UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For Quarterly Period Ended September 30, 2022 

or

 

☐     TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition period from __________ to __________

 

Commission File Number: 333-206260

 

FIRST FOODS GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

47-4145514

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

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

3773 Howard Hughes Parkway, Suite 500S,

Las Vegas, NV 89169-6014

(Address of principal executive offices) (Zip Code)

 

(201) 471-0988

Registrant’s telephone number, including area code

 

_______________________________________________________________

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

 

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

 

Title of

each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

 

None

 

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

 

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

 

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

 

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated Filer

☒

Smaller reporting company

☒

Emerging growth company

☐

 

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

 

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

 

As of November 18, 2022, the number of shares outstanding of the registrant’s class of common stock was 27,058,338, par value of $0.001 per share.

 

 

 

TABLE OF CONTENTS

 

 

Pages

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021

 

3

 

Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2022 and 2021

 

4

 

Condensed Consolidated Statements of Changes in Deficit for the Three and Nine Months ended September 30, 2022 and 2021

 

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2022 and 2021

 

6

 

Notes to Condensed Consolidated Financial Statements

 

7

 

Item 2.

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

 

19

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

Item 4.

Controls and Procedures

 

26

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

27

 

Item 1A.

Risk Factors

 

27

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

Item 3.

Defaults Upon Senior Securities

 

27

 

Item 4.

Mine Safety Disclosures

 

27

 

Item 5.

Other Information

 

27

 

Item 6.

Exhibits

 

28

 

SIGNATURES

 

29

 

 
2

Table of Contents

  

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

First Foods Group, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

September 30,

2022

 

 

December 31,

2021

 

 

 

 

 

 

ASSETS

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$1,478

 

 

$5,627

 

Restricted cash

 

 

5,900

 

 

 

5,900

 

Inventory, net of reserve $23,625 and $0, respectively

 

 

32,648

 

 

 

56,936

 

Merchant cash advances, net of allowance $168,734 and $131,703, respectively

 

 

6,053

 

 

 

37,541

 

Prepaid expenses and other current assets

 

 

79,094

 

 

 

89,888

 

TOTAL CURRENT ASSETS

 

 

125,173

 

 

 

195,892

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

3,408

 

 

 

139,103

 

Operating lease right-of-use assets

 

 

125,468

 

 

 

177,062

 

TOTAL ASSETS

 

$254,049

 

 

$512,057

 

LIABILITIES AND DEFICIT

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$1,512,867

 

 

$1,074,216

 

Accounts payable and accrued liabilities - related parties

 

 

949,476

 

 

 

718,114

 

Put liability

 

 

29,421

 

 

 

29,421

 

Deferred revenue

 

 

49,579

 

 

 

81,953

 

Loans, net of unamortized debt discount $6,508 and $48,514, respectively

 

 

1,360,592

 

 

 

1,288,586

 

Related party loans, net of unamortized debt discount $0 and $19,304, respectively

 

 

686,063

 

 

 

471,009

 

Operating lease liabilities

 

 

77,577

 

 

 

69,078

 

TOTAL CURRENT LIABILITIES

 

 

4,665,575

 

 

 

3,732,377

 

 

 

 

 

 

 

 

 

 

Loans - long term

 

 

150,000

 

 

 

150,000

 

Related party loans – long term 

 

 

100,000

 

 

 

0

 

Operating lease liabilities - long term

 

 

50,665

 

 

 

109,975

 

TOTAL LIABILITIES

 

 

4,966,240

 

 

 

3,992,352

 

 

 

 

 

 

 

 

 

 

Commitments (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 issued and outstanding, respectively ($118,235 liquidation preference)

 

 

355

 

 

 

355

 

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, 27,058,338 and 26,998,338 shares issued and outstanding, respectively

 

 

27,058

 

 

 

26,998

 

Additional paid-in capital

 

 

11,910,385

 

 

 

12,062,341

 

Accumulated deficit

 

 

(16,346,124)

 

 

(15,335,458 )

Total First Foods Group, Inc. Deficit

 

 

(4,407,666)

 

 

(3,245,104 )

 

 

 

 

 

 

 

 

 

Noncontrolling interests

 

 

(304,525)

 

 

(235,191 )

TOTAL DEFICIT

 

 

(4,712,191)

 

 

(3,480,295 )

TOTAL LIABILITIES AND DEFICIT

 

$254,049

 

 

$512,057

 

 

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

 

 
3

Table of Contents

  

First Foods Group, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Product sales, net

 

$13,374

 

 

$55,678

 

 

$91,708

 

 

$312,142

 

Merchant cash advance income, net

 

 

811

 

 

 

4,371

 

 

 

1,188

 

 

 

37,786

 

Total Revenues

 

 

14,185

 

 

 

60,049

 

 

 

92,896

 

 

 

349,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

6,790

 

 

 

35,446

 

 

 

47,264

 

 

 

201,530

 

Legal fees

 

 

2,498

 

 

 

2,703

 

 

 

31,596

 

 

 

5,799

 

General and administrative

 

 

268,910

 

 

 

466,717

 

 

 

1,008,887

 

 

 

1,400,527

 

Provision for merchant cash advances

 

 

(3,493)

 

 

(7,916)

 

 

33,306

 

 

 

(152,254)

Impairment of assets

 

 

-

 

 

 

-

 

 

 

92,736

 

 

 

-

 

Total Operating Expenses

 

 

274,705

 

 

 

496,950

 

 

 

1,213,789

 

 

 

1,455,602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(260,520)

 

 

(436,901)

 

 

(1,120,893)

 

 

(1,105,674)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

-

 

 

 

110,000

 

 

 

291,482

 

 

 

110,000

 

Loss on extinguishment of loans payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(299,773)

Interest expense

 

 

(52,393)

 

 

(175,997)

 

 

(250,589)

 

 

(535,947)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(312,913)

 

 

(502,898)

 

 

(1,080,000)

 

 

(1,831,394)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(312,913)

 

 

(502,898)

 

 

(1,080,000)

 

 

(1,831,394)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlling interest share of loss

 

 

18,196

 

 

 

34,848

 

 

 

69,334

 

 

 

71,904

 

Deemed dividends

 

 

-

 

 

 

(198,240)

 

 

-

 

 

 

(337,930)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$(294,717)

 

$(666,290)

