UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to _____________

 

Commission file number: 333-206260

 

FIRST FOODS GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

47-4145514

(State or other jurisdiction of

incorporation or organization)

 

IRS Employer

(Identification No.)

 

 

 

First Foods Group, Inc.c/o Incorp Services, Inc.,

3773 Howard Hughes Parkway, Suite 500S

Las Vegas, NV

 

89169-6014

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (201) 471-0988

 

Securities registered pursuant to section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

 

None

 

Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐     No ☒

 

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☒     No ☐

 

Indicate by checkmark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐     No ☒

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

  

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

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

  

The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $3,117,394 as of June 30, 2021 (computed by reference to the last sale price of a share of the registrant’s common stock on that date as reported).

 

There were 27,058,338 shares of the registrant’s common stock outstanding as of April 12, 2022.

 

 

 

   

TABLE OF CONTENTS

 

PART I

 

Item 1.

Business

 

3

 

Item 1A.

Risk Factors

 

5

 

Item 1B.

Unresolved Staff Comments

 

13

 

Item 2.

Properties

 

13

 

Item 3.

Legal Proceeding

 

13

 

Item 4.

Mine Safety Disclosures

 

13

 

PART II

 

Item 5.

Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

 

14

 

Item 6.

[Reserved]

 

15

 

Item 7.

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

 

15

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

20

 

Item 8.

Financial Statements and Supplementary Data

 

F-1

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

21

 

Item 9A.

Controls and Procedures

 

21

 

Item 9B.

Other Information

 

22

 

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

 

 

22

 

 

 

 

 

 

 

PART III

 

Item 10.

Directors and Executive Officers and Corporate Governance

 

23

 

Item 11.

Executive Compensation

 

26

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

 

30

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

31

 

Item 14.

Principal Accounting Fees and Services

 

32

 

PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

 

33

 

Signatures

 

34

 

Certifications

 

2

Table of Contents

 

PART I

 

Item 1. Business.

 

First Foods Group, Inc. (the “Company” or “First Foods”) is a smaller reporting company focused on developing its specialty chocolate product line through its Holy Cacao subsidiary, participating in merchant cash advances (“MCAs”) through its 1st Foods Funding Division, and introducing new health-related brands, concepts and products through its FFGI Wholesaling Division.

 

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 revenue for the Company. The Company also provides cash advances directly to merchants.

 

OUR PRINCIPAL PRODUCTS AND SERVICES

 

We are primarily focused on developing our specialty chocolate product line and related IP through our Holy Cacao subsidiary. We have developed twenty-three (23) proprietary recipes for our specialty chocolate product line that we have tested in a fully staffed and fully equipped state of the art manufacturing facility. We actively market our specialty chocolate product line on a full-time basis through multiple distribution and sales agreements, as well as through multiple industry specific trade shows, through our on-line website presence, and through our ongoing collaboration with a diverse team of leading industry consultants who specialize in media relations, public relations, and investor relations.

 

We are secondarily involved in introducing new health-related brands, concepts and products through our FFGI Wholesaling Division and participating in merchant cash advances through our First Foods Funding Division. The Company participates in the merchant cash advance industry by directly advancing sums to a merchant or a merchant advance provider, TIER, who in turn advances sums to merchants or other merchant cash advance providers.

 

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TARGET MARKET AND OUR NICHE WITHIN

 

Our highest priority target market consists of chocolate wholesalers who have a desire to distribute our specialty chocolate products infused with a hemp-based ingredient to select retailers throughout the United States.

 

Our secondary target market consists of health-related products and merchant cash advance participations. We are aware of an increasing demand for lending services and products for small businesses, and we believe the merchant cash advance market is in a growth mode that presents us with significant opportunity. Furthermore, we believe the small business lending market is underserved and the ability of small businesses to obtain credit with traditional banking institutions is difficult. Our niche approach is to participate with other syndicated participants in a broad range of merchant cash advances, as well as selectively issue merchant cash advances directly to merchants we know well.

 

COMPETITION, OUR COMPETITIVE STRATEGY AND METHODS OF COMPETITION

 

Our competition consists of companies that operate in the specialty hemp-based chocolate and related health products industry. Our competitive strategy is to target the consumers of health-related products and specialty, high-end chocolate products infused with a hemp-based ingredient.

 

MARKETING, MARKETING OBJECTIVES AND STRATEGIES

 

The Company markets its products to existing and emerging food service companies, focusing specifically on brand development.

 

Our Marketing Objectives are as follows:

 

 

Establishing and promoting our presence in our selected targeted market; and

 

 

 

 

Building a network of food service industry professional relationships and referrals.

 

To promote and market our products, we have invoked the following strategies:

 

 

Continued to enhance our online presence via our Company website reflecting our scope of products offered.

 

 

 

 

Continued online retail sales through our Southeast Edibles website.

 

 

 

 

Continued to expand our public relations (PR) campaign to obtain publicity and increase visibility for our business.

 

 

 

 

Retained Michael Kaplan as our Chief Marketing Officer.

 

Currently, the Company’s officers and directors promote our products through various channels, including networking at local industry events and Internet sources. The Company does not actively market its merchant cash advance participation because all marketing activities are performed by TIER. We anticipate that, as the Company grows over the next twelve months, pools of expertise will be acquired by recruiting within the food service and health-based wholesaling industry and by using technical and operational consultants, which will allow qualified individuals to join our management team and Board of Directors.

 

RESEARCH AND DEVELOPMENT

 

The Company has engaged market and branding consultants to assist its master chocolatier with the research and development of specialty hemp-based chocolate products targeted to particular states within the US.

 

EMPLOYEES

 

The Company’s employees consist of, Mark J. Keeley, who is a director and our Chief Financial Officer, Moises Davidovits, who is the Company’s “Master Chocolatier”, and three production assistants who report to Moises. Harold Kestenbaum is a director consultant serving in the role of interim Chief Executive Officer. Abraham Rosenblum is a director serving in the role of Secretary. Michael Kaplan is a director serving in the role of Chief Marketing Officer. These individuals, along with director Hershel Weiss, are responsible for overall Company operations, product development, sales and marketing, fund raising, implementation of our general strategy and execution of our business plan. Additionally, our Master Chocolatier, runs the day-to-day manufacturing, packaging and distribution of the Company’s specialty hemp-based chocolate product line.

 

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Our future business and operating results depend significantly on the continued contributions and active participation of the aforementioned individuals. These individuals would be difficult or impossible to replace. The loss of these key contributors, or their failure to perform, could materially and adversely affect our Company’s operations. While we may obtain key man insurance, such insurance may not be sufficient to cover the loss incurred in the event these individuals are lost.

 

Our officers and directors receive compensation for their services and are reimbursed for any out-of-pocket expenses they may incur on our behalf. We anticipate adding a permanent Chief Operations Officer over the next twelve (12) months and other employees and consultants as deemed necessary. We do not currently have any benefits, such as health or life insurance, available to our employee or directors.

 

Item 1A. Risk Factors.

 

Our current and prospective investors should carefully consider the following risks and all other information contained in this report, including our audited consolidated financial statements and the related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Cautionary Note Regarding Forward-Looking Statements,” before making investment decisions regarding our securities. The risks and uncertainties described below are not the only ones we face, but include the most significant factors currently known by us. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize, our business, financial condition and results of operations could be materially harmed. In that case, the trading price of our securities could decline, and you may lose some or all of your investment.

 

Risks Related to Our Business:

 

We have limited operating history, our financial position is not robust, and we lack profitable operations to date.

 

The Company has incurred net losses since inception and will likely continue to incur net losses while it builds its business and as such it may not achieve or maintain profitability. The Company’s limited operating history makes it difficult to evaluate its business and prospects, and there is no assurance that the business of the Company will grow or that it will become profitable. For the year ended December 31, 2021, the Company had a purchase concentration of 79% from one vendor. The concentration of the Company’s purchases creates a potential risk to future supply in the event that the Company is not able to obtain supplies from other vendors.

 

We have limited cash on hand which creates substantial doubt about our ability to continue as a going concern.

 

In their reports for the years ended December 31, 2021 and 2020, our auditors have expressed that substantial doubt exists about our ability to continue as a going concern. We have incurred operating losses since our formation and expect to incur losses and negative operating cash flows for the twelve months following the audit report. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future. As a result, we will need to generate significant revenues or otherwise raise funds in order to achieve and maintain profitability. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.

 

We will need additional financing which may not be available.

 

Since our formation, we have raised substantial equity and debt financing to support the growth of our business. Because we intend to continue to make investments to support the growth of our business, we require additional capital to pursue our business objectives and growth strategy and respond to business opportunities, challenges or unforeseen circumstances, including participating in merchant cash advances. Accordingly, on a regular basis we need, or we may need, to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, in amounts we need, on terms that are acceptable to us or at all. Volatility in the credit markets in general or in the market for small business or merchant cash advances in particular may also have an adverse effect on our ability to obtain debt financing. Furthermore, the cost of our borrowing may increase due to market volatility, changes in the risk premiums required by lenders or if traditional sources of debt capital are unavailable. Volatility or depressed valuations or trading prices in the equity markets may similarly adversely affect our ability to obtain equity financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. In particular, we may require additional access to capital to support our merchant cash advance participation. In order to participate in merchant cash advances, we have used, and expect to continue to use, our available cash on hand. If we are unable to adequately maintain our cash resources, we may delay non-essential capital expenditures; implement cost cutting procedures; delay or reduce future hiring; or reduce our rate of future participation compared to the current level. There can be no assurance that we can obtain sufficient sources of external capital to support the growth of our business. Delays in doing so or failure to do so may require us to reduce merchant cash advance participation or reduce our operations, which would harm our ability to pursue our business objectives as well as harm our business, operating results and financial condition.

 

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We may not be successful in our potential business combinations.

 

The Company may, in the future, pursue acquisitions of other complementary businesses. The Company may also pursue strategic alliances and joint ventures that leverage its core industry experience to expand its product offerings and geographic presence. The Company has limited experience with respect to acquiring other companies and limited experience with respect to forming collaborations, strategic alliances and joint ventures. If the Company were to make any acquisitions, it may not be able to integrate these acquisitions successfully into its existing business and could assume unknown or contingent liabilities. Any future acquisitions the Company makes could also result in large and immediate write-offs or the incurrence of debt and contingent liabilities, any of which could harm the Company’s operating results. Integrating an acquired company also may require management resources that otherwise would be available for ongoing development of the Company’s existing business.

 

If we fail to attract and retain key personnel, our business and operating results may be harmed.

 

Our future success depends to a significant degree on the skills, experience and efforts of key personnel in our senior management, whose vision for our company, knowledge of our business and expertise would be difficult to replace. If any one of our key personnel leaves, is unable to work, or fails to perform and we are unable to find a qualified replacement, we may be unable to execute our business strategy.

 

The specialty food industry is very competitive, which may result in limited revenue for us, as well as increased expenses associated with marketing our products.

 

The specialty food business is highly competitive. We have retained a Chief Marketing Officer to expand our wholesale and retail market presence. We plan to compete against other providers of quality foods, some of which sell their services globally, and some of these providers have considerably greater resources than we have. These competitors may have greater marketing and sales capacity, established distribution networks, significant goodwill and global name recognition.

 

We may license our Holy Cacao name, brand, and recipes, and sell the Company’s Holy Cacao packaging material in those states where such activity is legal.

 

New legislation or regulation, or the application of existing laws and regulations to the medical and consumer hemp industries could add additional costs and risks to doing business. We and our licensees, if any, will be subject to regulations applicable to businesses generally and laws or regulations directly applicable to communications over the Internet and access to e-commerce. It is reasonable to assume that as hemp use becomes more mainstream that the Food and Drug Administration (FDA) and or other federal, state and local governmental agencies will impose regulations covering the purity, privacy, quality control, security and many other aspects of the industry, all of which will likely raise the cost of compliance thereby reducing profits or even making it more difficult to continue operations, either of which scenarios, if they occur, could have a negative impact on our business and operations.

 

The market may not readily accept our products.

 

Demand and market acceptance for our licensed brand and packaging for our hemp infused products are subject to a high level of uncertainty. This will also be true as we try to expand into the wholesaling of additional health-related products. The successful introduction of any new product requires a focused, efficient strategy to create awareness of and desire for the products. Our marketing strategy may be unsuccessful and is subject to change as a result of a number of factors, including changes in market conditions (including the emergence of new market segments which in our judgment can be readily exploited through the use of our technology), the nature of possible license and distribution arrangements and strategic alliances which may become available to us in the future and general economic, regulatory and competitive factors. There can be no assurance that our strategy will result in successful product commercialization or that our efforts will result in initial or continued market acceptance for our buyer’s proposed products. We currently have only limited resources to enhance our technology or to develop new products.

 

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If we are unable to protect our intellectual property rights, competitors may be able to use our technology or trademarks, which could weaken our competitive position.

 

We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also intend to enter into confidentiality or license agreements with our employees, consultants and customers, and control access to and distribution of our packaging and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products.

 

We have entered into the Merchant Cash Advance (“MCA”) business which carries separate risk from the food industry.

 

Reliance on proprietary merchant cash advance credit models, which involve the use of qualitative factors that are inherently judgmental, could result in merchant defaults which would affect our profitability.

 

The MCA participations and MCA’s that we own will be relatively illiquid, and we may not be able to liquidate those investments in a timely manner.

