UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
|
For Quarterly Period Ended June 30, 20222023
or
☐ |
|
For the Transition period from __________ to __________
Commission File Number: 333-206260
FIRST FOODS GROUP, INC. |
(Exact name of registrant as specified in its charter) |
Nevada |
| 47-4145514 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
First Foods Group, Inc. c/o Incorp Services, Inc.,
3773 Howard Hughes Parkway, Suite 500S,
Las Vegas, NV 89169-6014
(Address of principal executive offices) (Zip Code)
(201) 471-0988
Registrant’s telephone number, including area code
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
| None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated Filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 19, 2022,18, 2023, 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
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| Condensed Consolidated Balance Sheets at June 30, |
| 3 | |||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 |
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2 |
Table of Contents |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
First Foods Group, Inc. and Subsidiary |
Condensed Consolidated Balance Sheets |
|
| June 30, 2022 |
|
| December 31, 2021 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||
|
| (Unaudited) |
| (Audited) |
|
| (Unaudited) |
| (Audited) |
| ||||||
ASSETS | ASSETS |
| ASSETS |
| ||||||||||||
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
| ||||||
Cash |
| $ | 16,314 |
| $ | 5,627 |
|
| $ | 2,163 |
| $ | 525 |
| ||
Restricted cash |
| 5,900 |
| 5,900 |
|
| 5,900 |
| 5,900 |
| ||||||
Inventory, net of reserve $23,625 and $0, respectively |
| 33,590 |
| 56,936 |
| |||||||||||
Merchant cash advances, net of allowance $173,088 and $131,703, respectively |
| 722 |
| 37,541 |
| |||||||||||
Inventory |
| 43 |
| 106 |
| |||||||||||
Prepaid expenses and other current assets |
|
| 83,405 |
|
|
| 89,888 |
|
|
| 23,425 |
|
|
| 23,365 |
|
TOTAL CURRENT ASSETS |
| 139,931 |
| 195,892 |
|
| 31,531 |
| 29,896 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Property and equipment, net |
| 25,232 |
| 139,103 |
| |||||||||||
Operating lease right-of-use assets |
|
| 143,175 |
|
|
| 177,062 |
| ||||||||
Security deposit |
|
| 24,060 |
|
|
| 24,060 |
| ||||||||
TOTAL ASSETS |
| $ | 308,338 |
|
| $ | 512,057 |
|
| $ | 55,591 |
|
| $ | 53,956 |
|
LIABILITIES AND DEFICIT | ||||||||||||||||
|
| |||||||||||||||
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable and accrued liabilities |
| $ | 1,412,184 |
| $ | 1,074,216 |
|
| $ | 986,121 |
| $ | 760,801 |
| ||
Accounts payable and accrued liabilities - related parties |
| 862,747 |
| 718,114 |
| |||||||||||
Accrued compensation and liabilities - related parties |
| 1,908,612 |
| 1,869,131 |
| |||||||||||
Put liability |
| 29,421 |
| 29,421 |
|
| 29,421 |
| 29,421 |
| ||||||
Deferred revenue |
| 50,746 |
| 81,953 |
|
| 61,508 |
| 61,133 |
| ||||||
Loans, net of unamortized debt discount |
| 1,363,988 |
| 1,288,586 |
|
| 1,368,767 |
| 1,368,505 |
| ||||||
Related party loans, net of unamortized debt discount |
| 708,313 |
| 471,009 |
| |||||||||||
Related party loans |
| 1,061,863 |
| 870,313 |
| |||||||||||
Operating lease liabilities |
|
| 74,650 |
|
|
| 69,078 |
|
|
| 71,322 |
|
|
| 80,592 |
|
TOTAL CURRENT LIABILITIES |
| 4,502,049 |
| 3,732,377 |
|
| 5,487,614 |
| 5,039,896 |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans - long term |
| 150,000 |
| 150,000 |
|
| 150,000 |
| 150,000 |
| ||||||
Operating lease liabilities - long term |
|
| 71,323 |
|
|
| 109,975 |
|
|
| - |
|
|
| 29,383 |
|
TOTAL LIABILITIES |
|
| 4,723,372 |
|
|
| 3,992,352 |
|
|
| 5,637,614 |
|
|
| 5,219,279 |
|
|
|
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| ||||||
Commitments (Note 8) |
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Commitments |