 

$(1,010,666)

 

$(2,097,420)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$(0.01)

 

$(0.03)

 

$(0.04)

 

$(0.09)

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

 

 

27,058,338

 

 

 

25,493,726

 

 

 

27,050,426

 

 

 

24,104,168

 

 

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

 

 
4

Table of Contents

  

First Foods Group, Inc. and Subsidiary

Condensed Consolidated Statements of Changes in Deficit

(Unaudited)

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional paid-in

 

 

Accumulated

 

 

Total First Foods Group,

 

 

Non-controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 capital

 

 

 deficit

 

 

Inc. deficit

 

 

 interests

 

 

deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

1,133,333

 

 

$1,133

 

 

 

22,367,179

 

 

$22,367

 

 

$10,515,601

 

 

$(12,954,696 )

 

$(2,415,595 )

 

$(142,780 )

 

$(2,558,375 )

Common stock issued for cash to a related party

 

 

-

 

 

 

-

 

 

 

249,999

 

 

 

250

 

 

 

49,750

 

 

 

-

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

Common stock issued to consultants for services

 

 

-

 

 

 

-

 

 

 

36,765

 

 

 

37

 

 

 

4,963

 

 

 

-

 

 

 

5,000

 

 

 

-

 

 

 

5,000

 

Common stock issued for related party loan

 

 

-

 

 

 

-

 

 

 

140,000

 

 

 

140

 

 

 

28,520

 

 

 

-

 

 

 

28,660

 

 

 

-

 

 

 

28,660

 

Common stock issued with loans payable

 

 

-

 

 

 

-

 

 

 

18,000

 

 

 

18

 

 

 

4,662

 

 

 

-

 

 

 

4,680

 

 

 

-

 

 

 

4,680

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

65,542

 

 

 

-

 

 

 

65,542

 

 

 

-

 

 

 

65,542

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

43,693

 

 

 

-

 

 

 

43,693

 

 

 

-

 

 

 

43,693

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(471,473 )

 

 

(471,473 )

 

 

(26,307 )

 

 

(497,780 )

Balance at March 31, 2021

 

 

1,133,333

 

 

 

1,133

 

 

 

22,811,943

 

 

 

22,812

 

 

 

10,712,731

 

 

 

(13,426,169 )

 

 

(2,689,493 )

 

 

(169,087 )

 

 

(2,858,580 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash to a related party

 

 

-

 

 

 

-

 

 

 

249,999

 

 

 

250

 

 

 

49,750

 

 

 

-

 

 

 

50,000

 

 

 

-

 

 

 

50,000

 

Common stock issued to consultants for services - put liability

 

 

-

 

 

 

-

 

 

 

112,390

 

 

 

112

 

 

 

(112)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock issued for related party loan

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

50

 

 

 

10,450

 

 

 

-

 

 

 

10,500

 

 

 

-

 

 

 

10,500

 

Common stock issued for conversion of loans payable

 

 

-

 

 

 

-

 

 

 

191,424

 

 

 

192

 

 

 

31,067

 

 

 

-

 

 

 

31,259

 

 

 

-

 

 

 

31,259

 

Common stock issued for conversion of loans payable - related party

 

 

-

 

 

 

-

 

 

 

2,000,000

 

 

 

2,000

 

 

 

458,000

 

 

 

-

 

 

 

460,000

 

 

 

-

 

 

 

460,000

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

74,253

 

 

 

-

 

 

 

74,253

 

 

 

-

 

 

 

74,253

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

44,179

 

 

 

-

 

 

 

44,179

 

 

 

-

 

 

 

44,179

 

Warrants issued for related party loan

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,200

 

 

 

-

 

 

 

20,200

 

 

 

-

 

 

 

20,200

 

Warrants issued for conversion of loan payable – related party

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

83,513

 

 

 

-

 

 

 

83,513

 

 

 

-

 

 

 

83,513

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(819,968 )

 

 

(819,968 )

 

 

(10,748 )

 

 

(830,716 )

Balance at June 30, 2021

 

 

1,133,333

 

 

$1,133

 

 

 

25,415,756

 

 

$25,416

 

 

$11,484,031

 

 

$(14,246,137 )

 

$(2,735,557 )

 

$(179,835 )

 

$(2,915,392 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to consultants for services

 

 

-

 

 

 

-

 

 

 

34,091

 

 

 

34

 

 

 

4,398

 

 

 

-

 

 

 

4,432

 

 

 

-

 

 

 

4,432

 

Stock compensation consultant - Put liability

 

 

-

 

 

 

-

 

 

 

35,601

 

 

 

35

 

 

 

(35)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock issued with loans payable

 

 

-

 

 

 

-

 

 

 

78,000

 

 

 

78

 

 

 

12,402

 

 

 

-

 

 

 

12,480

 

 

 

-

 

 

 

12,480

 

Preferred stock waived by director

 

 

(118,333)

 

 

(118)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(118)

 

 

-

 

 

 

(118)

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

54,610

 

 

 

-

 

 

 

54,610

 

 

 

-

 

 

 

54,610

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,398

 

 

 

-

 

 

 

3,398

 

 

 

-

 

 

 

3,398

 

Warrants issued for loan payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

47,597

 

 

 

-

 

 

 

47,597

 

 

 

-

 

 

 

47,597

 

Warrants issued for related party loan

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,340

 

 

 

-

 

 

 

15,340

 

 

 

-

 

 

 

15,340

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(468,049)

 

 

(468,049)

 

 

(34,848)

 

 

(502,897)

Balance at September 30, 2021

 

 

1,015,000

 

 

$1,015

 

 

 

25,563,448

 

 

$25,563

 

 

$11,621,741

 

 

$(14,714,186 )

 

$(3,065,867 )

 

$(214,683 )

 

$(3,280,550 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 )

Common stock issued with loans payable

 

 

-

 

 

 

-

 

 

 

60,000

 

 

 

60

 

 

 

12,540

 

 

 

-

 

 

 

12,600

 

 

 

-

 

 

 

12,600

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

30,154

 

 

 

-

 

 

 

30,154

 

 

 

-

 

 

 

30,154

 

Warrants issued for consulting services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

41,508

 

 

 

-

 

 

 

41,508

 

 

 

-

 

 

 

41,508

 

Warrants issued for loan payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

