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of outstanding warrants and stock options, and 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-Q. 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-Q, or to reflect the occurrence of unanticipated events.

 

 
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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.” 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 primarily focused on developing its specialty chocolate product line through its core business subsidiary, Holy Cacao, and secondarily participating in 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 four trademarks for the brands, “The Edibles’ Cult”, “Purely Irresistible”, “Mystere” and “Southeast Edibles”.

 

The Company also 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.

 

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.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed 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 Unaudited Condensed Consolidated Financial Statements.

 

 
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Results of Operations for the Three Months Ended June 30, 2021 compared to the Three Months Ended June 30, 2020

 

We had $247,541 of revenue for the three months ended June 30, 2021 compared to $24,711 in revenue for the three months ended June 30, 2020. The increase in revenue was driven by an increase in our product sales, partially offset by a decrease of participation in merchant cash advances due to COVID-19.

 

Cost of product sales for the three months ended June 30, 2021 was $162,343 compared to $4,703 for the three months ended June 30, 2020. The increase in cost of product sales was due to an increase in product sales.

 

Professional fees for the three months ended June 30, 2021 was $2,097 compared to $17,896 for the three months ended June 30, 2020. The decrease in professional fees was due to lower legal fees incurred because of fewer contractual arrangements.

 

General and administrative expenses for the three months ended June 30, 2021 was $446,423 compared to $358,176 for the three months ended June 30, 2020. The increase in general and administrative expenses was primarily due to increased costs associated with compensation, commissions, advertising and promotion, depreciation, travel, offset by lower fees and commissions for our cash advances and reduced cost for research and development.

 

Provision for merchant cash advances for the three months ended June 30, 2021 was $(6,840) compared to $76,853 for the three months ended June 30, 2020. The decrease in provision for merchant cash advances was due to lowering the reserve allowance for our merchant cash advances.

 

Results of Operations for the Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020

 

We had $289,879 of revenue for the six months ended June 30, 2021 compared to $121,685 in revenue for the six months ended June 30, 2020. The increase in revenue was driven by an increase in our product sales, partially offset by a decrease of participation in merchant cash advances due to COVID-19.

 

Cost of product sales for the six months ended June 30, 2021 was $166,084 compared to $5,451 for the six months ended June 30, 2020. The increase in cost of product sales was due to an increase in product sales.

 

Professional fees for the six months ended June 30, 2021 was $3,096 compared to $30,327 for the six months ended June 30, 2020. The decrease in professional fees was due to lower legal fees incurred because of fewer contractual arrangements.

 

General and administrative expenses for the six months ended June 30, 2021 was $933,810 compared to $968,062 for the six months ended June 30, 2020. The decrease in general and administrative expenses was primarily due to decreased costs associated with stock-based compensation, consulting and accounting fees, lower fees and commissions for our cash advances and travel.

 

Provision for merchant cash advances for the six months ended June 30, 2021 was $(144,338) compared to $479,885 for the six months ended June 30, 2020. The decrease in provision for merchant cash advances was due to lowering the reserve allowance for our merchant cash advances.

 

 
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Cash Flows

 

Operating Activities

 

Net cash used in operating activities for the six months ended June 30, 2021 amounted to $64,498 and net cash used in operating activities for the six months ended June 30, 2020 amounted to $440. This includes a net loss from continuing operations of approximately $(1,328,500), offset by non-cash expenses of approximately $699,400 related to stock-based compensation, loss on extinguishment of loan payable, depreciation and amortization expense, non-cash lease expense and reserves for merchant cash advances, and cash provided by the change in net working capital items of approximately $564,500 principally related to the increase in prepaid expenses and other assets, accounts payable and accrued liabilities, and merchant cash advances. This resulted in a working capital deficiency of $(3,039,622) at June 30, 2021 and $(2,560,983) at December 31, 2020.

 

Investing Activities

 

Net cash used in investing activities amounted to $877 for the six months ended June 30, 2021 and $156,605 for the six months ended June 30, 2020. This was due to more equipment purchased during the six months ended 2020 vs. the six months ended 2021.