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DEFICIT |
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FIRST FOODS GROUP, INC. DEFICIT: |
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STOCKHOLDERS’ DEFICIT |
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FIRST FOODS GROUP, INC. STOCKHOLDERS’ DEFICIT: |
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Preferred stock, 20,000,000 shares authorized: |
|
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| ||||||
Series A convertible preferred stock: $0.001 par value, 1 share authorized, 1 issued and outstanding ($577,005 liquidation preference) |
| 0 |
| 0 |
| |||||||||||
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 |
| |||||||||||
Series A convertible preferred stock: $0.001 par value, 1 share authorized, 1 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively ($577,005 liquidation preference) |
| - |
| - |
| |||||||||||
Series B convertible preferred stock: $0.001 par value, 4,999,999 shares authorized, 354,999 issued and outstanding as of June 30, 2023 and December 31, 2022, 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 as of June 30, 2023 and December 31, 2022, respectively ($165,000 liquidation preference) |
| 660 |
| 660 |
| |||||||||||
Common stock: $0.001 par value, 100,000,000 shares authorized, 27,058,338 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively |
| 27,058 |
| 27,058 |
| |||||||||||
Additional paid-in capital |
| 11,894,629 |
| 12,062,341 |
|
| 11,927,393 |
| 11,916,116 |
| ||||||
Accumulated deficit |
|
| (16,051,407 | ) |
|
| (15,335,458 | ) | ||||||||
Total First Foods Group, Inc. Deficit |
| (4,128,705 | ) |
| (3,245,104 | ) | ||||||||||
Accumulated Stockholders’ Deficit |
|
| (17,196,870 | ) |
|
| (16,768,055 | ) | ||||||||
Total First Foods Group, Inc. Stockholders’ Deficit |
| (5,241,404 | ) |
| (4,823,866 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Noncontrolling interests |
|
| (286,329 | ) |
|
| (235,191 | ) |
|
| (340,619 | ) |
|
| (341,457 | ) |
Total deficit |
|
| (4,415,034 | ) |
|
| (3,480,295 | ) | ||||||||
TOTAL LIABILITIES AND DEFICIT |
| $ | 308,338 |
|
| $ | 512,057 |
| ||||||||
Total Stockholders’ Deficit |
|
| (5,582,023 | ) |
|
| (5,165,323 | ) | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
| $ | 55,591 |
|
| $ | 53,956 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3 |
Table of Contents |
First Foods Group, Inc. and Subsidiary |
Condensed Consolidated Statements of Operations |
(Unaudited) |
|
| For the Three Months Ended June 30, |
| For the Six Months Ended June 30, |
|
| For the Three Months Ended June 30, |
| For the Six Months Ended June 30, |
| ||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
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REVENUES |
|
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Product sales, net |
| $ | 63,877 |
| $ | 240,439 |
| $ | 78,334 |
| $ | 256,464 |
|
| $ | 839 |
| $ | 63,877 |
| $ | 4,311 |
| $ | 78,334 |
| ||||||
Merchant cash advance income, net |
|
| 29 |
|
|
| 7,102 |
|
|
| 377 |
|
|
| 33,415 |
|
|
| 113 |
|
|
| 29 |
|
|
| 539 |
|
|
| 377 |
|
Total Revenues |
| 63,906 |
| 247,541 |
| 78,711 |
| 289,879 |
|
| 952 |
| 63,906 |
| 4,850 |
| 78,711 |
| ||||||||||||||
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OPERATING EXPENSES |
|
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| ||||||||||||||
Cost of product sales |
| 37,993 |
| 162,343 |
| 40,474 |
| 166,084 |
|
| - |
| 37,993 |
| 76 |
| 40,474 |
| ||||||||||||||
Legal fees |
| 27,949 |
| 2,097 |
| 29,098 |
| 3,096 |
|
| 3,765 |
| 27,949 |
| 4,399 |
| 29,098 |
| ||||||||||||||
General and administrative |
| 335,492 |
| 446,423 |
| 739,978 |
| 933,810 |
|
| 189,222 |
| 335,492 |
| 464,749 |
| 739,978 |
| ||||||||||||||
Provision for merchant cash advances |
| 37,145 |
| (6,840 | ) |
| 36,799 |
| (144,338 | ) |
| (926 | ) |