28,088

 

 

 

-

 

 

 

28,088

 

 

 

-

 

 

 

28,088

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(479,952 )

 

 

(479,952 )

 

 

(21,672 )

 

 

(501,624 )

Balance at March 31, 2022

 

 

1,015,000

 

 

 

1,015

 

 

 

27,058,338

 

 

 

27,058

 

 

 

12,174,631

 

 

 

(15,815,410 )

 

 

(3,612,706 )

 

 

(256,863 )

 

 

(3,869,569 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11,480

 

 

 

-

 

 

 

11,480

 

 

 

-

 

 

 

11,480

 

Accumulated catch up adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(291,482 )

 

 

-

 

 

 

(291,482 )

 

 

-

 

 

 

(291,482 )

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(235,997 )

 

 

(235,997 )

 

 

(29,466 )

 

 

(265,463 )

Balance at June 30, 2022

 

 

1,015,000

 

 

$1,015

 

 

 

27,058,338

 

 

$27,058

 

 

$11,894,629

 

 

$(16,051,407 )

 

$(4,128,705 )

 

$(286,329 )

 

$(4,415,034 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,968

 

 

 

-

 

 

 

7,968

 

 

 

-

 

 

 

7,968

 

Warrants issued for loan payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,788

 

 

 

-

 

 

 

7,788

 

 

 

-

 

 

 

7,788

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(294,717 )

 

 

(294,717 )

 

 

(18,196 )

 

 

(312,913 )

Balance at September 30, 2022

 

 

1,015,000

 

 

$1,015

 

 

 

27,058,338

 

 

$27,058

 

 

$11,910,385

 

 

$(16,346,124 )

 

$(4,407,666 )

 

$(304,525 )

 

$(4,712,191 )

 

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

 

 
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First Foods Group, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the Nine Months Ended

September 30,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$(1,080,000)

 

$(1,831,394)

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

 

 

 

 

 

 

 

 

Non-employee stock based compensation

 

 

-

 

 

 

9,431

 

Employee stock based compensation

 

 

91,110

 

 

 

285,675

 

Accumulative catch up adjustment

 

 

(291,482)

 

 

-

 

Loss on extinguishment of loans payable

 

 

-

 

 

 

299,773

 

Impairment of asset

 

 

92,736

 

 

 

-

 

Amortization of debt discount

 

 

109,786

 

 

 

382,726

 

Depreciation and amortization expense

 

 

53,615

 

 

 

43,205

 

Change in merchant allowance

 

 

37,031

 

 

 

(154,811)

Merchant cash advance direct write off

 

 

-

 

 

 

(1,312)

Non-cash lease expense

 

 

51,594

 

 

 

45,960

 

Put liability

 

 

-

 

 

 

29,421

 

Inventory reserve

 

 

23,625

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Inventory

 

 

663

 

 

 

(11,268)

Merchant cash advances

 

 

(5,543)

 

 

233,693

 

Prepaid expenses and other current assets

 

 

138

 

 

 

45,336

 

Operating lease liabilities

 

 

(50,811)

 

 

(44,794)

Accounts payable and accrued liabilities

 

 

438,651

 

 

 

315,752

 

Accounts payable and accrued liabilities – related party

 

 

231,362

 

 

 

163,698

 

Deferred revenue

 

 

(32,374)

 

 

(20,097)

Net cash used in operating activities

 

 

(329,899)

 

 

209,006

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

-

 

 

 

(877)

Net cash used in investing activities

 

 

-

 

 

 

(877)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from sale of common stock – related party

 

 

-

 

 

 

100,000

 

Proceeds from loans

 

 

30,000

 

 

 

200,101

 

Repayment of loans

 

 

-

 

 

 

(53,480)

Forgiveness of Preferred Series B stock

 

 

-

 

 

 

(118)

Proceeds from related party loans

 

 

295,750

 

 

 

112,500

 

Repayments of related party loans

 

 

-

 

 

 

(136,161)

Net cash provided by financing activities

 

 

325,750

 

 

 

222,842

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH

 

 

(4,149)

 

 

12,959

 

CASH AND RESTRICTED CASH AT BEGINNING OF THE PERIOD

 

 

11,527

 

 

 

50,386

 

CASH AND RESTRICTED CASH AT END OF THE PERIOD

 

$7,378

 

 

$63,345

 

 

 

 

 

 

 

 

 

 

CASH AND RESTRICTED CASH CONSIST OF THE FOLLOWING:

 

 

 

 

 

 

 

 

END OF THE PERIOD

 

 

 

 

 

 

 

 

Cash

 

$1,478

 

 

$33,924

 

Restricted Cash

 

 

5,900

 

 

 

29,421

 

 

 

$7,378

 

 

$63,345

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Common stock issued with loans

 

$12,600

 

 

$17,160

 

Common stock issued with related party loans

 

$-

 

 

$39,160

 

Common stock issued for conversion of loan payable

 

$-

 

 

$250,000

 

Common stock issued for conversion of related party loans

 

$-

 

 

$25,000

 

Warrants issued with loans

 

$35,876

 

 

$47,597

 

Warrants issued with related party loans

 

$-

 

 

$35,540

 

 

 

 

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

 

 

 

Interest

 

$8,452

 

 

$100,065

 

Income taxes

 

$-

 

 

$-

 

 

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

 

 
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NOTE 1 –BUSINESS SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND LIQUIDITY

 

Nature of Business

 

First Foods Group, Inc. (the “Company” or “First Foods”) is a smaller reporting company focused on developing its specialty chocolate product line through its Holy Cacao subsidiary and participating in merchant cash advances (“MCAs”) through its 1st Foods Funding Division. First Foods continues to pursue new brands and concepts, including the wholesaling of various health-related products through its FFGI Wholesale 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 still-illegal marijuana-based ingredient THQ, 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.

 

Quarterly Reporting

 

The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and have been consistently applied. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP, but which are not required for interim reporting purposes, have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position as of September 30, 2022 and the results of operations and cash flows for the interim periods ended September 30, 2022 and 2021, have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on April 14, 2022. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.

 

 
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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 nine months ended September 30, 2022 and 2021, the Company impaired property and equipment for a total of $92,736 and $0, respectively.