 

Financing Activities

 

Net cash provided by financing activities amounted to $207,261 for the six months ended June 30, 2021 and $331,200 for the six months ended June 30, 2020. This was due to a decrease in proceeds from loans and an increase in repayment of loans in 2021 vs 2020, partially offset by the sale of shares of common stock.

 

Liquidity and Capital Resources

 

The Company’s unaudited condensed 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 June 30, 2021, the Company had $1,349,150 of third-party short-term debt that is due within the next twelve months. Management’s plan is to obtain such resources for the Company by continuing to earn revenue, obtain capital from management and significant shareholders sufficient to meet its operating expenses and seek equity and/or debt financing. However, management 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 unaudited condensed 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 unaudited condensed 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 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, operations and cash flows as of June 30, 2021 have been adversely affected, and may be further affected in the future, by the ongoing outbreak of COVID-19 which in 2020 was declared a pandemic by the World Health Organization. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a further material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be materially 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 June 30, 2021 and through the filing date of the financial statements, the Company has continued to collect receivables from its cash advances but has experienced payment delinquencies. The Company has taken a reserve allowance on its MCA’s. As of June 30, 2021, the Company’s Holy Cacao 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.

 

 
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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 June 30, 2021, the Company’s receivables from merchant cash advances included $31,296 from one merchant, representing 60% of the Company’s merchant cash advances. The Company earned $1,834 of MCA income from the same merchant, representing 26% of the Company’s MCA income for the three months ended June 30, 2021. The Company earned $14,949 and $4,287 of MCA income from two merchants, representing 45% and 13%, respectively, of the Company’s MCA income for the six months ended June 30, 2021.

 

As of June 30, 2021, the Company’s accounts receivables included $23,040 from one customer, representing 97% of the Company’s accounts receivable. As of December 31, 2020, there was no accounts receivable concentration.

 

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% of the Company’s merchant cash advances. The Company earned $7,228 of MCA income from the same two merchants ($5,116 and $2,112), representing 45% of the Company’s MCA income for the three months ended June 30, 2020. The Company earned $82,447 of MCA income from the same two merchants ($57,181 and $25,266), representing 75% of the Company’s MCA income for the six months ended June 30, 2020.

 

As of June 30, 2021, there was no accounts payable concentration other than amounts owed to related parties which makes up 71% of the balance. As of December 31, 2020, there was no accounts payable concentration other than amounts owed to related parties which makes up 74% of the balance.

 

For the three months ended June 30, 2021, the Company had purchase concentrations of 88% from two vendors. For the six months ended June 30, 2021, the Company had purchase concentrations of 88% from two vendors. For the three months ended June 30, 2020, the Company had purchase concentrations of 90% from one vendor. For the six months ended June 30, 2020, the Company had purchase concentrations of 73% and 14% from two vendors.

 

Off-Balance Sheet Arrangements

 

No off-balance sheet arrangements exist.

 

Contractual Obligations

 

None.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

 
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Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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 June 30, 2021, 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.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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Table of Contents

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

As of June 30, 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 1A. Risk Factors

 

We are not obligated to disclose our risk factors in this report; however, information regarding our risk factors appears in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020. Except as described herein, there have been no material changes from the risk factors previously disclosed in such Annual Report on Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The Company issued 2,603,813 and 3,048,577 shares of the Company’s common stock during the three and six months ended June 30, 2021, respectively. All of these shares were exempt pursuant to Section 4(1) as they were issued privately without any advertising or finders/brokers fees paid to third parties.

 

Item 3. Defaults Upon Senior Securities

.

There have been no defaults upon senior securities.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not Applicable

 

 
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Table of Contents

 

Item 6. Exhibits

 

(a) Exhibits

 

Item 6. Exhibits, Financial Statement Schedules

 

3.1

 

Articles of Incorporation of the Registrant (1)

3.2

 

By-laws of the Registrant (1)

31.1

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

 

Certifications of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

___________

(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.

 

 
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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

By:

/s/ Harold Kestenbaum

 

Dated: August 13, 2021

 

Harold Kestenbaum,

 

Chairman of the Board and

 

Interim Chief Executive Officer

 

 

By:

/s/ Mark J. Keeley

 

Dated: August 13, 2021

 

Mark J. Keeley,

 

Chief Financial Officer

 

32

 

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