| 37,145 |
| 178 |
| 36,799 |
| ||||||||||||
Impairment of assets |
|
| 92,736 |
|
|
| 0 |
|
|
| 92,736 |
|
|
| 0 |
|
|
| - |
|
|
| 92,736 |
|
|
| - |
|
|
| 92,736 |
|
Total Operating Expenses |
|
| 531,315 |
|
|
| 604,023 |
|
|
| 939,085 |
|
|
| 958,652 |
|
|
| 192,061 |
|
|
| 531,315 |
|
|
| 469,402 |
|
|
| 939,085 |
|
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|
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| ||||||||||||||
LOSS FROM OPERATIONS |
|
| (467,409 | ) |
|
| (356,482 | ) |
|
| (860,374 | ) |
|
| (668,773 | ) |
|
| (191,109 | ) |
|
| (467,409 | ) |
|
| (464,552 | ) |
|
| (860,374 | ) |
|
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|
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OTHER INCOME (EXPENSE) |
|
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|
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| ||||||||||||||
Other income |
| 291,482 |
| 0 |
| 291,482 |
| 0 |
|
| 52,000 |
| 291,482 |
| 118,000 |
| 291,482 |
| ||||||||||||||
Loss on extinguishment of loans payable |
| 0 |
| (299,773 | ) |
| 0 |
| (299,773 | ) | ||||||||||||||||||||||
Interest expense |
|
| (89,536 | ) |
|
| (174,461 | ) |
|
| (198,196 | ) |
|
| (359,950 | ) |
|
| (30,412 | ) |
|
| (89,536 | ) |
|
| (81,425 | ) |
|
| (198,196 | ) |
|
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| ||||||||||||||
Loss before income taxes |
| (265,463 | ) |
| (830,716 | ) |
| (767,088 | ) |
| (1,328,496 | ) |
| (169,521 | ) |
| (265,463 | ) |
| (427,977 | ) |
| (767,088 | ) | ||||||||
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Provision for income taxes |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| - |
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| ||||||||||||||
NET LOSS |
| (265,463 | ) |
| (830,716 | ) |
| (767,088 | ) |
| (1,328,496 | ) |
| (169,521 | ) |
| (265,463 | ) |
| (427,977 | ) |
| (767,088 | ) | ||||||||
|
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Non-controlling interest share of loss |
| 29,466 |
| 10,748 |
| 51,138 |
| 37,055 |
|
| (534 | ) |
| 29,466 |
| (838 | ) |
| 51,138 |
| ||||||||||||
Deemed dividends |
| 0 |
| (139,690 | ) |
| 0 |
| (139,690 | ) |
| - |
| - |
| - |
| - |
| |||||||||||||
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Net loss attributed to shareholders of First Foods Group, Inc. |
| $ | (235,997 | ) |
| $ | (959,658 | ) |
| $ | (715,950 | ) |
| $ | (1,431,131 | ) |
| $ | (170,055 | ) |
| $ | (235,997 | ) |
| $ | (428,815 | ) |
| $ | (715,950 | ) |
|
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BASIC AND DILUTED LOSS PER COMMON SHARE ATTRIBUTABLE TO FIRST FOODS GROUP, INC. STOCKHOLDERS |
| $ | (0.01 | ) |
| $ | (0.04 | ) |
| $ | (0.03 | ) |
| $ | (0.06 | ) |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
| $ | (0.03 | ) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ATTRIBUTABLE TO FIRST FOODS GROUP, INC. STOCKHOLDERS - BASIC AND DILUTED |
| 27,058,338 |
| 24,167,311 |
| 27,050,426 |
| 23,397,874 |
|
| 27,058,338 |
| 27,058,338 |
| 27,058,338 |
| 27,050,426 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
Table of Contents |
First Foods Group, Inc. and Subsidiary | First Foods Group, Inc. and Subsidiary | First Foods Group, Inc. and Subsidiary | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidated Statements of Changes in Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Consolidated Statements of Changes in Stockholders’ Deficit | Condensed Consolidated Statements of Changes in Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Preferred Stock |
| Common Stock |
| Additional paid-in |
| Accumulated |
| Total First Foods Group, |
| Non-controlling |
| Total |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Shares |
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| Amount |
|
| Shares |
|
| Amount |
|
| capital |
|
| deficit |
|
| Inc. deficit |
|
| interests |
|
| deficit |