 

Liquidity and Going Concern

 

The Company’s unaudited condensed consolidated financial statements are prepared using generally accepted accounting principles in the United States of America (“GAAP”) applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for the next 12 months following the issuance of these unaudited condensed  consolidated financial statements.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. As of September 30, 2022, the Company had approximately $1,361,000 in third-party short-term debt and approximately $6,500 in associated debt discount and approximately $786,000 in related-party short-term debt and $0 in associated debt discount that is due within the next twelve months. Management’s plan is 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.

 

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

 

 
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Table of Contents

  

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.

 

Recently Adopted Accounting Pronouncements

 

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’s adoption of ASU 2021-04 on January 1, 2022 did not have a material impact on its unaudited condensed consolidated financial statements.

 

NOTE 2 – RELATED PARTY TRANSACTIONS

 

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 September 30, 2022, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under the previous agreement.

 

 
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Table of Contents

  

As of September 30, 2022, 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 September 30, 2022 and December 31, 2021 was $193,725 and $146,303, respectively.

 

Related Party Loans

 

 

 

 

 

 

 

 

 

 

 

Associated equity instruments recorded as debt discount

 

 

 

 

 

 

 

 

 

 

 

 

 

Original 

 

New

 

Common

 

 

Fair Value of Common

 

 

 

 

Fair

Value of

 

 

 

 

 

 

 

 

Interest

 

 

 Maturity

 

Maturity

 

 Shares

 

 

 Shares

 

 

 Warrants  

 

 

 Warrants

 

 

September 30,

 

 

December 31,

 

 

 

 

 Rate

 

 

 Date

 

 Date***

 

 issued

 

 

  issued

 

 

 issued

 

 

 issued

 

 

2022

 

 

2021

 

 

1

 

 

 

12%*

 

4/17/22

 

10/31/23

 

 

 

 

 

 

 

 

 

 

 

 

 

$

100,000

 

 

$

100,000

 

 

2

 

 

 

0%*

 

4/24/22

 

12/31/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

179,813

 

 

 

179,813

 

 

3

 

 

 

12%*

 

4/16/22

 

12/31/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

150,000

 

 

 

150,000

 

During the nine months ended September 30, 2022

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2021

 

 

130,000

 

 

 

26,500

 

 

 

200,000

 

 

 

35,540

 

 

 

 

 

 

 

 

 

 

4

 

 

 

0%*

 

9/15/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500

 

 

 

500

 

 

5

 

 

 

0%*

 

5/30/22

 

12/31/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

348,750

 

 

 

60,000

 

 

6

 

 

 

0%*

 

Loans fully repaid in 2021 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

 -

 

During the nine months ended September 30, 2022

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2021

 

 

60,000

 

 

 

12,660

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

     0%**

 

 

 12/31/22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 7,000

 

 

 

 -

 

Unamortized debt discount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

(19,304 

)

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

786,063

 

 

$

471,009

 

   

* - unsecured note

** - secured by the full value of the Company

*** - During the nine months ended September 30, 2022 and 2021, the company extended the terms of the notes identified above. The extension of the term was accounted for as a modification to the original note. The company capitalized new costs of $0 and $59,360, for the period ended September 30, 2022 and 2021, respectively, as a result of the modifications.

 

During the nine months ended September 30, 2022 and 2021, the Company recorded $19,305 and $92,004 of interest expense related to the amortization of debt discount and $17,951 and $28,307 of regular interest, respectively.

 

During the three months ended September 30, 2022 and 2021, the Company recorded $0 and $34,534 of interest expense related to the amortization of debt discount and $6,049 and $6,049 of regular interest, respectively.

 

As of September 30, 2022 and December 31, 2021, accrued interest was $86,100 and $68,149, respectively.

 

During the nine months ended September 30, 2021, the Company converted $250,000 of loan payable in exchange for 2,000,000 shares of common stock and warrants for the right to purchase 375,000 shares of common stock. The aggregate fair value of the common stock shares issued and for the granted warrants was $543,513. In association with the conversion of the note to common stock and warrants, the company recognized a loss of $293,513.

 

Related Party Payables

 

As of September 30, 2022 and December 31, 2021, the Company owed a Director $245,751 and $150,822, respectively, for expenses incurred on behalf of the Company.

 

Director Agreements

 

The Company annually revisits the board of director agreements, which include quarterly compensation of $10,000 per director for the fiscal year. Three of the five board members currently are compensated under these terms, while the other two board members remain unpaid. As of September 30, 2022 and December 31, 2021, the Company has accrued $470,000 and $381,000, respectively, in relation to the director agreements which is included in Accounts payable and accrued liabilities – related parties on the unaudited condensed consolidated balance sheet.

 

 
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On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors for a term of 2 years, who currently remains as an uncompensated board member (see note 6 for details). 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:

 

 

 

September 30,

2022

 

 

December 31,

2021

 

Leasehold improvements

 

$33,000

 

 

$33,000

 

Equipment

 

 

201,024

 

 

 

201,024

 

Less: Accumulated depreciation, amortization and impairment

 

 

(230,616 )

 

 

(94,921 )

Total

 

$3,408

 

 

$139,103

 

 

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 nine months ended September 30, 2022 and 2021, the Company impaired property and equipment for a total of $92,736 and $0, respectively.

 

 
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NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities consist of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Accounts Payable

 

$321,803

 

 

$221,206

 

Interest

 

 

345,887

 

 

 

209,311

 

Salaries

 

 

793,589

 

 

 

603,371

 

Other

 

 

51,588

 

 

 

40,328

 

Total third party payables

 

 

1,512,866

 

 

 

1,074,216

 

Related party payables, officers and director fees

 

 

949,476

 

 

 

718,114

 

Total payables

 

$2,462,343

 

 

$1,792,330

 

 

NOTE 5 – LOANS AND LONG-TERM LOANS

 

                                               Associated equity instruments recorded as debt discount

 

 

 

 

Interest Rate

 

 

Original Maturity Date

 

New

Maturity Date

****

 

Common Shares issued

 

 

Fair Value of Common Shares issued ($)

 

 

Warrants issued

 

 

Fair Value of Warrants issued ($)

 

 

September 30,

2022

 

 

December 31,

2021

 

 

1

 

 

 

12%*

 

4/16/2022

 

 4/30/2023

 

 

 

 

 

 

 

 

 

 

 

 

 

$

50,000

 

 

$

50,000

 