 

Any MCA participations and MCA’s that we make or otherwise acquire will likely be relatively illiquid with no established market for their purchase and sale, and there can be no assurance that we will be able to liquidate those investments in a timely manner. Although these investments will likely generate income, the return of capital and the realization of gains, if any, from such investments generally will occur only upon the partial or complete disposition of such MCA participation or advance, or its repayment or collection.

 

Our MCA participations and advances may become uncollectible, and large amounts of uncollectible participations and advances may materially affect our performance.

 

Our MCA participations and advances will be relatively illiquid and substantial risks are involved. Most, and possibly all, of the merchants who receive cash advances from the MCA providers we use are required to sign a confession of judgement, which legally requires the merchant to pay back the advance, as long as the merchant continues as a going concern. Although we use background checks and other forms of due-diligence information to mitigate the risk of uncollectible debt resulting from bankruptcy, no assurance can be made that we will be able to do so. If our MCA portfolio contains a large portion of uncollectible debt, our performance will likely be negatively affected. In addition, if any business defaults on an MCA transaction, we may be required to expend monies in connection with foreclosure proceedings and other remedial actions, which expenditures could materially and adversely affect our financial performance. Although our MCA’s, both direct and syndicated, will be structured so as not to be characterized as loans, MCA’s present many of the same risks. For example, we may be unable to collect the full amount of the merchant cash advance receivable we acquire through an advance. In any such case, here again we may be required to expend monies in connection with remedial actions, which expenditures could materially and adversely affect our financial performance.

 

We will have the right to obtain credit lines as part of our investment strategy, even though we presently do not intend to do so. Any leverage we incur in building and growing our business may substantially increase our risk of loss.

 

Although we do not presently have intentions to obtain credit lines, we will not be restricted from doing so and we may in the future determine that this is an effective way to capitalize the Company. In such a case, the use of leverage (debt) may increase both net returns as well as risk since we may not be able to pay interest obligations associated with our own borrowing.

 

Our MCA participations may be concentrated, which could lead to increased risk.

 

Our MCA participations may be concentrated in a limited number of investments or investments to one business or affiliated businesses. Thus, our stockholders may have limited diversification. In addition, if we make an investment in a single transaction with the intent of refinancing or selling a portion of the investment, there is a risk that we will be unable to successfully complete such a refinancing or sale. This could lead to increased risk as a result of having an unintended long-term investment and reduced diversification.

 

If third parties default or file for bankruptcy, we could suffer losses.

 

We could suffer losses if our MCA recipients were to default. Any such default or bankruptcy could have a material and adverse impact on our results of operation, our financial condition and our business prospects.

 

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We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our results of operations and our ability to attract and retain qualified executives and board members.

 

As a public company we incur significant legal, accounting, and other expenses and these expenses will increase after we cease to be a “smaller reporting company.” In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the Securities and Exchange Commission (“SEC”), Nasdaq and the New York Stock Exchange (“NYSE”), impose various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations and future regulations will continue to increase our legal, accounting and financial compliance costs and will make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers. In addition, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or “Section 404.” As long as we remain a “smaller reporting company” we may elect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be a “smaller reporting company” and, when our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. We expect to have in place accounting, internal audit and other management systems and resources that will allow us to maintain compliance with the requirements of the Sarbanes-Oxley Act at the end of any phase-in periods permitted by Nasdaq, the NYSE, the SEC and the JOBS Act. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal control from our independent registered public accounting firm.

 

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Our business is subject to regulation, and changes in laws and regulations governing our business, or changes in the interpretation of such laws and regulations, could negatively affect our business.

 

Over the last few years, federal and state regulatory and other policymaking entities have taken an increased interest in marketplace and online lending, including online small business lending. For example, in July 2015, the U.S. Department of the Treasury issued a public request for information regarding expanding access to credit through online marketplace lending. Activity in various states has also increased, including in the states of California and New York. In December 2015, the California Department of Business Oversight announced an inquiry into the marketplace lending industry and requested information from fourteen marketplace and online lenders. The New York Department of Financial Services opened a formal investigation of marketplace and online lending in March 2019. In May 2019, the Federal Trade Commission held a forum, “Strictly Business,” that explored small business lending practices, regulations, and policies. The forum consisted of three panels: (1) Overview of the Small Business Financing Marketplace, (2) Case Study on Merchant Cash Advances, and (3) Consumer Protection Risks and the Path Ahead. These initiatives were presented as information gathering projects to assist federal and state officials in better understanding, among other things, the methods, role and impact of online and marketplace lending on credit markets. These initiatives either have resulted, or are expected to result, in policy recommendations that could impact merchant cash advance business practices and operations, if the recommendations result in new laws or regulations. As of December 31, 2021, the above federal and state initiatives have not resulted in formal regulation that could foreclose the future of merchant cash advances as a viable financial product. However, the aforementioned regulatory authorities have continued to respond to complaints that provide a glimpse into what merchant cash advance companies should expect in a regulated future for the industry. In particular, authorities consistently warn against the recharacterization of merchant cash advances as loans, which provides significant guidance for not only the drafting of MCA agreements, but also the underwriting and marketing of MCA. Also, if a federal or state regulatory authority were to enact legislation requiring licensure by commercial lenders or imposing certain applicable rate caps or other provisions inconsistent with current merchant cash advance business practices and alternative solutions were not available, we could be required to reevaluate our participation in merchant cash advances. We expect these and other types of legislative and regulatory activities to continue in the future as marketplace and online lending grow and become the subject of greater public interest. For example, with the prospect of easing regulatory burdens at the federal level under the current administration, some states have indicated their intention to take more aggressive regulatory action. We cannot predict the outcome of these or other comparable future activities, when or whether they will lead to new laws, regulations or other actions or what they might be. However, the impact and cost of any possible future changes to laws or regulations could be substantial and could also require us to change our business practices and operations in a manner that adversely impacts our business. Changes in laws or regulations, including recent changes under the Tax Cuts and Jobs Act of 2017 (and any related Treasury regulations, rules or interpretations, if and when issued), or the regulatory application or judicial interpretation of the laws and regulations applicable to us could adversely affect our ability to operate in the manner in which we currently conduct business or make it more difficult or costly for us to participate in merchant cash advances. A material failure to comply with any such laws or regulations could result in regulatory actions, lawsuits and damage to the merchant cash advance industry, which could have a material adverse effect on our business and financial condition. A proceeding relating to one or more allegations or findings of our merchant cash advance provider’s violation of such laws could impair the ability to collect payments on advances or to participate in additional advances.

 

Public perception of merchant cash advance businesses as predatory or abusive could adversely affect our business.

 

In recent years, much of the media reporting on the merchant cash advance industry has focused on the cost to a small business for this type of financing arrangement, which is higher than the interest typically charged by traditional banking institutions in situations where they are willing to engage in traditional credit transactions. On occasion, media reports have characterized merchant cash advance businesses as predatory or abusive toward small business clients. If this negative characterization of our business becomes widely accepted, demand for our services could significantly decrease, which could adversely affect our results of operations primarily by decreasing our revenues. Negative perception of our business activities could also result in our industry being subject to more restrictive laws and regulations and greater exposure to litigation.

 

General economic conditions will likely affect our charge-offs and demand for our services, and accordingly, our results of operations could be adversely affected by a general economic slowdown or other negative economic conditions.

 

Provision for MCA participation losses and MCA losses, net of recoveries, may comprise one of our largest operating expenses. Any changes in economic factors that adversely affect MCA customers, such as an economic downturn or high unemployment, could result in higher loss experiences than anticipated, which could in turn adversely affect our charge-offs. Moreover, a sustained deterioration in the economy would likely cause a decrease in demand for merchant cash advance services. Any general economic conditions negatively affecting our charge-offs or demand for our services could materially and adversely affect our operating results.

 

When we make MCA’s either by ourselves or as part of a syndicated group, we will be subject to the risk of fraud by small business clients seeking the advance.

 

We will be subject to fraud risk whenever we make an MCA by ourselves or as part of a syndicated group. Small business recipients of the advance may, for example, present information that is false. In any such case, we will likely be unable to collect our receivable relating to an MCA. Widespread fraud of this type could adversely affect our operating results and the prospects for our business. This could also be a concern with respect to our MCA participations.

 

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Coronavirus (“COVID-19”) creates significant uncertainty regarding potential business disruptions that could have a material adverse impact on the Company’s financial position.

 

In December 2019, a novel strain of coronavirus surfaced (COVID-19). The spread of COVID-19 around the world through 2021 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 December 31, 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 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 December 31, 2021 and through the filing date of the audited 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 December 31, 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.

 

Risks Related to the Securities Markets and Ownership of Our Common and Preferred Stock

 

Our Common Stock is Subject to the “Penny Stock” Rules of the SEC and the Trading Market in our Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

 

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price, for warrants or options or conversion price for convertible notes, of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

 

·

that a broker or dealer approve a person’s account for transactions in penny stocks; and

 

 

·

the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

·

Obtain financial information and investment experience objectives of the person; and

 

 

·

Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

 

·

Sets forth the basis on which the broker or dealer made the suitability determination, and

 

 

·

That the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

 

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Shares eligible for future sale under Rule 144 and/or Rule 905 may adversely affect the market for our securities.

 

From time to time, certain of our stockholders who hold restricted securities may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to and reliant upon certain exceptions promulgated under the Securities Act. Although current stockholders may have no current intention or ability to sell their shares, any substantial sales by holders of our common stock in the future pursuant to such exceptions may have a material adverse effect on the market price of our securities.

 

The price of our common stock is subjected to volatility.

 

The market for the Company’s common stock may be highly volatile. The trading price of the Company’s common stock is subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to their markets or relating to the Company could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of the Company’s stock prices may cause investment losses for their shareholders. If securities class action litigation is brought against the Company, such litigation could result in substantial costs while diverting management’s attention and resources.

 

Our Board of Directors has sole discretion to create new classes of preferred stock.

 

Our Certificate of Incorporation authorizes the issuance of preferred stock with such rights and preferences as our Board of Directors may determine from time to time in its sole discretion. Accordingly, under the Certificate of Incorporation, the Board may designate and issue preferred stock with dividend, liquidation, conversion, voting, redemption or other rights that could impact the rights of the holders of our common shares.

 

Disruptions in global financial markets and deteriorating global economic conditions could cause lower returns to investors.

 

Disruptions in global financial markets and deteriorating global economic conditions could adversely affect the value of the Company’s common stock. The current state of the economy and the implications of future potential weakening may negatively impact market fundamentals, resulting in lower revenues and values for the Company’s business opportunities and investments.

 

If we fail to remain current on our reporting requirements, we could be removed from quotation by the OTCQB, which would limit the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.

 

Companies quoted on the OTCQB must be current in their publicly filed reports containing information mandated under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTCQB. If we fail to remain current on our reporting requirements, we could be removed from the OTCQB. As a result, the market liquidity for our securities could be adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.

 

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We have not voluntarily implemented various corporate governance measures.

 

Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or Nasdaq, on which their securities are listed. As directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), the SEC has adopted rules requiring public companies to include a report of management on the Company’s internal control over financial reporting in its annual reports. While we expect to expend significant resources in developing the necessary documentation and testing procedures required by SOX 404, the Company as of this filing does not have effective controls. As we identify significant deficiencies or material weaknesses in our internal control over financial reporting that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements and our ability to obtain equity or debt financing could suffer. Also, among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight and the adoption of a Code of Ethics. The Company has not adopted exchange-mandated corporate governance measures and, since our securities are not listed on a national securities exchange, we are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

 

We have a large number of authorized but unissued shares of our common and preferred stock.

 

We have a large number of authorized but unissued shares of common and preferred stock, which our management may issue without further stockholder approval, thereby causing dilution of your holdings of our common stock. Our management will continue to have broad discretion to issue shares of our common and preferred stock in a range of transactions, including capital-raising transactions, mergers, acquisitions and other transactions, without obtaining stockholder approval. If our management determines to issue shares of our common or preferred stock with conversion rights or special voting rights from the large pool of authorized but unissued shares for any purpose in the future, your ownership position would be diluted without your further ability to vote on that transaction. Under the Company’s Certificate of Incorporation, the Board of Directors may designate and issue preferred stock with dividend, liquidation, conversion, voting, redemption or other rights that are senior in right to common stock. For example, the Company’s Class A Preferred Stock provides 50% voting rights to the Company’s two founding Directors.

 

Shares of our common stock may continue to be subject to illiquidity because our shares may continue to be thinly traded and may never become eligible for trading on a national securities exchange.

 

While we may at some point be able to meet the requirements necessary for our common stock to be listed on a national securities exchange, we cannot assure you that we will ever achieve a listing of our common stock on a national securities exchange. Our shares are currently only eligible for quotation on the OTCQB, which is not an exchange. Initial listing on a national securities exchange is subject to a variety of requirements, including minimum trading price and minimum public “float” requirements, and could also be affected by the general skepticism of such markets concerning companies that are the result of mergers with inactive publicly-held companies. There are also continuing eligibility requirements for companies listed on public trading markets. If we are unable to satisfy the initial or continuing eligibility requirements of any such market, then our stock may not be listed or could be delisted. This could result in a lower trading price for our common stock and may limit your ability to sell your shares, any of which could result in you losing some or all of your investments.

 

The market valuation of our business may fluctuate due to factors beyond our control and the value of your investment may fluctuate correspondingly.