During the nine months ended September 30, 2022

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2021

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

7,675

 

 

 

 

 

 

 

 

 

 

2

 

 

 

12%*

 

4/22/2022

 

11/30/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,000

 

 

 

18,000

 

During the nine months ended September 30, 2022

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2021

 

 

36,000

 

 

 

7,560

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

3

 

 

 

12%*

 

6/30/2022

 

 12/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

250,000

 

 

 

250,000

 

During the nine months ended September 30, 2022

 

 

-

 

 

 

-

 

 

 

125,000

 

 

 

28,088

 

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2021

 

 

-

 

 

 

-

 

 

 

250,000

 

 

 

37,125

 

 

 

 

 

 

 

 

 

 

4

 

 

 

12%*

 

4/16/2022

 

 12/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

410,000

 

 

 

410,000

 

 

5

 

 

 

12%*

 

4/16/2022

 

 12/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

140,000

 

 

 

140,000

 

 

6

 

 

 

12%*

 

4/30/2022

 

 12/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200,000

 

 

 

200,000

 

 

7

 

 

 

12%*

 

7/31/2022

 

 12/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60,000

 

 

 

60,000

 

During the nine months ended September 30, 2022

 

 

60,000

 

 

 

12,600

 

 

 

60,000

 

 

 

7,788

 

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2021

 

 

60,000

 

 

 

9,600

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

8

 

 

 

12%*

 

7/29/2022

 

 12/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

96,000

 

 

 

96,000

 

 

9

 

 

3.75% **

 

 

6/25/2050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

150,000

 

 

 

150,000

 

 

10

 

 

 

12.5%*

 

12/17/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,600

 

 

 

3,600

 

 

11

 

 

 

0%*

 

9/19/2022

 

 1/15/2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,500

 

 

 

16,500

 

During the nine months ended September 30, 2022

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2021

 

 

-

 

 

 

-

 

 

 

16,500

 

 

 

2,802

 

 

 

 

 

 

 

 

 

 

12

 

 

 

0%*

 

4/16/2022

 

8/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

 

 

50,000

 

 

13

 

 

0% ***

 

 

4/16/2022

 

12/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,000

 

 

 

30,000

 

 

14

 

 

 

0%*

 

4/16/2022

 

12/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,000

 

 

 

13,000

 

 

15

 

 

0% ***

 

 

5/30/2022

 

 12/31/2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,000

 

 

 

-

 

 

Unamortized debt discount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,508

)

 

 

(48,514

)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1,510,592

 

 

 

 1,438,586

 

 

Less: short term loans, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,360,592

 

 

 

 1,288,586

 

 

Total long-term loans, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 150,000

 

 

$

 150,000

 

 

* - unsecured note

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

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

**** - During the nine months ended September 30, 2022 and 2021, the company extended the terms of the notes identified above, the extension of the term was accounted for as a modification to the original note. The company capitalized new costs of $48,476 and $64,757, for the period ended September 30, 2022 and 2021, respectively, as a result of the modifications. On August 1, 2022, the Company extended the terms of Note 7 above. In connection with this extension the Company issued a warrant to purchase 60,000 shares of common stock. The warrants are valued at $7,788 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.

 

The Company has experienced a shortage of funding because cash outflows for business administration were higher than business revenue and financing expectations. As a result, loans payables of $50,000 due by August 31, 2022 remained unpaid as of September 30, 2022. The Company’s management has successfully loan extensions with the lender in prior periods and will continue to negotiate further extensions with the lender for future periods. The loan with the lender is presented as a current liability as of September 30, 2022.

 

In connection with the various debts issuances and extensions, the Company periodically, as applicable, records debt discount and amortizes it over the applicable life of the debt. During the three months ended September 30, 2022 and 2021, the Company recorded $4,392 and $94,641 of interest expense related to the amortization of debt discount and $38,553 and $39,852 of regular interest, respectively. During the nine months ended September 30, 2022 and 2021, the Company recorded $90,481 and $290,721 of interest expense related to the amortization of debt discount and $114,402 and $122,841 of regular interest, respectively. As of September 30, 2022 and December 31, 2021, accrued interest was $247,180 and $132,778, respectively.

 

As of September 30, 2022 and December 31, 2021, accrued interest associated with the economic injury disaster loan was $11,188 and $8,385, respectively.

 

During the nine months ended September 30, 2021, the Company converted $25,000 of loan payable in exchange for 191,424 shares of common stock. The fair value of the common stock shares issued was $31,260. In association with the conversion of the note to common stock, the company recognized a loss of $6,260.

 

 
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NOTE 6 – STOCKHOLDERS’ DEFICIT

 

Warrant Activity

 

Common Stock Warrants

 

On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors. In connection with the agreement one million (1,000,000) warrants were issued. The warrants are valued at $177,200 based on the Black Scholes Model. For the nine months ended September 30, 2022 and 2021, the Company recorded $0 and $87,872 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2022 and 2021, the Company recorded $0 and $3,398 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, if certain milestones are reached, 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. When the warrants were issued management had assessed the probability of certain milestones being met as probable and therefore the warrants were being straight-lined over the term of services and accelerated whenever a milestone is met. During the quarter ending June 30, 2022, management, upon further review, has determined that these milestones will probably not be met and has recorded an accumulative catch up adjustment of $291,482. For the nine months ended September 30, 2022 and 2021, the Company recorded $41,508 and $125,909 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2022 and 2021, the Company recorded $0 and $42,431 as compensation expense related to the warrants, respectively. In July 2022, the term of the consulting agreement ended with no further milestones being completed. No further compensation will be recorded in association to these warrants.

 

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 will issue a warrant to the employee to purchase 300,000 shares a year, for a total of 900,000 shares of the Company’s common stock. The warrants have a term of three (3) years from date of issue and an exercise price equal to the closing market price of the Company’s common stock on August 4, of the corresponding year. The warrants issued on August 4, 2020, 2021 and 2022, are valued at $97,470, $46,050 and $22,740, respectively, based on the Black Scholes Model. 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. 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 nine months. For the nine months ended September 30, 2022 and 2021, the Company recorded $49,602 and $57,681 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2022 and 2021, the Company recorded $7,968 and $9,346 as compensation expense related to the warrants, respectively.