 

The market valuation of smaller reporting companies, such as us, frequently fluctuate due to factors unrelated to the past or present operating performance of such companies. Our market valuation may fluctuate significantly in response to a number of factors, many of which are beyond our control, including:

 

 

i.

changes in securities analysts’ estimates of our financial performance, although there are currently no analysts covering our stock;

 

 

 

 

ii.

fluctuations in stock market prices and volumes, particularly among securities of emerging growth companies;

 

 

 

 

iii.

changes in market valuations of similar companies;

 

 

 

 

iv.

announcements by us or our competitors of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments;

 

 

 

 

v.

variations in our quarterly operating results;

 

 

 

 

vi.

fluctuations in related commodities prices;

 

 

 

 

vii.

additions or departures of key personnel; and

 

 

 

 

viii.

new industry regulations associated with hemp.

 

As a result, the value of your investment in us may fluctuate.

 

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We have never paid dividends on our common stock.

 

We have never paid cash dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future. Investors should not look to dividends as a source of income. In the interest of reinvesting initial profits back into our business, we do not intend to pay cash dividends in the foreseeable future. Consequently, any economic return will initially be derived, if at all, from appreciation in the fair market value of our stock, and not as a result of dividend payments.

 

Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.

 

Two of our directors have perpetual voting rights with respect to all company matters. They may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of voting power may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

 

Item 1B. Unresolved Staff Comments. 

 

The Company has no SEC staff comments.

 

Item 2. Properties.

 

The Company does not own property. The Company pays a fee to Incorp Services, Inc. to maintain a corporate office headquartered at 3773 Howard Hughes Parkway, Suite 500S, Las Vegas, NV 89169-6014. All directors and officers of the Company work remotely at no cost to the Company. The Company has access to and uses a fully staffed and fully equipped state of the art manufacturing facility in Florida to produce its specialty chocolate product line.

 

Item 3. Legal Proceedings.

 

We were not a party to any legal proceedings that could have a material adverse effect on the Company’s business, financial condition or operating results. Further, to the Company’s knowledge, no such proceedings have been threatened against the Company.

 

Item 4. Mine Safety Disclosures.

 

Not applicable

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issue Purchases of Equity Securities.

 

Market Information

 

Our common stock is quoted on the OTC Markets (“OTCQB”) under the symbol “FIFG.”

 

The closing sales price of the Company’s common stock on April 12, 2022 was $0.20 per share.

 

Holders

 

As of the date of this report there were approximately 50 support holders of record of Company common stock. This does not include an indeterminate number of additional persons who hold our common stock in brokerage accounts and otherwise in “street name.”

 

Dividends

 

Holders of common stock are entitled to receive such dividends as may be declared by the Company’s Board of Directors. The Company did not declare or pay dividends on our common stock during the years ended December 31, 2021 and 2020.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for First Foods’ common stock is Manhattan Transfer Registrar Co., 38B Sheep Pasture Rd. Port Jefferson, NY 11777, telephone 631-928-7655.

 

Authorization of Our Securities

 

On October 25, 2017, and as amended on November 2, 2018, the Board of Directors of the Company designated 100,000,000 authorized common shares and 20,000,000 authorized preferred shares to have preferences and terms as shall be determined by the Board of Directors from time to time. The preferred shares were authorized into three series: Series A Convertible Preferred Shares was designated with one share, which share is issued and outstanding; Series B Convertible Preferred Shares was designated with 4,999,999 shares, of which 354,999 shares are issued and outstanding; and Series C Convertible Preferred Shares was designated with 3,000,000 shares, of which 660,000 shares are issued and outstanding.

 

The Series A Convertible Preferred Share has voting rights equal to fifty percent (50%) of the voting rights of all outstanding classes of capital stock of the Company and the share is convertible into five (5) shares of the Company’s common stock, including liquidation preference over common stock.

 

Series B Convertible Preferred Shares have voting rights equal to five (5) votes per share and each share is convertible into five (5) shares of the Company’s common stock, including liquidation preference over common stock.

 

Series C Convertible Preferred Shares have voting rights equal to one (1) vote per share and each share is convertible into one (1) share of the Company’s common stock, including liquidation preference over common stock.

 

Repurchases of Our Securities

 

None of the shares of our common stock were repurchased by the Company during the years ended December 31, 2021 and 2020.

 

Unregistered Sales of Securities

 

The Company issued warrants to purchase up to 1,148,775 and 3,496,000 shares of the Company’s common stock during the years ended December 31, 2021 and 2020, respectively.

 

The Company did not issue warrants to purchase the Company’s preferred series B during the year ended December 31, 2021. However, the Company issued warrants to purchase up to 500,000 shares of the Company’s preferred series B stock during the year ended December 31, 2020.

 

The unregistered sales of the warrants were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Act”). No underwriters were retained to serve as placement agents for the sales and the warrants. The Preferred Shares were sold directly through our management. No commission or other consideration was paid in connection with the sales of the warrants and there was no advertisement or general solicitation made in connection with the offer and sales of the warrants.

 

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Item 6. [Reserved]

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Cautionary Statements.

 

This annual report contains “forward-looking statements,” as that term is used in federal securities laws, about First Foods Group, Inc.’s financial condition, results of operations and business.

 

These statements include, among others:

 

statements concerning the potential benefits that First Foods Group, Inc. (“First Foods”, “we”, “our”, “us”, the “Company”, or “management”) may experience from its business activities and certain transactions it contemplates or has completed; and

 

 

statements of First Foods’ expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “opines,” or similar expressions used in this Form 10-K. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause First Foods’ actual results to be materially different from any future results expressed or implied by First Foods in those statements. The most important facts that could prevent First Foods from achieving its stated goals include, but are not limited to, the following:

 

 

(a)

volatility or decline of First Foods’ stock price;

 

 

 

 

(b)

potential fluctuation of quarterly results;

 

 

 

 

(c)

failure of First Foods to earn significant revenues or profits;

 

 

 

 

(d)

inadequate capital to continue or expand its business, and inability to raise additional capital or financing to implement its business plans;

 

 

 

 

(e)

decline in demand for First Foods’ products and services;

 

 

 

 

(f)

rapid adverse changes in markets;

 

 

 

 

(g)

litigation with or legal claims and allegations by outside parties against First Foods, including but not limited to challenges to First Foods’ intellectual property rights;

 

 

 

 

(h)

reliance on proprietary merchant advance credit models, which involve the use of qualitative factors that are inherently judgmental and which could result in merchant defaults; and

 

 

 

 

(i)

New regulations impacting the business.

 

In addition, there is no assurance that (i) First Foods will be profitable, (ii) First Foods will be able to successfully develop, manage or market its products and services, (iii) First Foods will be able to attract or retain qualified executives and personnel, (iv) First Foods will be able to obtain customers for its products or services, (v) additional dilution in outstanding stock ownership will not be incurred due to the issuance of more shares, warrants and stock options, or the exercise of outstanding warrants and stock options, and (vi) there are no other risks inherent in First Foods’ business.

 

Because the forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. First Foods cautions you not to place undue reliance on the statements, which speak only of management’s plans and expectations as of the date of this Form 10-K. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that First Foods or persons acting on its behalf may issue. First Foods does not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-K, or to reflect the occurrence of unanticipated events.

 

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General

 

The Company is currently a “smaller reporting company” under the JOBS Act. A company loses its “smaller reporting company” status on (i) the day its public float becomes greater than or equal to $250,000,000 or (ii) had annual revenues of less than $100,000,000 and either: (A) had no public float or (B) had a public float of less than $700,000,000. As a “smaller reporting company,” First Foods is exempt from certain obligations of the Exchange Act, including those found in Section 14A(a) and (b) related to shareholder approval of executive compensation and golden parachute compensation and Section 404(b) of the Sarbanes-Oxley Act of 2002 related to the requirement that management assess the effectiveness of the Company’s internal control for financial reporting. Furthermore, Section 103 of the JOBS Act provides that as a “smaller reporting company”, First Foods is not required to comply with the requirement to provide an auditor’s attestation of ICFR under Section 404(b) of the Sarbanes-Oxley Act for as long as First Foods qualifies as a “smaller reporting company.” In addition, a “smaller reporting company” may include less extensive narrative disclosure than required of other reporting companies, particularly in the description of executive compensation and provide audited financial statements for two fiscal years, in contrast to other reporting companies, which must provide audited financial statements for three fiscal years. However, a “smaller reporting company” is not exempt from the requirement to perform management’s assessment of internal control over financial reporting.

 

First Foods is focused on developing its specialty chocolate product line through its Holy Cacao subsidiary, participating in merchant cash advances (“MCAs”) through its 1st Foods Funding Division, and introducing new health-related brands, concepts and products through its FFGI Wholesaling Division.

 

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.

 

As of December 31, 2021, our cash balance was $11,527, which includes restricted cash of $5,900, and our current liabilities were $3,732,377.

 

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Results of Operations

 

Results of Operations for the Year Ended December 31, 2021 compared to the Year Ended December 31, 2020

 

Fiscal 2021 Highlights

 

Total net sales increased 74% or $154,590 during 2021 compared to 2020, driven by growth in our wholesale and Chocolate Products.

               

Products Performance

 

 

 

 

 

 

The following table shows net sales by category for 2021 and 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

Change

 

 

2020

 

Net sales by category:

 

 

 

 

 

 

 

 

 

Chocolate products

 

$ 94,387

 

 

 

93 %

 

$ 48,983

 

Wholesale products

 

 

228,697

 

 

 

100 %

 

 

-

 

Merchant cash advances

 

 

39,673

 

 

 

-75 %

 

 

159,184

 

Total net sales

 

$ 362,757

 

 

 

74 %

 

$ 208,167

 

 

Chocolate products

 

Chocolate products net sales increased during 2021 compared to 2020 due primarily to the product being in the market for the full year in 2021 as compared to only a few months in 2020.

 

Wholesale products

 

Wholesale products net sales increased during 2021 compared to 2020 due to the wholesale division starting in 2021. The Company does not plan on continuing the Wholesale division and will be focusing its resources on the Chocolate division.

 

Merchant cash advances

 

Merchant cash advances net sales decreased during 2021 compared to 2020 due to the Company winding down that division to focus and put resources to the Chocolate producing division of the Company.

 

Cost of Product Sales

 

Products cost of sales for 2021 and 2020 were as follows:

 

 

 

2021

 

 

2020

 

Cost of Product Sales:

 

 

 

 

 

 

Chocolate products

 

$ 32,564

 

 

$ 35,077

 

Wholesale products

 

 

200,683

 

 

 

-

 

Total Cost of Product Sales:

 

$ 233,247

 

 

$ 35,077

 

 

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Cost of product sales

The increase in cost of product sales in 2021 as compared to 2020 was due to an increase in FFGI wholesale product sales which has a narrow gross margin when compared to the Holy Cacao sales. Cost of Chocolate sales decreased due to scale and better efficiencies.

   

Legal fees for the year ended December 31, 2021 was $35,019 compared to $61,641 for the year ended December 31, 2020. This decrease in legal fees was due to fewer contractual obligations being signed which led to lower legal expenses.

 

General and administrative expenses for the year ended December 31, 2021 was $1,702,035 compared to $1,993,427 for the year ended December 31, 2020. The decrease in general and administrative expenses was primarily due to decreased costs associated with stock-based compensation, and consulting and accounting fees.

 

Provision for merchant cash advances for the year ended December 31, 2021 was $(154,303) compared to $141,790 for the year ended December 31, 2020. The decrease in provision for merchant cash advances was due to a decrease in our reserve allowance for our merchant cash advances related to COVID-19 as the Company had a much higher collection rate than expected following the Discuss impairment.

 

Impairment of assets expense for the year ended December 31, 2021 was $46,368. The company has not realized cash flows sufficient to overcome an asset impairment and is, therefore, estimating an impairment of 25% of its asset carrying value. There was no impairment expense in the year ended December 31, 2020.

 

Liquidity and Capital Resources

 

Net cash used in operating activities amounted to $333,692 for the year ended December 31, 2021 and $163,541 for the year ended December 31, 2020. This resulted in a working capital deficit of $3,536,485 at December 31, 2021 and $2,560,983 at December 31, 2020. This decrease in working capital was due primarily to an increase in accounts payable and accrued expenses and an increase in loans.

  

Net cash used in investing activities amounted to $877 for the year ended December 31, 2021 and $199,328 for the year ended December 31, 2020. This was due to more purchases of equipment in 2020 as the company was making additions to equip the factory as compared to 2021.

 

Net cash provided by financing activities amounted to $295,710 for the year ended December 31, 2021 and $388,902 for the year ended December 31, 2020. This was due to a decrease of proceeds from the issuance of loans in 2021 as compared to 2020.

  

Concentration Risks

 

The Company recognizes the concentration of its merchant cash advances, which could inherently create a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of the outstanding merchant cash advances. The Company actively mitigates its portfolio concentration risk by monitoring its merchant cash advance provider’s ability to participate in merchant cash advances from alternative providers and spreading merchant cash advance participation across various merchants.

 

As of December 31, 2021, the Company’s receivables from merchant cash advances included $29,290 from one merchant, representing 78% of the Company’s merchant cash advances. The Company earned $22,368 of MCA income from one merchant, representing 56% of the Company’s MCA income for the twelve months ended December 31, 2021.

 

As of December 31, 2020, the Company’s receivables from merchant cash advances included $59,719 from two merchants ($25,929 and $33,790), representing 49.3% of the Company’s merchant cash advances. The Company earned $84,525 and $27,175 of MCA income from two merchants, representing 53.5% and 17.2%, respectively of the Company’s MCA income for the twelve months ended December 31, 2020.

 

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As of December 31, 2021 and 2020, there was no accounts payable concentration other than amounts owed to related parties which makes up 70% and 74% of the balance, respectively.

 

For the year ended December 31, 2021, the Company had sales concentrations of 17%, 15% and 15% from three customers. There was no sales concentration for the year ended December 31, 2020.

 

For the year ended December 31, 2021, the Company had purchase concentrations of 79% from one vendor.

 

For the year ended December 31, 2020, the Company had purchase concentrations of 49% and 14% from two vendors.

 

Going Concern

 

The Company’s consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

 

The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing. However, neither any members of management nor any significant shareholders are currently committed to invest funds with us and; therefore, we cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The Company does not have sufficient cash flow for the next twelve months from the issuance of these audited consolidated financial statements. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying audited consolidated financial statements do not include any adjustments that might be necessary, if the Company is unable to continue as a going concern.

 

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Contractual Obligations

 

Not applicable.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

 

Certain of our accounting policies are particularly important to the portrayal and understanding of our financial position and results of operations and require us to apply significant judgment in their application. As a result, these policies are subject to an inherent degree of uncertainty. In applying these policies, we use our judgment in making certain assumptions and estimates. Our critical accounting policies are outlined in Note 1 in the Notes to the Consolidated Financial Statements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

First Foods is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

 

20

Table of Contents

 

Item 8. Financial Statements and Supplementary Data.

 

FIRST FOODS GROUP, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

 

Report of Independent Registered Public Accounting Firm (PCAOB ID 711)

 

F-2

 

Audited Financial Statements:

 

Consolidated Balance Sheets as of December 31, 2021 and 2020

 

F-4

 

Consolidated Statements of Operations for the years ended December 31, 2021 and 2020

 

F-5

 

Consolidated Statements of Changes in Deficit for the years ended December 31, 2021 and 2020

 

F-6

 

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020

 

F-7

 

Notes to Consolidated Financial Statements

 

F-8

 

F-1

Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of First Foods Group, Inc. and Subsidiary

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of First Foods Group, Inc. and Subsidiary (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in deficit, and cash flows for each of the years in the two year period ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has recurring losses from operations which raises substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the board of directors and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

F-2

Table of Contents

 

Stock Based Compensation – Initial Measurement of Fair Value

 

Description of the Matter

 

As described in Note 1 of the consolidated financial statements, the Company measures and recognizes compensation expense for all stock-based payments at fair value over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of options and warrants. In particular, management’s estimates were sensitive to assumptions about the volatility of the Company’s stock price, expected exercise term and fair value determination method.

 

How We Addressed the Matter in Our Audit

 

To test stock based compensation expense, we performed audit procedures that included, among others, obtaining an understanding of the Company’s controls over stock-based compensation, assessing the completeness of the awards granted and evaluating the methodologies used to estimate the fair value of these awards. We also tested the accuracy of the data used in measuring the awards by agreeing the underlying inputs, such as grant date, grant price, performance targets and vesting terms, among others, back to source documents, such as board meeting minutes or award letters and testing the clerical accuracy of the calculation of the expense recorded. We determined whether milestone targets were satisfied in accordance with the contractual conditions and recalculated grant date fair value. We also evaluated the adequacy of the Company’s stock-based compensation disclosures included in Note 1 in relation to these matters.

 

Assessment of Impairment on Long Lived Assets

 

Description of the Matter

 

As described in Note 1 of the consolidated financial statements, the Company’s long lived tangible assets are stated at cost, less accumulated depreciation and amortization. The Company’s right of use assets and operating lease liability are stated at the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates, less current period non cash lease expense and amortization. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the asset group.

 

How We Addressed the Matter in Our Audit

 

Our audit procedures related to the assessment of impairment on long lived assets we obtained an understanding and evaluated the procedures over management’s impairment review process. We reviewed management’s significant assumptions and data inputs utilized in the calculation of future undiscounted and discounted cash flows. To test the Company’s estimated future cash flows used to test for the recoverability of the respective assets and, if applicable, the measurement of an impairment loss, we performed audit procedures that included, among others, testing the significant assumptions discussed above and the underlying data used by the Company in its impairment analyses, evaluating the methodologies applied by management, and recalculating the total undiscounted and discounted cash flows, if applicable, for each asset analyzed. We compared the significant assumptions used by management to historical sales data, sales trends, and observable market-specific data. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the assets that would result from changes in the assumptions.

 

/s/ Friedman LLP

 

 

We have served as the Company’s auditor since 2017.

 

 

Marlton, New Jersey

April 14, 2022

 

F-3

Table of Contents

 

First Foods Group, Inc. and Subsidiary

 

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

December 31,

2021

 

 

December 31,

2020

 

ASSETS

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$ 5,627

 

 

$ 50,386

 

Restricted cash

 

 

5,900

 

 

 

-

 

Inventory, net

 

 

56,936

 

 

 

46,240

 

Merchant cash advances, net of allowance $131,703 and $291,380, respectively

 

 

37,541

 

 

 

121,079

 

Prepaid expenses and other current assets

 

 

89,888

 

 

 

148,805

 

TOTAL CURRENT ASSETS

 

 

195,892

 

 

 

366,510

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

139,103

 

 

 

242,438

 

Operating lease right-of-use assets

 

 

177,062

 

 

 

239,247

 

TOTAL ASSETS

 

$ 512,057

 

 

$ 848,195

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND DEFICIT

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 1,074,216

 

 

$ 645,092

 

Accounts payable and accrued liabilities - related parties

 

 

718,114

 

 

 

465,506

 

Put liability

 

 

29,421

 

 

 

-

 

Deferred revenue

 

 

81,953

 

 

 

105,058

 

Loans, net of unamortized debt discount

 

 

1,288,586

 

 

 

966,155

 

Related party loans, net of unamortized debt discount

 

 

471,009

 

 

 

685,279

 

Operating lease liabilities

 

 

69,078

 

 

 

60,403

 

TOTAL CURRENT LIABILITIES

 

 

3,732,377

 

 

 

2,927,493

 

 

 

 

 

 

 

 

 

 

Loans - long term

 

 

150,000

 

 

 

300,024

 

Operating lease liabilities - long term

 

 

109,975

 

 

 

179,053

 

TOTAL LIABILITIES

 

 

3,992,352

 

 

 

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, 354,999 and 473,332 issued and outstanding, respectively ($118,235 and $160,000 liquidation preference, respectively)

 

 

355

 

 

 

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, 26,998,338 and 22,367,179 shares issued and outstanding, respectively

 

 

26,998

 

 

 

22,367

 

Additional paid-in capital

 

 

12,062,341

 

 

 

10,515,601

 

Accumulated deficit

 

 

(15,335,458 )

 

 

(12,954,696 )

Total First Foods Group, Inc. Deficit

 

 

(3,245,104 )

 

 

(2,415,595 )

 

 

 

 

 

 

 

 

 

Noncontrolling interests

 

 

(235,191 )

 

 

(142,780 )

Total deficit

 

 

(3,480,295 )

 

 

(2,558,375 )

TOTAL LIABILITIES AND DEFICIT

 

$ 512,057

 

 

$ 848,195

 

 

 

 

 

 

 

 

 

 

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

   

F-4

Table of Contents

 

First Foods Group, Inc. and Subsidiary

Consolidated Statements of Operations

 

 

 

 

 

 

 

For the Years Ended December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

Product sales, net

 

$ 323,084

 

 

$ 48,983

 

Merchant cash advance income, net

 

 

39,673

 

 

 

159,184

 

Total Revenues

 

 

362,757

 

 

 

208,167

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Cost of product sales

 

 

233,247

 

 

 

35,077

 

Legal fees

 

 

35,019

 

 

 

61,641

 

General and administrative

 

 

1,702,035

 

 

 

1,993,427

 

Provision for merchant cash advances

 

 

(154,303 )

 

 

141,790

 

Impairment of assets

 

 

46,368

 

 

 

-

 

Total Operating Expenses

 

 

1,862,366

 

 

 

2,231,935

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(1,499,609 )

 

 

(2,023,768 )

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Other income

 

 

110,000

 

 

 

1,000

 

Loss on extinguishment of loans payable

 

 

(412,509 )

 

 

-

 

Interest expense

 

 

(671,055 )

 

 

(720,370 )

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(2,473,173 )

 

 

(2,743,138 )

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(2,473,173 )

 

 

(2,743,138 )

 

 

 

 

 

 

 

 

 

Non-controlling interest share of loss

 

 

92,411

 

 

 

81,702

 

Deemed dividends

 

 

(337,930 )

 

 

-

 

 

 

 

 

 

 

 

 

 

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

 

$ (2,718,692 )

 

$ (2,661,436 )

 

 

 

 

 

 

 

 

 

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

 

$ (0.11 )

 

$ (0.12 )

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

 

 

24,717,458

 

 

 

21,449,269

 

 

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

   

F-5

Table of Contents

 

First Foods Group, Inc. and Subsidiary

Consolidated Statements of Changes in Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional paid-in

 

 

Accumulated

 

 

Total First Foods Group, Inc.

 

 

Non-controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

deficit

 

 

interests

 

 

deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

1,133,333

 

 

$ 1,133

 

 

 

20,313,771

 

 

$ 20,314

 

 

$ 9,116,998

 

 

$ (10,293,260 )

 

$ (1,154,815 )

 

$ (61,078 )

 

$ (1,215,893 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash to a related party

 

 

-

 

 

 

-

 

 

 

499,998

 

 

 

500

 

 

 

99,500

 

 

 

-

 

 

 

100,000

 

 

 

-

 

 

 

100,000

 

Common stock issued to consultants for services

 

 

-

 

 

 

-

 

 

 

600,000

 

 

 

600

 

 

 

130,750

 

 

 

-

 

 

 

131,350

 

 

 

-

 

 

 

131,350

 

Common stock issued for related party loan

 

 

-

 

 

 

-

 

 

 

579,410

 

 

 

579

 

 

 

125,823

 

 

 

-

 

 

 

126,402

 

 

 

-

 

 

 

126,402

 

Common stock issued with loans payable

 

 

-

 

 

 

-

 

 

 

374,000

 

 

 

374

 

 

 

99,258

 

 

 

-

 

 

 

99,632

 

 

 

-

 

 

 

99,632

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

170,644

 

 

 

-

 

 

 

170,644

 

 

 

-

 

 

 

170,644

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

501,911

 

 

 

-

 

 

 

501,911

 

 

 

-

 

 

 

501,911

 

Warrants issued with loan payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,717

 

 

 

-

 

 

 

20,717

 

 

 

-

 

 

 

20,717

 

Warrants issued in lieu of deferred compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

250,000

 

 

 

-

 

 

 

250,000

 

 

 

-

 

 

 

250,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,661,436 )

 

 

(2,661,436 )

 

 

(81,702 )

 

 

(2,743,138 )

Balance at December 31, 2020

 

 

1,133,333

 

 

$ 1,133

 

 

 

22,367,179

 

 

$ 22,367

 

 

$ 10,515,601

 

 

$ (12,954,696 )

 

$ (2,415,595 )

 

$ (142,780 )

 

$ (2,558,375 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash to a related party

 

 

-

 

 

 

-

 

 

 

499,998

 

 

 

500

 

 

 

99,500

 

 

 

-

 

 

 

100,000

 

 

 

-

 

 

 

100,000

 

Stock compensation consultant - Put liability

 

 

-

 

 

 

-

 

 

 

147,991

 

 

 

147

 

 

 

(147 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock issued to consultants for services

 

 

-

 

 

 

-

 

 

 

70,856

 

 

 

71

 

 

 

9,361

 

 

 

-

 

 

 

9,432

 

 

 

-

 

 

 

9,432

 

Common stock issued for related party loan

 

 

-

 

 

 

-

 

 

 

190,000

 

 

 

190

 

 

 

38,970

 

 

 

-

 

 

 

39,160

 

 

 

-

 

 

 

39,160

 

Common stock issued with loans payable

 

 

-

 

 

 

-

 

 

 

114,000

 

 

 

114

 

 

 

19,746

 

 

 

-

 

 

 

19,860

 

 

 

-

 

 

 

19,860

 

Common stock issued for conversion of loans payable

 

 

-

 

 

 

-

 

 

 

1,608,314

 

 

 

1,608

 

 

 

342,388

 

 

 

-

 

 

 

343,997

 

 

 

-

 

 

 

343,997

 

Common stock issued for conversion of loans payable - related party

 

 

-

 

 

 

-

 

 

 

2,000,000

 

 

 

2,000

 

 

 

458,000

 

 

 

-

 

 

 

460,000

 

 

 

-

 

 

 

460,000

 

Preferred stock waived by director

 

 

(118,333 )

 

 

(118 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(118 )

 

 

-

 

 

 

(118 )

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

236,836

 

 

 

-

 

 

 

236,836

 

 

 

-

 

 

 

236,836

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

91,270

 

 

 

-

 

 

 

91,270

 

 

 

-

 

 

 

91,270

 

Warrants issued for related party loan

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

67,940

 

 

 

-

 

 

 

67,940

 

 

 

-

 

 

 

67,940

 

Warrants issued for conversion of loan payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

83,513

 

 

 

-

 

 

 

83,513

 

 

 

-

 

 

 

83,513

 

Warrants issued for loan payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

47,597

 

 

 

-

 

 

 

47,597

 

 

 

-

 

 

 

47,597

 

Modification of warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

51,767

 

 

 

-

 

 

 

51,767

 

 

 

-

 

 

 

51,767

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,380,762 )

 