 

 
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On March 21, 2022, 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 125,000 shares of common stock at an exercise price of $0.24 a share. The warrants are valued at $28,088 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 1, 2022, 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 60,000 shares of common stock at an exercise price of $0.14 a share. The warrants are valued at $7,788 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.

 

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

 

 

 

2022

 

 

2021

 

Risk-free interest rate

 

 

0.22-3.16

%

 

0.03-0.08

%

Expected term of options, in years

 

 

3

 

 

 

3

 

Expected annual volatility

 

 

211.0-235.0

%

 

228.0-247.7

%

Expected dividend yield

 

-

%

 

-

%

Determined grant date fair value per option

 

$

0.08 – 0.22

 

 

$

 0.14 – 0.22

 

 

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, 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

 

Granted

 

 

785,000

 

 

 

0.14

 

Exercised

 

 

-

 

 

 

-

 

Forfeited or cancelled

 

 

(310,000 )

 

 

0.25

 

Outstanding, September 30, 2022

 

 

6,179,775

 

 

$0.21

 

 

 
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As of September 30, 2022, 4,029,775 warrants for common stock were exercisable and the intrinsic value of these warrants was $300 the weighted average remaining contractual life for warrants outstanding was 1.45 years and the remaining expense is $25,697 over the remaining amortization period which is 10 months.

 

As of September 30, 2021, 3,948,525 warrants for common stock were exercisable and the intrinsic value of these warrants was $34,346, the weighted average remaining contractual life for warrants outstanding was 2.17 years and the remaining expense is $129,138 over the remaining amortization period which is 1.89 years.

 

Preferred Stock Warrants

 

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, 2020

 

 

4,470,000

 

 

$0.68

 

Granted

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

Forfeited or cancelled

 

 

-

 

 

 

-

 

Outstanding, December 31, 2021

 

 

4,470,000

 

 

$0.68

 

Granted

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

Forfeited or cancelled

 

 

-

 

 

 

-

 

Outstanding, September 30, 2022

 

 

4,470,000

 

 

$0.68

 

 

As of September 30, 2022, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $0, the weighted average remaining contractual life for warrants outstanding was 5.62 years.

 

As of September 30, 2021, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $918,810, the weighted average remaining contractual life for warrants outstanding was 6.62 years.

 

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 nine months ended September 30, 2022 and 2021, the Company incurred lease expense for its operating leases of $65,732 and $65,732, respectively, which was included in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.

 

For the three months ended September 30, 2022 and 2021, the Company incurred lease expense for its operating leases of $21,910 and $21,910, respectively, which was included in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.

 

The Company’s weighted-average remaining lease term relating to its operating leases is 1.58 years, with a weighted-average discount rate of 12.00%.

 

 
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Table of Contents

  

The Company had cash payments for operating leases of $64,948 and $64,566 for the nine months ended September 30, 2022 and 2021, respectively and $21,933 and $21,294 for the three months ended September 30, 2022 and 2021, respectively.

 

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of September 30, 2022.

 

Maturity of Lease Liability

 

 

 

2022

 

$21,932

 

2023

 

 

89,487

 

2024

 

 

30,121

 

Total undiscounted operating lease payments

 

 

141,541

 

Less: Imputed interest

 

 

13,298

 

Present value of operating lease liabilities

 

$128,242

 

 

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 September 30, 2022, 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 expense has been recorded.

 

On August 14, 2019, the Company entered into an agreement with a CFN Media. In consideration for the services and deliverables provided by CFN Media, the Company will make three (3) cash payments to CFN Media totaling $30,000. Payments will be made in accordance with the following staged schedule:

 

“Stage 1” - $10,000 due upon the signing of the agreement for the Stage 1 services and deliverables: the interview, lead generation system and two (2) articles, including syndication, distribution and placement. This payment has been made. 

“Stage 2” - $10,000 due upon the Company’s receipt of CFN Media’s invoice issued after CFN Media’s completion of Stage 1 and the Company’s confirmation they are ready to continue with Stage 2, which will include CFN Media’s delivery of two (2) Articles with the embedded interview and lead generation, as well as syndication, distribution and placement of services and deliverables.

 

“Stage 3” - $10,000 due upon the Company’s receipt of CFN Media’s invoice issued after CFN Media’s completion of Stage 2 and the Company’s confirmation they are ready to continue with Stage 3, which will include CFN Media’s delivery of two (2) Articles with the embedded interview and lead generation, as well as syndication, distribution and placement of services and deliverables.

 

On October 10, 2019, the Company signed a master distribution agreement with CBD Unlimited, Inc., which is a public company and a master distributor, to distribute the Company’s hemp-based chocolate products. The term of this agreement is four years. The agreement includes the issuance of 250,000 shares of the Company’s common stock at the closing market price of $0.26 per share as of the date of the agreement. Additionally, the Company shall pay the distributor a commission for its services hereunder amounting to applicable percentage of the sales price of any sales or sales contract with a customer.

 

 
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Table of Contents

  

On January 14, 2020, the Company entered into an agreement with a sales consultant to further the business purpose of the Company. In consideration for the services provided by the consultant, the Consultant shall be paid a fee of ten percent (10%) of each of the consultant’s sales of the Company’s product.

 

On October 15, 2020, the Company entered into a chocolate sales agreement with a sales consultant. The consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers. The consultant shall receive a sales commission of the gross sales (net of returns) directly generated by the consultant to such distributor and such distributor shall receive a commission of such gross sales (net of returns). Commissions shall be paid within 30 days of the end of the quarter in which they are deemed earned. No commissions are due and no commissions have been earned as of September 30, 2022. 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 September 30, 2022, 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. As of September 30, 2022, 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.

 

 
17

Table of Contents

  

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. During the three and nine months ended September 30, 2022 no shares have been issued.

 

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. During the three and nine months ended September 30, 2022 no shares have been issued.

 

On April 11, 2022, the Company entered into a memo of understanding with a marketing consultant, who is a 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.

 

Commission costs for the nine months ending September 30, 2022 and 2021, were $1,090 and $43,863, respectively. Commission costs for the three months ending September 30, 2022 and 2021, were $1,090 and $8,877, respectively. These expenses are included in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations. As of September 30, 2022 and December 31, 2021, there were no accrued commissions outstanding.