 

(2,380,762 )

 

 

(92,411 )

 

 

(2,473,173 )

Balance at December 31, 2021

 

 

1,015,000

 

 

$ 1,015

 

 

 

26,998,338

 

 

$ 26,998

 

 

$ 12,062,341

 

 

$ (15,335,458 )

 

$ (3,245,104 )

 

$ (235,191 )

 

$ (3,480,295 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

   

F-6

Table of Contents

 

First Foods Group, Inc. and Subsidiary

Consolidated Statements of Cash Flows

 

 

 

 

For the Years Ended December 31,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net Loss

 

$ (2,473,173 )

 

$ (2,743,138 )

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

 

 

 

 

 

 

 

 

Non-employee stock based compensation

 

 

9,432

 

 

 

131,350

 

Employee stock based compensation

 

 

328,106

 

 

 

672,555

 

Loss on extinguishment of loans payable

 

 

412,509

 

 

 

-

 

Impairment of assets

 

 

46,368

 

 

 

-

 

Amortization of debt discount

 

 

463,751

 

 

 

499,986

 

Depreciation and amortization expense

 

 

57,844

 

 

 

37,077

 

Change in merchant allowance

 

 

(159,677 )

 

 

193,885

 

Merchant cash advance direct write off

 

 

5,374

 

 

 

141,790

 

Non-cash lease expense

 

 

62,185

 

 

 

28,457

 

Put liability

 

 

29,421

 

 

 

-

 

Forgiveness of preferred series B stock

 

 

(118 )

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Inventory

 

 

(10,696 )

 

 

(5,870 )

Merchant cash advances

 

 

237,841

 

 

 

420,703

 

Deferred merchant advance commissions

 

 

-

 

 

 

15,053

 

Prepaid expenses and other current assets

 

 

58,917

 

 

 

(59,922 )

Operating lease liabilities

 

 

(60,403 )

 

 

(28,248 )

Accounts payable and accrued liabilities

 

 

429,124

 

 

 

454,246

 

Accounts payable and accrued liabilities - related party

 

 

252,608

 

 

 

166,640

 

Deferred revenue

 

 

(23,105 )

 

 

(88,105 )

Net cash used in operating activities

 

 

(333,692 )

 

 

(163,541 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

(877 )

 

 

(199,328 )

Net cash used in investing activities

 

 

(877 )

 

 

(199,328 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from sale of common stock

 

 

-

 

 

 

100,000

 

Proceeds from sale of common stock - related party

 

 

100,000

 

 

 

-

 

Proceeds from loans

 

 

213,101

 

 

 

351,200

 

Repayment of loans

 

 

(53,480 )

 

 

(136,709 )

Proceeds from related party loans

 

 

172,500

 

 

 

174,411

 

Repayments of related party loans

 

 

(136,411 )

 

 

(100,000 )

Net cash provided by financing activities

 

 

295,710

 

 

 

388,902

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH

 

 

(38,859 )

 

 

26,033

 

CASH AND RESTRICTED CASH AT BEGINNING OF YEAR

 

 

50,386

 

 

 

24,353

 

CASH AND RESTRICTED CASH AT END OF YEAR

 

$ 11,527

 

 

$ 50,386

 

 

 

 

 

 

 

 

 

 

CASH AND RESTRICTED CASH CONSIST OF THE FOLLOWING:

 

 

 

 

 

 

 

 

END OF YEAR

 

 

 

 

 

 

 

 

Cash

 

 

5,627

 

 

 

50,386

 

Restricted Cash

 

 

5,900

 

 

 

-

 

 

 

$ 11,527

 

 

$ 50,386

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Common stock issued with loans

 

$ 19,860

 

 

$ 99,632

 

Common stock issued with related party loans

 

$ 39,160

 

 

$ 126,402

 

Common stock issued for conversion of loans payable

 

$ 225,000

 

 

$ -

 

Common stock issued for conversion of related party loans

 

$ 250,000

 

 

$ -

 

Warrants issued with loans

 

$ 99,364

 

 

$ 20,717

 

Warrants issued with related party loans

 

$ 67,940

 

 

$ -

 

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

 

$ 111,351

 

 

$ 137,519

 

Income taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

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

    

F-7

Table of Contents

  

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, participating in merchant cash advances (“MCAs”) through its 1st Foods Funding Division, and introducing new health-related brands, concepts and products through its FFGI Wholesaling Division.

 

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 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 consolidated financial statement presentation. Approximately $465,500 worth of related party payables were reclassed to its own line item to conform with current period presentation. There was no effect on total assets, equity or net loss.

 

Liquidity and Going Concern

 

The Company’s 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 December 31, 2021, the Company had approximately $1,337,000 in third-party short-term debt and approximately $49,000 in associated debt discount and approximately $490,000 in related-party short-term debt and approximately $19,000 in associated debt discount that is due within the next twelve months. Management’s plan is to continue to increase revenue, obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing. However, neither any members of management nor any significant shareholders are currently committed to invest funds with us and; therefore, we cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

F-8

Table of Contents

 

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 consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Basis of Presentation

 

The Company’s consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

 

The noncontrolling interest represents the proportionate share of the proceeds received and also the income and loss pickup from the fifteen-percent sale of equity interest in our 85% owned subsidiary; Holy Cacao.

 

Principles of Consolidation

 

The consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiary in conformity with GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid temporary cash investments with an original maturity of twelve months or less to be cash equivalents. At December 31, 2021 and 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 December 31, 2021 restricted cash included $5,900, which was restricted 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 December 31, 2021, the Company reserved an amount equal to 78% of the outstanding merchant cash advance balance at period end based on the potential impact of COVID 19.

 

F-9

Table of Contents

 

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.

 

The following table shows net sales by category for 2021 and 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

Change

 

 

2020

 

Net sales by category:

 

 

 

 

 

 

 

 

 

Chocolate products

 

$ 94,387

 

 

 

93 %

 

$ 48,983

 

Wholesale products

 

 

228,697

 

 

 

100 %

 

 

-

 

Merchant cash advances

 

 

39,673

 

 

 

-75 %

 

 

159,184

 

Total net sales

 

$ 362,757

 

 

 

74 %

 

$ 208,167

 

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and sets up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off when all attempts to collect have been exhausted. The Company considers an invoice past due once the term of the invoice has passed and payment has not been received. No interest is charged on past due invoices. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2021, the Company had no allowance for doubtful accounts.

 

F-10

Table of Contents

 

Inventory

 

Inventory, consisting of raw materials, work in process and products available for sale, are accounted for using the first-in, first-out method, and are valued at the lower of cost or net realizable value. This valuation requires management to make judgements based on currently available information, about the likely method of disposition, such as through sales to individual customers and returns. The Company has no allowance for inventory reserves.

 

Inventory consisted of the following as of December 31, 2021 and 2020:

 

 

 

December 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Raw Materials

 

$ 40,080

 

 

$ 37,259

 

Work in Process

 

 

8,965

 

 

 

2,790

 

Finished Goods

 

 

7,891

 

 

 

6,191

 

Total

 

$ 56,936

 

 

$ 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 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. During the year ended December 31, 2021, the Company impaired property and equipment for a total of $46,368. There were no impairments to long-lived assets for the year ended December 31, 2020.

 

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 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 consolidated balance sheets.

 

F-11

Table of Contents

 

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 consolidated 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 year ended December 31, 2021 and 2020, were approximately $89,000 and $87,000, respectively. These expenses are included in general and administrative expenses on the accompanying consolidated statements of operations.

 

Deferred Financing Costs

 

The Company records origination and other expenses related to its debt obligations as deferred financing costs. These expenses are deferred and amortized over the life of the related debt instrument. In accordance with Accounting Standards Update (“ASU”) No. 2015-03, deferred finance costs, net of accumulated amortization have been included as a contra to the corresponding loans in the accompanying consolidated balance sheets as of December 31, 2021 and 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 December 31, 2021 and 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.

 

F-12

Table of Contents

 

Per Share Data

 

In accordance with “ASC-260 - Earnings per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive shares outstanding as of December 31, 2021 and 2020 because their effect would be antidilutive.

 

The Company had 5,704,775 and 4,899,750 warrants to purchase common stock outstanding at December 31, 2021 and 2020, respectively. The Company had 4,470,000 warrants to purchase Series B preferred stock outstanding at December 31, 2021 and 2020. The Company has outstanding one (1) Series A preferred share that is convertible into five (5) shares of the Company’s common stock outstanding at December 31, 2021 and 2020. Additionally, the Company has 354,999 Series B preferred shares, and 660,000 Series C preferred shares outstanding that are convertible into 1,774,995 and 660,000 shares of common stock, respectively, at December 31, 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, vendor deposits, 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 for the year ended December 31, 2021 and 2020, were approximately $112,000 and $35,000, respectively. These expenses are included in general and administrative expenses on the accompanying consolidated statements of operations.

 

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 consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. During the year ended December 31, 2017, the Company entered into 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.

 

F-13

Table of Contents

 

The following table summarizes the results of operations for Holy Cacao for the period:

 

 

 

For The Year Ended

 

 

 

December 31,

 

 

 

 2021

 

 

 2020

 

Revenue

 

$ 323,084

 

 

$ 48,983

 

Cost of Goods Sold

 

 

(233,247 )

 

 

(35,077 )

Operating Expense

 

 

(705,216 )

 

 

(511,963 )

Impairment of Assets

 

 

(46,368

)

 

 

-

 

Loss from Operations

 

$ (661,747 )

 

$ (498,057 )

 

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.

 

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 consolidated financial statements.

 

In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity – Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force).” The ASU addresses how an issuer should account for modifications or an exchange of freestanding written call options classified as equity that is not within the scope of another Topic. For both public and private companies, the ASU is effective for fiscal years beginning after December 15, 2021. Transition is prospective. Early adoption is permitted. The Company does not expect the adoption of ASU 2021-04 to have a material impact on its 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 December 31, 2021 and 2020, the Company has accrued $579,167 and $329,167, respectively, in relation to the employment agreements and $24,203 and $20,578, respectively, in relation to the payroll tax liability.

 

F-14

Table of Contents

 

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 earned $40,000 per year for his role as Chairman of the Board and no longer takes compensation. As of December 31, 2021, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under a previous agreement.

 

As of December 31, 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 December 31, 2021 and 2020 was $146,303 and $82,988, respectively.

 

Related Party Loans

 

 

 

 

 

 

December 31,

2021

 

 

December 31,

2020

 

 

1.

 

 

Note payable at 12%, matures 4/17/2022.

 

{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 4/22/2022. 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 & repaid on 1/05/2021. In connection with the issuance, the Company had recorded debt discount and amortized it over the applicable life of the debt.

 

*

 

 

-

 

 

 

74,411

 

 

6.

 

 

Non-interest bearing note payable, matures on 9/15/2022.

 

{e} *

 

 

500

 

 

 

-

 

 

7.

 

 

Non-interest bearing note payable, matures 4/22/2022. The Company has recorded debt discount and amortized it over the applicable life of the debt.

 

{f} *

 

 

50,000

 

 

 

-

 

 

8.

 

 

Non-interest bearing note payable, matures 5/30/2022.

 

{g} *

 

 

60,000

 

 

 

-

 

 

 

 

 

Unamortized debt discount

 

 

 

 

(19,304 )

 

 

(18,945 )

 

 

 

 

Total

 

 

 

$ 471,009

 

 

$ 685,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

{a} - On October 17, 2021, the Company extended the note to April 17, 2022 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 October 25, 2021, the Company extended the note to April 22, 2022 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 200,000 warrants with a fair value of $31,550 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 16, 2022, the Company extended the note to September 15, 2022 based on the same terms and conditions.

 

 

 

 

{f} - On April 29, 2021, the Company issued a non-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 to April 22, 2022. In association with this and prior extensions the company granted warrants for the right to purchase 200,000 shares of common stock with a fair value of $36,410 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.

 

 

 

 

{g} - On March 30, 2022, the Company extended the note to May 30, 2022 based on the same terms and conditions.

 

 

 

 

* - unsecured note

 

During the year ended December 31, 2021 and 2020, the Company recorded $106,741 and $116,648 of interest expense related to the amortization of debt discount and $34,356 and $54,148 of regular interest, respectively.

 

As of December 31, 2021 and 2020, accrued interest was $68,149 and $45,889, respectively.

 

During the year ended December 31, 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 loans payable of $293,513.

 

F-15

Table of Contents

 

Related Party Payables

 

As of December 31, 2021, the Company owes a Director $150,822 for expenses incurred on behalf of the company.

 

All of the above and below transactions were approved by disinterested directors.

 

Director Agreements

 

On May 10, 2018, the directors of the Company were awarded share-based compensation for the service period of May 10, 2018 through December 31, 2020, as a one-time award of the ability to purchase a particular amount of warrants, ranging from 80,000 to 400,000 (collectively the “Warrants”) before December 31, 2027.

 

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 year ended December 31, 2021. For the year ended December 31, 2020, the Company recorded $290,981 as compensation expense related to the warrants.

 

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 amount of warrants, as determined by the Board of Directors. On January 1, 2021 and 2022, the director agreements were renewed with the same terms. During the year ended December 31, 2021, a director agreed to waive 118,333 of preferred B shares of stock and $110,000 of accrued director compensation. The company recorded the forgiveness of accrued director compensation as other income. As of December 31, 2021 and 2020 the Company has accrued approximately $381,000 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, but he remains as an active unpaid director. For the years ended December 31, 2021 and 2020, the Company recorded $91,270 and $85,930 as compensation expense related to the warrants, respectively.