 

NOTE 9 – CONCENTRATION RISKS

 

As of September 30, 2022, the Company’s concentrations for receivables from merchant cash advances as well as income from merchant cash advances were not significant to warrant concentration risk.

 

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 $14,949 and $6,463 of MCA income from two merchants, representing 41% and 18%, respectively, of the Company’s MCA income for the nine months ended September 30, 2021.

 

For the three months ended September 30, 2022, the Company had no purchase concentration. For the three months ended September 30, 2021, the Company had purchase concentrations of 81% and 12% from two vendors.

 

For the nine months ended September 30, 2022, the Company had purchase concentrations of 22%, 17% and 12% from three vendors. For the nine months ended September 30, 2021, the Company had purchase concentrations of 60% and 21% from two vendors.

 

NOTE 10 – SUBSEQUENT EVENTS

 

Subsequent to the year end, the Company has extended various loans (see notes 2 and 5).

 

 
18

Table of Contents

  

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

 

Cautionary Statements

 

This Form 10-Q contains “forward-looking statements,” as that term is used in federal securities laws, about First Foods Group, Inc.’s financial condition, results of operations and business.

 

These statements include, among others:

 

·

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

 

·

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

 

 

(a)

volatility or decline of First Foods’ stock price;

 

(b)

potential fluctuation of quarterly results;

 

(c)

include failure of First Foods to earn significant revenues or profits;

 

(d)

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

 

(e)

decline in demand for First Foods’ products and services;

 

(f)

rapid adverse changes in markets; due to, among other things, international conflicts, terrorism, environmental issues, world and national health issues, and inflation;

 

(g)

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

 

(h)

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

 

(i)

new regulations impacting the business.

 

There is no assurance that First Foods will be profitable, due to, among other potential reasons, that it may (i) not be able to successfully develop, manage or market its products and services; attract or retain qualified executives and personnel; or obtain customers for its products or services, (ii) incur additional dilution in outstanding stock ownership due to the issuance of more shares, warrants, stock options or other convertible securities, or the exercise of outstanding warrants and stock options, and (iii) suffer other risks inherent in its business.

 

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

 

 
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General

 

First Foods is currently a “smaller reporting company” under the JOBS Act. A company loses its “smaller reporting company” status on (i) the day its public float becomes greater than or equal to $250,000,000 or (ii) had annual revenues of less than $100,000,000 and either: (A) had no public float or (B) had a public float of less than $700,000,000. As a “smaller reporting company” First Foods is exempt from certain obligations of the Exchange Act, including those found in Section 14A(a) and (b) related to shareholder approval of executive compensation and golden parachute compensation and Section 404(b) of the Sarbanes-Oxley Act of 2002 related to the requirement that management assess the effectiveness of the Company’s internal control for financial reporting. Furthermore, Section 103 of the JOBS Act provides that as a “smaller reporting company” First Foods is not required to comply with the requirement to provide an auditor’s attestation of ICFR under Section 404(b) of the Sarbanes-Oxley Act for as long as First Foods qualifies as a “smaller reporting company.” 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 still illegal marijuana-based ingredient such as THQ, although it intends to revisit the matter if 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.

 

The Company’s common stock 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 September 30, 2022, our cash balance was $7,378, which includes restricted cash of $5,900, and our current liabilities were $4,746,099.

 

Critical Accounting Policies

 

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

 

 
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Results of Operations for the Three Months Ended September 30, 2022 compared to the Three Months Ended September 30, 2021

 

Total net sales decreased 76% or $45,864 during the three months ended September 30, 2022 compared to 2021, primarily due to the Company dedicating resources to the chocolate producing division of the Company and less to the wholesaling division and merchant cash advance division.

 

Products Performance

 

The following table shows net sales by category for the three months ended September 30, 2022 and 2021:

 

 

 

2022

 

 

Change

 

 

2021

 

Net sales by category:

 

 

 

 

 

 

 

 

 

Chocolate products

 

$13,374

 

 

 

-76%

 

$55,678

 

Merchant cash advances

 

 

811

 

 

 

-81%

 

 

4,371

 

Total net sales

 

$14,185

 

 

 

-76%

 

$60,049

 

 

Chocolate products

 

Chocolate products sales decreased during 2022 compared to 2021 due primarily to increased supply chain costs and a decrease in marketing and advertising.

 

Merchant cash advances

 

Merchant cash advances sales decreased during 2022 compared to 2021 due to the Company focusing upon and dedicating resources to the chocolate producing division of the Company.

 

Cost of Product Sales

 

Products cost of sales for the three months ended September 30, 2022 and 2021 were as follows:

 

 

 

September 30,

2022

 

 

September 30,

2021

 

Cost of Product Sales:

 

 

 

 

 

 

Chocolate products

 

$6,790

 

 

$35,446

 

 

Cost of product sales

 

The decrease in cost of product sales in September 30, 2022 as compared to September 30, 2021 was due to a decrease in product sales.

 

General and administrative expenses for the three months ended September 30, 2022 was $268,910 compared to $466,717 for the three months ended September 30, 2021. The decrease in general and administrative expenses was primarily due to decreased costs associated with compensation expenses, and consulting and accounting fees.

 

 
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Provision for merchant cash advances for the three months ended September 30, 2022 was $(3,493) compared to $(7,916) for the three months ended September 30, 2021. The increase in provision for merchant cash advances was due to less recoveries of reserved MCAs in the current period that the prior period.

 

There were no impairment expense for the three months ended September 30, 2022 and 2021, respectively.

 

Results of Operations for the Nine Months Ended September 30, 2022 compared to the Nine Months Ended September 30, 2021

 

Total net sales decreased 73% or $257,032 during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the Company dedicating resources to the chocolate producing division of the Company and less to the wholesaling division and merchant cash advance division.

 

Products Performance

 

The following table shows net sales by category for the nine months ended September 30, 2022 and 2021:

 

 

 

2022

 

 

Change

 

 

2021

 

Net sales by category:

 

 

 

 

 

 

 

 

 

Chocolate products

 

$91,708

 

 

 

-71%

 

$312,142

 

Merchant cash advances

 

 

1,188

 

 

 

-97%

 

 

37,786

 

Total net sales

 

$92,896

 

 

 

-73%

 

$349,928

 

 

Chocolate products

 

Chocolate products sales decreased during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 due primarily to increased supply chain costs and a decrease in marketing and advertising.