 

Prior to Mr. Kaplan’s appointment to the Board of Directors, on July 7, 2020 the Company 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 years ended December 31, 2021 and 2020, the Company recorded $168,340 and $99,353 as compensation expense related to the warrants, respectively.

 

F-16

Table of Contents

 

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:

 

 

 

December 31,

2021

 

 

December 31,

2020

 

Leasehold improvements

 

$ 33,000

 

 

$ 40,000

 

Equipment

 

 

201,024

 

 

 

239,515

 

Less: Accumulated depreciation and amortization

 

 

(94,921 )

 

 

(37,077 )

Total

 

$ 139,103

 

 

$ 242,438

 

 

NOTE 4 – ACCOUNTS PAYABLE, RELATED PARTY PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities consist of the following:

 

 

 

December 31,

 

 

December 31,

 

 

2021

 

2020

Accounts Payable

 

$ 221,206

 

 

$ 146,910

 

Interest

 

 

209,311

 

 

 

109,747

 

Salaries

 

 

603,371

 

 

 

349,745

 

Other

 

 

40,328

 

 

 

38,690

 

Total third party payables

 

 

1,074,216

 

 

 

645,092

 

Related party payables, officers and director fees

 

 

718,114

 

 

 

465,506

 

Total payables

 

$ 1,792,330

 

 

$ 1,110,598

 

 

 

F-17

Table of Contents

 

NOTE 5 – LOANS AND LONG-TERM LOANS

 

 

 

 

 

 

December 31,

2021

 

 

December 31,

2020

 

 

1.

 

 

Note payable at 12%, matures 4/16/2022. 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 4/22/2022. 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.

 

{b} *

 

 

18,000

 

 

 

18,000

 

 

3.

 

 

Note payable at 12%, matured and converted into common stock on 12/2/21.

 

{c} *

 

 

-

 

 

 

50,000

 

 

4.

 

 

Note payable at 12%, matured and converted into common stock on 6/19/2021.

 

{d} *

 

 

-

 

 

 

25,000

 

 

5.

 

 

Note payable at 12%, matures 6/30/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.

 

{e} *

 

 

250,000

 

 

 

250,000

 

 

6.

 

 

Note payable at 12%, matures 4/16/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.

 

{f} *

 

 

410,000

 

 

 

410,000

 

 

7.

 

 

Note payable at 12%, matures 4/16/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.

 

{g} *

 

 

140,000

 

 

 

140,000

 

 

8.

 

 

Note payable at 12%, matures 4/30/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.

 

{h} *

 

 

200,000

 

 

 

200,000

 

 

9.

 

 

Note payable at 12%, matures 7/31/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.

 

{i} *

 

 

60,000

 

 

 

60,000

 

 

10.

 

 

Note payable at 12%, matures 7/29/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.

 

{j} *

 

 

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, matured and repaid on 9/30/2021.

 

*

 

 

-

 

 

 

53,479

 

 

13.

 

 

Note payable at 12%, matured and converted into common stock on 10/25/21.

 

{k} *

 

 

-

 

 

 

50,000

 

 

14.

 

 

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

 

*

 

 

3,600

 

 

 

-

 

 

15.

 

 

Non-interest bearing note payable, matures 9/19/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.

 

{l} *

 

 

16,500

 

 

 

-

 

 

16.

 

 

Non-interest bearing note payable, matures 4/16/2022.

 

{m} *

 

 

50,000

 

 

 

-

 

 

17.

 

 

Non-interest bearing note payable, matures 3/31/2022.

 

{n} ***

 

 

30,000

 

 

 

-

 

 

18.

 

 

Non-interest bearing note payable, matures 4/16/2022.

 

{o} *

 

 

13,000

 

 

 

-

 

 

 

 

 

Unamortized debt discount

 

 

 

 

(48,514 )

 

 

(286,300 )

 

 

 

 

Total

 

 

 

 

1,438,586

 

 

 

1,266,179

 

 

 

 

 

Less: short term loans, net

 

 

 

 

1,288,586

 

 

 

966,155

 

 

 

 

 

Total long-term loans, net

 

 

 

$ 150,000

 

 

$ 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 the 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. On March 7, 2021, the Company extended the note to April 16, 2022 based on the same terms and conditions.

 

 

 

 

{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 $2,880, which will be recorded as a debt discount and amortized over the new life of the loan. On October 14, 2021, the Company extended the note to April 22, 2022 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 of $2,700, which will be recorded as a debt discount and amortized over the new life of the loan.

 

 

 

 

{c} - On December 2, 2021, the Company converted the entire value of the note to 416,667 shares of common stock with a fair value of $100,167. In association with the conversion of the note to common stock, the company recognized a loss of $50,167.

 

 

 

 

{d} - 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.

 

 

 

 

{e} - 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 $37,125, which will be recorded as a debt discount and amortized over the new life of the loan. On March 21, 2022, the Company extended the note to June 30, 2022. In association with the extension the company granted warrants with the right to purchase 125,000 shares of common stock with a fair value on $28,150, 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.

 

 

 

 

{f} - On October 28, 2021, the Company extended the note to April 2, 2022 based on the same terms and conditions. In association with the extension the company modified previously granted warrants by lowering the exercise price to $0.17 and extending the expiration date of the warrants by three (3) years. The value of the modification of the warrants is $12,936, which will be recorded a debt discount and amortized over the extension of the loan.

 

 

 

 

{g} - On October 28, 2021, the Company extended the note to April 16, 2022 based on the same terms and conditions. In association with the extension the company modified previously granted warrants by lowering the exercise price to $0.17 and extending the expiration date of the warrants by three (3) years. The value of the modification of the warrants is $23,173, which will be recorded a debt discount and amortized over the extension of the loan.

 

 

 

 

{h} - On October 28, 2021, the Company extended the note to April 31, 2022 based on the same terms and conditions. In association with the extension the company modified previously granted warrants by lowering the exercise price to $0.17 and extending the expiration date of the warrants by three (3) years. The value of the modification of the warrants is $11,780, which will be recorded a debt discount and amortized over the extension of the loan.

 

 

 

 

{i} - 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. On March 16, 2022, the Company extended the note to July 31, 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 $12,600, which will be recorded as a debt discount and amortized over the new life of the loan.

 

 

 

 

{j} - On October 28, 2021, the Company extended the note to July 29, 2022 based on the same terms and conditions. In association with the extension the company modified previously granted warrants by lowering the exercise price to $0.17 and extending the expiration date of the warrants by three (3) years. The value of the modification of the warrants is $3,878, which will be recorded a debt discount and amortized over the extension of the loan.

 

 

 

 

{k} - On October 8, 2021, the Company converted the entire value of the note to 333,556 shares of common stock with a fair value of $55,570.

 

 

 

 

{l} - On September 20, 2021, the Company issued a non-interest bearing note of $16,500. In connection with this note the company granted warrants for the right to purchase 16,500 shares of common stock at an exercise price of $0.18 a share. The warrants are valued at $2,802 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.

 

 

 

 

{m} - On February 23, 2022, the Company extended the note to March 16, 2022 based on the same terms and conditions. On March 10, 2022, the Company extended the note to April 16, 2022 based on the same terms and conditions.

 

 

 

 

{n} -  On February 16, 2022, the Company extended the note to March 31, 2022 based on the same terms and conditions. On March 25, 2022, the Company extended the note to April 16, 2022 based on the same terms and conditions.

 

 

 

 

{o} -  On February 16, 2022, the Company extended the note to March 31, 2022 based on the same terms and conditions. On March 25, 2022, the Company extended the note to April 16, 2022 based on the same terms and conditions.

 

 

 

 

* - unsecured note

 

 

 

 

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

 

 

 

 

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

 

F-18

Table of Contents

  

During the years ended December 31, 2021 and 2020, the Company recorded $357,010 and $383,338 of interest expense related to the amortization of debt discount and $168,397 and $160,216 of regular interest, respectively. As of December 31, 2021 and 2020, accrued interest was $132,778 and $61,099, respectively.

 

As of December 31, 2021 and 2020, accrued interest associated with the economic injury disaster loan was $8,385 and $2,759, respectively.

 

NOTE 6 – STOCKHOLDERS’ DEFICIT

 

The following table shows the respective common stock issuances and fair values for the years ending December 31, 2021 and 2020:

 

December 31, 2021

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

Common stock issued for cash to a related party

 

 

499,998

 

 

$ 100,000

 

Stock compensation consultant – Put liability

 

 

147,991

 

 

$ -

 

Common stock issued to consultants for services

 

 

70,856

 

 

$ 9,432

 

Common stock issued for related party loan

 

 

190,000

 

 

$ 39,160

 

Common stock issued with loans payable

 

 

114,000

 

 

$ 19,860

 

Common stock issued for conversion of loans payable

 

 

1,608,314

 

 

$ 343,997

 

Common stock issued for conversion of related party loans payable

 

 

2,000,000

 

 

$ 460,000

 

 

 

 

 

 

 

 

 

 

 December 31, 2020

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash to a related party

 

 

499,998

 

 

$ 100,000

 

Common stock issued to consultants for services

 

 

600,000

 

 

$ 131,350

 

Common stock issued with loans payable

 

 

374,000

 

 

$ 99,632

 

Common stock issued for related party loans

 

 

579,410

 

 

$ 126,402

 

 

F-19

Table of Contents

 

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 years ended December 31, 2021 and 2020, the Company recorded $91,270 and $85,930 as compensation expense related to the warrants, respectively.

 

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 years ended December 31, 2021 and 2020, the Company recorded $168,340 and $99,353 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 December 31, 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 years ended December 31, 2021 and 2020, the Company recorded $57,681 and $39,789 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. The warrants are valued at $46,050 based on the Black Scholes Model.

 

F-20

Table of Contents

 

On November 9, 2020, the Company entered into a grant agreement with a sales consultant (see Note 8). On September 30, 2021 and June 29, 2021, the company granted the sales consultant warrants for the right to purchase 17,801 and 39,474 shares of common stock at an exercise price of $0.17 and $0.21 a share, respectively. The warrants are valued at a total of $10,815 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 $337,930, for the year ended December 31, 2021, 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.

 

On August 4, 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 $0.16 a share. The warrants are valued at $15,340 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.

 

On August 4, 2021, the Company extended the maturity date on one of its promissory notes (see Note 5). In association with this extension the company granted warrants for the right to purchase 50,000 shares of common stock at an exercise price of $0.16 a share. The warrants are valued at $7,675 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.

 

On August 6, 2021, the Company extended the maturity date on one of its promissory notes (see Note 5). In association with this extension the company granted warrants for the right to purchase 250,000 shares of common stock at an exercise price of $0.16 a share. The warrants are valued at $37,125 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.

 

On September 20, 2021, the Company issued a promissory note of $16,500 (see Note 5). In connection with this note the Company issued warrants to purchase 16,500 shares of the Company’s common stock with an exercise price of $0.18 per share. The warrants are valued at $2,802 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.

 

F-21

Table of Contents

 

On October 25, 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 $0.17 a share. The warrants are valued at $16,210 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.

 

On October 28, 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 $0.17 a share. The warrants are valued at $16,190 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.

 

On November 9, 2020, the Company entered into a grant agreement with a sales consultant (see Note 8). As compensation for the services, the sales consultant shall be issued three million (3,000,000) warrants to purchase shares. One warrant shall be fully vested for every share issued. The exercise price of each warrant shall be equal to the grant price and each warrant shall be exercisable for thirty-six (36) months following the date of vesting. Until such time as the shares underlying the warrants are registered, the warrants may be exercised via a cashless exercise. During the year ended December 31, 2021 the company issued warrants with the right to purchase up to 57,275 shares of common stock as compensation for services. As of December 31, 2021, there were 2,942,725 warrants remaining to be issued if certain performance thresholds are met.

 

The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the respective years:

 

 

 

2021

 

 

2020

 

Risk-free interest rate

 

0.03-0.08

 %

 

0.10-1.39

 %

Expected term of options, in years

 

 

3

 

 

 

3

 

Expected annual volatility

 

228.0-247.7

 %

 

269.9-279.5

 %

Expected dividend yield

 

 %

 

 %

Determined grant date fair value per option

 

0.14 - 0.22

 

 

$ 0.17 – 0.32

 

 

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

 

 

1,148,775

 

 

 

0.19

 

Exercised

 

 

-

 

 

 

-

 

Forfeited or cancelled

 

 

(343,750 )

 

 

0.08

 

Outstanding, December 31, 2021

 

 

5,704,775

 

 

$ 0.22

 

 

As of December 31, 2021, 3,804,775 warrants for common stock were exercisable and the intrinsic value of these warrants was $64,834, the weighted average remaining contractual life for warrants outstanding was 2.09 years and the remaining expense is $86,707 over the remaining amortization period which is 7 months.

 

F-22

Table of Contents

 

Summary information regarding the options outstanding and exercisable at December 31, 2021 is as follows:        

 

 

 

Outstanding

 

 

Exercisable

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

 

 

Remaining

 

 

Average

 

 

 

 

 

Average

 

Range of

 

Number

 

 

Contractual

 

 

Exercise

 

 

 

 

 

Exercise

 

Exercise Prices

 

 Outstanding

 

 

Life

 

 

 Price

 

 

 Exercisable

 

 

Price

 

 

 

(in shares)

 

 

(in years)

 

 

 

 

(in shares)

 

 

 

$0.16 – $0.50

 

 

5,704,775

 

 

 

2.09

 

 

$ 0.22

 

 

 

3,804,775

 

 

$ 0.24

 

 

As of December 31, 2020, 2,303,917 warrants for common stock were exercisable and the intrinsic value of these warrants was $71,056, the weighted average remaining contractual life for warrants outstanding was 2.87 years and the remaining expense is $403,998 over the remaining amortization period which is 1.50 years

 

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 nine months ended September 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.

 

The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the year ending 2020. There were no issuances in the year ending 2021. 

  

 

 

2020

 

Risk-free interest rate

 

 

1.12 %

Expected term of options, in years

 

 

10

 

Expected annual volatility

 

 

348.2 %

Expected dividend yield

 

 %

Determined grant date fair value per option

 

$ 0.75

 

 

F-23

Table of Contents

 

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, December 31, 2021

 

 

4,470,000

 

 

$ 0.68

 

 

As of December 31, 2021, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $1,758,600, the weighted average remaining contractual life for warrants outstanding was 6.37 years.

 

Summary information regarding the options outstanding and exercisable at December 31, 2021 is as follows:                

  

 

 

Outstanding

 

 

Exercisable

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

 

Remaining

 

 

Average

 

 

 

 

Average

 

 Range of

 

 Number

 

 

Contractual

 

 

Exercise

 

 

Number

 

 

Exercise

 

 Exercise Prices

 

Outstanding

 

 

Life

 

 

Price

 

 

Exercisable

 

 

Price

 

 

 

(in shares)

 

 

(in years)

 

 

 

 

 

(in shares)

 

 

 

 

$0.51 – $1.20

 

 

4,470,000

 

 

 

6.37

 

 

$ 0.68

 

 

 

4,470,000

 

 

$ 0.68

 

 

As of December 31, 2020, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $1,932,750, the weighted average remaining contractual life for warrants outstanding was 7.37 years and the warrants have been fully expensed.

 

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 years ended December 31, 2021 and 2020, the Company incurred lease expense for its operating leases of $87,642 and $43,821, respectively, which was included in general and administrative expenses on the accompanying consolidated statements of operations.

 

The Company’s weighted-average remaining lease term relating to its operating leases is 2.33 years, with a weighted-average discount rate of 12.00%.

 

F-24

Table of Contents

 

The Company had cash payments for operating leases of $85,860 and $43,612 for the years ended December 31, 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 December 31, 2021.

 

Maturity of Lease Liability

 

 

 

2022

 

 

86,881

 

2023

 

 

89,487

 

2024

 

 

30,121

 

Total undiscounted operating lease payments

 

$ 206,489

 

Less: Imputed interest

 

 

27,436

 

Present value of operating lease liabilities

 

$ 179,053

 

 

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. As of December 31, 2021, these targets have not been achieved and the Company has determined it is not probable of being met at this time, as such no compensation was taken on them.

 

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 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.

 

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.

 

F-25

Table of Contents

 

On October 15, 2020, the Company entered into a chocolate sales agreement with a sales consultant. The consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers. The consultant shall receive a sales commission of the gross sales (net of returns) directly generated by the consultant to such distributor and such distributor shall receive a commission of such gross sales (net of returns). Commissions shall be paid within 30 days of the end of the quarter in which they are deemed earned. No commissions are due as of December 31, 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 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 December 31, 2021, the Company has recorded a Put liability of $29,421. The Consultant has agreed to lower the restricted cash amount for the Put to $5,900.

 

On November 9, 2020, the Company entered into a grant agreement with a sales consultant. As compensation for the services, the Company will issue up to three million (3,000,000) shares to the sales consultant in monthly installments over the twenty (24) month term of the agreement. The number of shares to be issued by the Company to the sales consultant on a monthly basis will be determined by the amount of net sales of various wholesale products generated by the sales consultant at the end of each month multiplied by a fixed percentage of nine percent (9%) divided by the last closing market price of the shares as of the effective date. In addition to the shares to be issued, the sales consultant shall be issued three million (3,000,000) warrants to purchase shares. One warrant shall be fully vested for every share issued. The exercise price of each warrant shall be equal to the grant price and each warrant shall be exercisable for thirty-six (36) months following the date of vesting. Until such time as the shares underlying the warrants are registered, the warrants may be exercised via a cashless exercise. During the year ended December 31, 2021 the company issued 147,991 shares of common stock and warrants with the right to purchase up to 57,275 shares of common stock as compensation for services. As of December 31, 2021, there were 2,852,009 shares of common stock and 2,942,725 warrants remaining to be issued if certain performance thresholds are met.

 

On January 14, 2021, the Company entered into an agreement with a sales consultant to further the business purpose of the Company. In consideration for the services provided by the consultant, the consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers. This agreement shall continue for sixty months from the date of the agreement and will automatically extend for additional successive sixty month terms unless written notice is delivered at least thirty days prior to the end of the current term.

 

On 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.

 

F-26

Table of Contents

  

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 issue 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 milestones are met.

 

Commission costs for the year ended December 31, 2021 and 2020, were $43,863 and $491, respectively. These expenses are included in general and administrative expenses on the accompanying consolidated statements of operations. As of December 31, 2021 and 2020, there were no accrued commissions outstanding.

 

NOTE 9 – CONCENTRATION RISKS

 

The Company recognizes the concentration of its merchant cash advances, which could inherently create a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of the outstanding merchant cash advances. The Company actively mitigates its portfolio concentration risk by monitoring its merchant cash advance provider’s ability to participate in merchant cash advances from alternative providers and spreading merchant cash advance participation across various merchants.

 

As of December 31, 2021, the Company’s receivables from merchant cash advances included $29,290 from one merchant, representing 78% of the Company’s merchant cash advances. The Company earned $22,368 of MCA income from one merchant, representing 56% of the Company’s MCA income for the year ended December 31, 2021.

 

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 $84,525 and $27,175 of MCA income from two merchants, representing 53.5% and 17%, respectively of the Company’s MCA income for the twelve months ended December 31, 2020.

 

For the year ended December 31, 2021, the Company had sales concentrations of 17%, 15% and 15% from three customers. There was no sales concentration for the year ended December 31, 2020.

 

For the year ended December 31, 2021, the Company had purchase concentrations of 79% from one vendor.

 

For the year ended December 31, 2020, the Company had purchase concentrations of 49% and 14% from two vendors.

 

NOTE 10 – INCOME TAXES

 

There was no income tax expense reflected in the results of operations for the years ended December 31, 2021 and 2020 because the Company incurred a net loss in both years.

 

As of December 31, 2021, the Company had federal and state net operating loss carry forwards of $7,287,000 and $5,155,000, respectively, which may be used to offset future taxable income. Approximately $1,222,000 will begin to expire in 2036 while $6,065,000 will not expire but will be limited to 80% of taxable income. The State NOL’s may be used indefinitely without limitation.

 

The tax effects of temporary differences which give rise to deferred tax assets (liabilities) are summarized as follows:

 

 

 

For the Years Ended December 31,

 

 

 

2021

 

 

2020

 

Net operating loss carry forwards

 

$ 1,754,000

 

 

$ 1,338,000

 

Stock based compensation

 

 

1,845,000

 

 

 

1,785,000

 

Fixed assets and intangibles

 

 

(47,000 )

 

 

(60,000 )

Allowance for Doubtful accounts

 

 

114,000

 

 

 

71,000

 

Accrued Expenses

 

 

78,000

 

 

 

10,000

 

Other carryforwards

 

 

8,000

 

 

 

7,000

 

Total deferred tax assets

 

$ 3,752,000

 

 

$ 3,151,000

 

 

 

 

 

 

 

 

 

 

Valuation allowance

 

 

(3,752,000 )

 

 

(3,151,000 )

 

 

 

 

 

 

 

 

 

 

 

$ -

 

 

$ -

 

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Deferred tax assets consist primarily of the tax effect of NOL carry-forwards and stock based compensation. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realizability. 

     

Reconciliation of the statutory federal income tax to the Company's effective tax:

 

 

 

For the year ended

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

%

 

 

%

 

Statutory federal tax rate

 

 

21.00 %

 

 

21.00 %

State rate net of federal benefit

 

 

3.80 %

 

 

3.97 %

Permanent differences

 

 

(3.92 )%

 

 

(0.74 )%

Rate change

 

 

3.40 %

 

-

%

Valuation allowance

 

 

(24.28 )%

 

 

(24.23 )%

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

- %

 

 

- %

 

The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the consolidated statements of operations. As of December 31, 2021 and 2020 the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2021 and 2020. The Company did not recognize any interest or penalties during the years ended December 31, 2021 and 2020 related to unrecognized tax benefits.

  

Tax years 2018-2021 remain open to examination for federal income tax purposes and by other major taxing jurisdictions to which the Company is subject.

 

NOTE 11 – SUBSEQUENT EVENTS

 

On January 4, 2022, the Company entered into a grant agreement with a sales consultant. As compensation for the services, the Company will issue up to 2,380,952 shares of restricted common stock to the sales consultant in monthly installments over the twenty (24) month term of the agreement. The number of shares to be issued by the Company to the sales consultant on a monthly basis will be determined by the amount of net sales of products generated by the sales consultant at the end of each month multiplied by a fixed percentage of 5% divided by the last closing market price of the shares as of the effective date. Additionally, if the sales consultant makes sales using salespeople who are not under contract with the Company, the Company will pay the consultant a cash commission at the end of each month equal to 5% of net sales over the term.

 

On February 4, 2022, the Company issued a secured and guaranteed by a Director, non-interest bearing promissory note of $30,000, which matures on March 4, 2022. The loan has been extended to May 30, 2022 with the same terms and conditions.

 

On March 2, 2022, the Company entered into two agreements with two consultants to further the business purpose of the Company. In consideration for the services provided by the consultants, the consultants will receive a 10% commission of the gross sales (net of returns) that were directly generated by the consultants to new customers. This agreement shall continue for sixty months from the date of the agreement and will automatically extend for additional successive sixty month terms unless written notice is delivered at least thirty days prior to the end of the current term.

 

On March 23, 2022, the Company entered into a grant agreement with a sales consultant. As compensation for the services, the Company will issue up to 2,083,333 shares of restricted common stock to the sales consultant in monthly installments over the twenty (24) month term of the agreement. The number of shares to be issued by the Company to the sales consultant on a monthly basis will be determined by the amount of net sales of products generated by the sales consultant at the end of each month multiplied by a fixed percentage of 5% divided by the last closing market price of the shares as of the effective date.

 

On April 11, 2022, the Company entered into a binding memo of understanding with a marketing consultant, who is National Football League (NFL) celebrity. As compensation for the services, the Company agrees to split the net profit on a 50 / 50 basis derived from the sales of the Company’s products that will be branded under the consultant’s name and result from the marketing consultant’s efforts. The marketing consultant will be paid on a quarterly basis over the two (2) year term.

 

F-27

Table of Contents

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

Not applicable

 

Item 9A. Controls and Procedures.

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

 

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. As further discussed below, we have identified material weaknesses in the effectiveness, design and operation of our disclosure controls and procedures.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and includes those policies and procedures that:

 

1.

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

2.

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

 

3.

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

21

Table of Contents

 

The Company’s management, including the chief executive officer and chief financial officer, do not expect that its disclosure controls or internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

 

As of December 31, 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 or our cyber security environment.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only the management’s report in this annual report.

 

Item 9B. Other Information.

 

None

 

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

 

N/A  

 

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 PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Identification of Directors and Executive Officers:

 

As of April 14, 2022, our Board of Directors consisted of five members. Each director holds office until his successor is duly elected by the stockholders. The executive officers serve at the pleasure of the Board of Directors. Our current directors and executive officers are:

 

Name

 

Age

 

Position

 

Year Appointed

 

Harold Kestenbaum

 

72

 

Interim Chief Executive Officer and Chairman of the Board of Directors

 

2017

Mark J. Keeley

 

59

 

Chief Financial Officer and Director

 

2017

Abraham Rosenblum

 

42

 

Secretary and Director

 

2016

Hershel Weiss

 

48

 

Director

 

2016

Michael Kaplan

 

54

 

Chief Marketing Officer and Director

 

2020

 

HAROLD L. KESTENBAUM is an attorney who has specialized in franchise law and other matters relating to franchising since 1977. From May 1982 until September 1986, Harold served as franchise and general counsel to Sbarro, Inc., the national franchisor of over 1,000 family-style Italian restaurants, and was a director from March 1985 to December 2006. From September 1983 to October 1989, he served as President and Chairman of the Board of FranchiseIt Corporation, the first publicly traded company specializing in providing franchise marketing and consulting services and equity financing to emerging franchise companies, which he co-founded. Harold has authored the first book dedicated to the entrepreneur who wants to franchise his/her business called “So You Want To Franchise Your Business.” It is a step-by-step guide to what a business person needs to know and do to properly roll out a franchise program.

 

He has served as a Director of numerous nationally and internationally known franchisors. He has been practicing franchise law since 1981. He was with Gordon & Rees, a San Francisco based national law firm, from September 2011 to June 2014. On May 1, 2019, he merged his practice with the Philadelphia based law firm, Spadea and Lignana and is a partner in that firm.