 

Merchant cash advances

 

Merchant cash advances sales decreased during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 due to the Company focusing upon and dedicating resources to the chocolate producing division of the Company.

 

Cost of Product Sales

 

Products cost of sales for the nine months ended September 30, 2022 and 2021 were as follows:

 

 

 

September 30,

2022

 

 

September 30,

2021

 

Cost of Product Sales:

 

 

 

 

 

 

Chocolate products

 

$47,264

 

 

$201,530

 

 

 
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Cost of product sales

 

The decrease in cost of product sales in September 30, 2022 as compared to September 30, 2021 was due to a decrease in product sales.

 

Legal fees for the nine months ended September 30, 2022 was $31,596 compared to $5,799 for the nine months ended September 30, 2021. This increase in legal fees was due to increased legal rates and legal consultations for potential deals that were passed on.

 

General and administrative expenses for the nine months ended September 30, 2022 was $1,008,887 compared to $1,400,527 for the nine months ended September 30, 2021. The decrease in general and administrative expenses was primarily due to decreased costs associated with compensation expenses, and consulting and accounting fees.

 

Provision for merchant cash advances for the nine months ended September 30, 2022 was $33,306 compared to $(152,254) for the nine months ended September 30, 2021. The increase in provision for merchant cash advances was due to the Company updating its reserves to accurately reflect its current merchant cash advances positions.

 

Impairment of assets expense for the nine months ended September 30, 2022 was $92,736. The company has not realized cash flows sufficient to overcome an asset impairment and is, therefore, estimating an impairment of 50% of its asset carrying value. There was no impairment expense for the nine months ended September 30, 2021.

 

Liquidity and Capital Resources

 

The following table presents our cash flows:

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2022

 

 

2021

 

Net cash used in operating activities

 

$(329,899 )

 

$(209,006 )

Net cash used in investing activities

 

$-

 

 

$(877 )

Net cash provided by financing activities

 

$325,750

 

 

$222,842

 

 

Operating Activities

 

Our primary uses of cash from our operating activities include payments for compensation and related costs and other general corporate expenditures.

 

 
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Net cash used in operating activities increased from the nine months ended September 30, 2021 to the nine months ended September 30, 2022 primarily due to the net effect of a decrease in cash received from a decrease in revenues and cash paid for cost of revenues and operating expenses, changes in operating assets and liabilities, decrease in stock compensation, increase in accumulative catch up adjustment and impairment of assets, and change in merchant allowance.

 

Investing Activities

 

There was no investing activities for the nine months ended September 30, 2022.

 

Financing Activities

 

Cash provided by financing activities consists of proceeds from issuance of debt.

 

Net cash provided by financing activities increased from the nine months ended September 30, 2021 to the nine months ended September 30, 2022 primarily due to a decrease in repayment of loans.

 

Going Concern

 

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

 

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

 

 
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Table of Contents

  

In order to continue as a going concern, the Company will need, among other things, additional capital resources. As of September 30, 2022, the Company had approximately $1,361,000 in third-party short-term debt and approximately $6,500 in associated debt discount and approximately $786,000 in related-party short-term debt and $0 in associated debt discount that is due within the next twelve months. Management’s plan is 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.

 

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

 

Concentration Risks

 

As of September 30, 2022, the Company's concentrations for receivables from merchant cash advances as well as income from merchant cash advances were not significant to warrant concentration risk.

 

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 $14,949 and $6,463 of MCA income from two merchants, representing 41% and 18%, respectively, of the Company’s MCA income for the nine months ended September 30, 2021.

 

For the three months ended September 30, 2022, the Company had no purchase concentration. For the three months ended September 30, 2021, the Company had purchase concentrations of 81% and 12% from two vendors.

 

For the nine months ended September 30, 2022, the Company had purchase concentrations of 22%, 17% and 12% from three vendors. For the nine months ended September 30, 2021, the Company had purchase concentrations of 60% and 21% from two vendors.

 

Off-Balance Sheet Arrangements

 

No off-balance sheet arrangements exist.

 

Contractual Obligations

 

None.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

 
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Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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

 

 

1.

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

 

 

2.

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

 

 

3.

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

 

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

 

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

 

As of September 30, 2022, management has not completed an effective assessment of the Company’s internal controls over financial reporting based on the 2013 Committee of Sponsoring Organizations (COSO) framework. Management has concluded that, during the period covered by this report, our internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP. Management identified the following material weaknesses set forth below in our internal control over financial reporting.

 

 

1.

We lack the necessary corporate accounting resources to maintain adequate segregation of duties.

 

 

2.

We did not perform an effective risk assessment or monitor internal controls over financial reporting.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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Table of Contents

  

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

As of September 30, 2022, we were not a party to any legal proceedings that could have a material adverse effect on the Company’s business, financial condition or operating results. Further, to the Company’s knowledge, no such proceedings have been threatened against the Company.

 

Item 1A. Risk Factors

 

We are not obligated to disclose our risk factors in this report; however, information regarding our risk factors appears in various places in this Quarterly Report and in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021. Except as described below, there have been no material changes from the risk factors previously disclosed in such Annual Report on Form 10-K.

 

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

 

The Company issued 60,000 shares of the Company’s common stock during the nine months ended September 30, 2022. All of these shares were exempt pursuant to Section 4(1) as they were issued privately without any advertising or finders/brokers fees paid to third parties. 

 

Item 3. Defaults Upon Senior Securities

 

There have been no defaults upon senior securities.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not Applicable

 

 
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Item 6. Exhibits

 

(a) Exhibits

 

Item 6. Exhibits, Financial Statement Schedules

 

3.1

 

Articles of Incorporation of the Registrant (1)

3.2

 

By-laws of the Registrant (1)

31.1

 

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

32.1

 

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

101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

___________

(1)

Filed as an Exhibit to the Form S-1, filed by First Foods Group, Inc. on August 10, 2015, and incorporated herein by reference.

 

 
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SIGNATURES

 

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

 

By:

/s/ Harold Kestenbaum

 

Dated: November 21, 2022

 

Harold Kestenbaum,

 

Chairman of the Board and

 

Interim Chief Executive Officer

 

 

By:

/s/ Mark J. Keeley

 

Dated: November 21, 2022

 

Mark J. Keeley,

 

Chief Financial Officer

 

 
29

 

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