 

Harold is a member of the American Bar Association’s Antitrust Section, a member of the Antitrust Section’s Forum Committee on Franchising since 1978, a member of the Subcommittee on Franchising of the American Bar Association’s Corporation Banking and Business Law Section, is a founding member and past Chairman of the New York State Bar Association’s Franchise, Distribution and Licensing Law Section, and he currently serves as Chairman for its Education and Seminar Subcommittee (he has chaired Statewide seminar programs for New York State attorneys in 1997, 2000, 2002, 2004 and 2005 and chaired seminars on Franchise Law for the Nassau and Suffolk County Bar Associations) and was a member of the International Franchise Association’s Supplier Forum Advisory Board. He has published many articles related to franchising and frequently lectures and appears before numerous organizations and law schools speaking on various topics in franchising. He has been chosen one of the top 100 franchise attorneys in North America by Franchise Times in 2004-2011 and was named one of the three best franchise attorneys in the New York metro area by New York Magazine for 2005-2009 and was named New York Super Lawyer as one of the Top Attorneys in the New York Metro Area for 2007-2016.

 

Harold received his Bachelor of Arts Degree in 1971 from Queens College, Queens, New York and earned his Juris Doctor Degree from the University of Richmond School of Law, Richmond, Virginia, in 1975, where he was a member of Law Review.

 

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MARK J. KEELEY is a Certified Public Accountant (CPA) who began his career in public accounting with KPMG LLP in August 1985, after graduating Summa Cum Laude from the University of Massachusetts with a Bachelor’s Degree in Accounting and Computer Science. He obtained a Master’s Degree in Finance from Boston College in May 1988 and continued his public accounting career at Coopers & Lybrand LLP in September 1990 and was admitted to the Partnership when Coopers & Lybrand LLP merged with Price Waterhouse LLP to become PricewaterhouseCoopers LLP (PwC) in October 1988. He retired from PwC in July 2014. From April 2015 through November 2016, he served as the Chief Financial Officer (CFO) of Bradley, Foster & Sargent, Inc.; a Registered Investment Advisor (RIA) and SEC registrant with over $3B of assets under management.

 

Mr. Keeley is a qualified audit committee financial expert and one of the first holders of the Certified Information Technology Professional (CITP) designation granted by the American Institute of Public Accountants (AICPA). He has applied his accounting, financial management and information technology experience to a broad range of national and international companies, including the development of artificial intelligence (AI) solutions for the restaurant and restaurant franchise industry.

 

He has regularly worked with the highest levels of senior management, boards of directors, external auditors, investors, and regulators to build consensus and reach a common understanding of complex financial matters. He has testified to the United States Congress regarding financial accounting and auditing aspects of the U.S. Federal Government and served as PwC’s representative to Congressman Mr. Michael Conaway.

 

ABRAHAM ROSENBLUM began his career in the automotive industry as a distributor of wholesale parts, and eventually moved into owning and developing real estate. Mr. Rosenblum has worked with “A rated” tenants with several large corporations such as TD Bank, Walgreens and Family Dollar. In 2007, Mr. Rosenblum began investing in real estate along with institutional lenders. Mr. Rosenblum was the President of a telecommunications carrier network, Tandem Transit, which he helped form and finance for five years. Mr. Rosenblum was educated at YTC in Brooklyn New York. He served on the Board of Directors for several technology companies and automotive distribution outlets. Mr. Rosenblum remains active in several charitable organizations.

 

HERSHEL (HERSHY) WEISS is the Co-Founding Member of First Foods Group Inc. Mr. Weiss has been active in the New Jersey, Connecticut and Massachusetts real estate market for the last 21 years. As an employee at Basad Management LLC and as a principal, Mr. Weiss has been involved in residential, office, industrial and retail sectors of the market, starting in maintenance, moving up to renovations and construction, environmental remediation, then on to financing, including complicated deal structures with lenders and investors and finally acquisitions and redevelopment. Mr. Weiss actively negotiates leases in the commercial and retail sectors and has become very familiar with the retail food industry by working with tenants starting out in the industry.

 

MICHAEL KAPLAN is a highly experienced marketing executive with over three decades of enterprise retail and wholesale presence amongst the world’s largest entities. He is a global sourcing expert who has built merchandising programs on both private label and licensed brands. He also has strong P&L management experience coupled with skills in the areas of brand positioning, marketing strategy, creative new product innovation, integrated marketing communications and total product lifecycle management. He has delivered aggressive revenue and earnings growth across multiple retail and wholesale channels while following market trends amongst retailers to compare data. He has led teams across grocery, mass, drug, warehouse and specialty retailers throughout North America, Europe and the Middle East and produced multi-billion-dollar sales and royalties.

 

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Penalties or Sanctions

 

None of our directors or executive officers has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor making an investment decision.

 

Personal Bankruptcies

 

None of our directors or executive officers, nor any personal holding company of any such person has, within the last ten years become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or been subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that person.

 

Employment Agreements

 

Executive Officer (“Interim CEO”). Mr. Kestenbaum earned $40,000 per year for his role as Chairman of the Board and no longer takes compensation. As of December 31, 2021, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under a previous agreement.

 

On March 1, 2017, Mark J. Keeley assumed the role of Chief Financial Officer (“CFO”). Pursuant to his Employment Agreement, the CFO shall receive $20,833 per month. Additionally, Mr. Keeley earns an additional $40,000 per year for his role as a Director of the Board. On March 18, 2020, the Company issued its CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary (see Note 6). As of December 31, 2021 and 2020, the Company has accrued $529,167 and $329,167 in relation to the employment agreements and $24,203 and $20,578 in relation to the payroll tax liability, respectively.

 

Family Relationships

 

There are no family relationships between any of our directors or executive officers and any other directors or executive officers.

 

Term of Office

 

All directors hold office for a one (1) year period and have been duly elected and qualified. Directors will be elected at the annual meetings to serve for one-year terms and until their successors are duly elected and assume office. Each officer of the Company is appointed by and serves at the discretion of the Board of Directors. None of the officers or directors of the Company is currently an officer or director of a company required to file reports with the Securities and Exchange Commission, other than the Company.

 

Involvement in Certain Legal Proceedings

 

During the past five years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

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Board Committees

 

Audit Committee

 

We do not have a separately-designated standing audit committee. The Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board of Directors when performing the functions that would generally be performed by an audit committee. The Board of Directors approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board of Directors reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters, including fees to be paid to the independent auditor and the performance of the independent auditor.

 

Compensation and Nominations Committees

 

We currently have no compensation or nominating committee or other board committee performing equivalent functions. Currently, the members of our Board of Directors participate in discussions concerning executive officer compensation and nominations to the Board of Directors.

 

Shareholder Communications

 

The Company does not have a process for security holders to send communications to the board of directors due to the fact that minimal securities are publicly traded.

 

Code of Conduct and Ethics

 

We have not adopted a Code of Ethics, as required by sections 406 and 407 of the Sarbanes-Oxley Act of 2002. Our management believes that the size of our company and current operations at this time do not require a code of ethics to govern the behavior of our officers. We anticipate that we will adopt a code of ethics once we are in a position to do so.

 

Item 11. Executive Compensation.

 

On February 27, 2017, Harold Kestenbaum assumed the role of Chairman of the Board of Directors and Interim Chief Executive Officer (“Interim CEO”). Mr. Kestenbaum earned $40,000 per year for his role as Chairman of the Board and no longer takes compensation. As of December 31, 2021, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under a previous agreement.

 

On March 1, 2017, Mark J. Keeley assumed the role of Chief Financial Officer (“CFO”). Pursuant to his Employment Agreement, the CFO shall receive $20,833 per month. Additionally, Mr. Keeley earns an additional $40,000 per year for his role as a Director of the Board. On March 18, 2020, the Company issued its CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary (see Note 6). As of December 31, 2021 and 2020, the Company has accrued $529,167 and $329,167 in relation to the employment agreements and $24,203 and $20,578 in relation to the payroll tax liability, respectively.

 

Stock Option Plan

 

We do not have a stock option plan; however, we have issued warrants to acquire our securities, as detailed in the notes to the consolidated financial statements.

 

Employee Pension, Profit Sharing or Other Retirement Plans

 

We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.

 

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Director’s Compensation

 

On May 10, 2018, the directors of the Company were awarded share-based compensation for the service period of May 10, 2018 through December 31, 2021, as a one-time award of the ability to purchase a particular amount of warrants, ranging from 80,000 to 400,000 (collectively the “Warrants”) with the following terms:

 

 

·

Number and Type – Each Director is entitled to a one-time award of Warrants for the number of shares of Series B Preferred Stock of the Company. Each share of Series B Preferred Stock shall have voting rights equal to five (5) votes per share. Each share of Series B Preferred Stock is convertible into five (5) shares of the Company’s Common Stock (the “Common Stock”), including liquidation preference over Common Stock.

 

 

 

 

·

Duration – The Warrants entitle each Director to purchase the Series B Preferred Stock from the Company, after January 1, 2019 and before December 31, 2027.

 

·

Purchase Price - The purchase price is $0.60 per share of Series B Preferred Stock.

 

·

Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.

 

·

Vesting - The Warrants are subject to a 32-month period whereby the Warrants vest in equal monthly increments from May 10, 2018 through December 31, 2021. Any unvested warrants are forfeited, if the Director ceases to be a Director.

 

The Company issued warrants with respect to 1,280,000 Series B Preferred Stock, in the aggregate. The Company expensed the fair value of these warrants in the amount of $768,000 ratably during the years ended December 31, 2018, 2019 and 2020. For the year ended December 31, 2021 and 2020, the Company recorded $0 and $290,981 as compensation expense related to the warrants, respectively.

 

On February 26, 2019, the Company entered into director agreements with each of the Directors of the Company. Pursuant to the agreements, each Director may be compensated with share-based and/or cash-based compensation. The Directors’ compensation for the period January 1, 2019 through December 31, 2019 was $10,000 per quarter per Director to be paid on a date determined by the Board of Directors. In addition, the Directors were able to receive a one-time award of the ability to purchase a particular amount of warrants, as determined by the Board of Directors.

 

On January 1, 2020, the director agreements were renewed with the same terms. As of December 31, 2021 and 2020 the Company has accrued $380,000 and $320,000, respectively, in relation to the director agreements.

 

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On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors.

 

Mr. Kaplan’s compensation as a director for the initial twelve months will consist of one million (1,000,000) warrants which will vest at the rate of 83,333 warrants per month for the initial eleven months and the balance in the twelfth month, provided he is a director on each vesting date, with the initial tranche vesting on the day he takes office and then on each monthly anniversary of such date thereafter. Each Warrant will be exercisable for 36 months after it vests and will be exercisable at a price of $0.18 per share. The warrants are valued at $177,200 based on the Black Scholes Model.

 

Prior to Mr. Kaplan’s appointment to the Board of Directors, on July 7, 2020 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. As of December 31, 2021, $267,693 of the $354,000 has been expensed.

 

The warrants shall vest upon the occurrence to the Company of certain milestone events through the efforts of the consultant. (See Note 6 in the notes to the consolidated financial statements.)

 

If terminated with cause by the Company, the consultant shall not thereafter be entitled to any form of compensation, the unvested warrants shall terminate, and he shall be paid a buyout fee in the amount of 250,000 fully vested warrants. If terminated without cause by the Company, all unvested warrants shall be accelerated and vest in one-half the time it was previously scheduled to vest.

 

Related Party Transactions

 

Related party transactions are detailed in Note 2 in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

 

The following table sets out the compensation received for the years ended December 31, 2021 and 2020 with respect to each of the individuals who served as the Company’s principal executive officer and principal financial officer at any time during the last fiscal year:

 

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SUMMARY COMPENSATION TABLE

 

Name and Principal Position

 

Fiscal Year

 

Salary

 

 

Bonus

 

 

Stock

Awards

 

 

Option

Awards

 

 

Non-Equity Incentive Plan Compensation

 

 

Non-Qualified Deferred Plan Compensation

 

 

All

Other Compensation

 

 

Total

 

Mark J.

 

2021

 

$ 250,000

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ 250,000

 

Keeley

 

2020

 

$ (1)250,000

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ 250,000

 

_____________

(1) On March 18, 2020, the Company issued the CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary. All remaining salary due was accrued. No cash was issued.

 

Equity Compensation Plan Information - Employment Agreements

 

Equity compensation issued in employment agreements in place on December 31, 2021 and 2020 are detailed in Note 2 in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

 

Outstanding Equity Awards at Fiscal Year-End

 

A summary of the Company’s outstanding warrant awards at fiscal year end is as follows:

 

 

 

Number of

Securities

Underlying Unexercised

Options

Exercisable

(#)

 

 

Number of

Securities

Underlying Unexercised

Options

Unexercisable

(#)

 

 

Option

Exercise

Price

($)

 

 

Option

Expiration

Date

 

Number of

Shares or

Units

of Stock

that have not

Vested

(#)

 

 

Market

Value of

Shares or

Units of

Stock that

have not

Vested

(#)

 

Mark J. Keeley

 

 

1,950,000

 

 

 

-

 

 

0.51 – 1.20

 

 

Various

 

 

-

 

 

 

-

 

Abraham Rosenblum

 

 

1,200,000

 

 

 

-

 

 

0.51 – 1.20

 

 

Various

 

 

-

 

 

 

-

 

Hershel Weiss

 

 

1,200,000

 

 

 

-

 

 

0.51 – 1.20

 

 

Various

 

 

-

 

 

 

-

 

Harold Kestenbaum

 

 

120,000

 

 

 

-

 

 

0.51 – 1.20

 

 

Various

 

 

-

 

 

 

-

 

Michael Kaplan

 

 

1,100,000

 

 

 

1,900,000

 

 

 

0.18

 

 

July 26, 2024

 

 

-

 

 

 

-