|
| Preferred Stock |
| Common Stock |
| Additional paid-in |
| Accumulated |
| Total First Foods Group, |
| Non-controlling |
| Total Stockholders’ |
| ||||||||||||||||||||||||||||||
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| 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 |
| - |
| 0 |
| 249,999 |
| 250 |
| 49,750 |
| 0 |
| 50,000 |
| 0 |
| 50,000 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued to consultants for services |
| - |
| 0 |
| 36,765 |
| 37 |
| 4,963 |
| 0 |
| 5,000 |
| 0 |
| 5,000 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for related party loan |
| - |
| 0 |
| 140,000 |
| 140 |
| 28,520 |
| 0 |
| 28,660 |
| 0 |
| 28,660 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued with loans payable |
| - |
| 0 |
| 18,000 |
| 18 |
| 4,662 |
| 0 |
| 4,680 |
| 0 |
| 4,680 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation |
| - |
| 0 |
| - |
| 0 |
| 65,542 |
| 0 |
| 65,542 |
| 0 |
| 65,542 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants issued for director services |
| - |
| 0 |
| - |
| 0 |
| 43,693 |
| 0 |
| 43,693 |
| 0 |
| 43,693 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (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 |
| - |
| 0 |
| 249,999 |
| 250 |
| 49,750 |
| 0 |
| 50,000 |
| 0 |
| 50,000 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued to consultants for services - put liability |
| - |
| 0 |
| 112,390 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for related party loan |
| - |
| 0 |
| 50,000 |
| 50 |
| 10,450 |
| 0 |
| 10,500 |
| 0 |
| 10,500 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for conversion of loans payable |
| - |
| 0 |
| 191,424 |
| 192 |
| 31,067 |
| 0 |
| 31,259 |
| 0 |
| 31,259 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for conversion of loans payable - related party |
| - |
| 0 |
| 2,000,000 |
| 2,000 |
| 458,000 |
| 0 |
| 460,000 |
| 0 |
| 460,000 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation |
| - |
| 0 |
| - |
| 0 |
| 74,253 |
| 0 |
| 74,253 |
| 0 |
| 74,253 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants issued for director services |
| - |
| 0 |
| - |
| 0 |
| 44,179 |
| 0 |
| 44,179 |
| 0 |
| 44,179 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants issued for related party loan |
| - |
| 0 |
| - |
| 0 |
| 20,200 |
| 0 |
| 20,200 |
| 0 |
| 20,200 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants issued for conversion of loan payable |
| - |
| 0 |
| - |
| 0 |
| 83,513 |
| 0 |
| 83,513 |
| 0 |
| 83,513 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (819,968 | ) |
|
| (819,968 | ) |
|
| (10,748 | ) |
|
| (830,716 | ) | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 |
|
| 1,133,333 |
|
| $ | 1,133 |
|
|
| 25,415,756 |
|
| $ | 25,304 |
|
| $ | 11,484,143 |
|
| $ | (14,246,137 | ) |
| $ | (2,735,557 | ) |
| $ | (179,835 | ) |
| $ | (2,915,392 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Balance at December 31, 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 | ) |
| 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 |
| - |
| 0 |
| 60,000 |
| 60 |
| 12,540 |
| 0 |
| 12,600 |
| 0 |
| 12,600 |
|
| - |
| - |
| 60,000 |
| 60 |
| 12,540 |
| - |
| 12,600 |
| - |
| 12,600 |
| ||||||||||||||||||||||||||||||||||
Stock based compensation |
| - |
| 0 |
| - |
| 0 |
| 30,154 |
| 0 |
| 30,154 |
| 0 |
| 30,154 |
|
| - |
| - |
| - |
| - |
| 30,154 |
| - |
| 30,154 |
| - |
| 30,154 |
| ||||||||||||||||||||||||||||||||||
Warrants issued for consulting services |
| - |
| 0 |
| - |
| 0 |
| 41,508 |
| 0 |
| 41,508 |
| 0 |
| 41,508 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants issued for director services |
| - |
| - |
| - |
| - |
| 41,508 |
| - |
| 41,508 |
| - |
| 41,508 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants issued for loan payable |
| - |
| 0 |
| - |
| 0 |
| 28,088 |
| 0 |
| 28,088 |
| 0 |
| 28,088 |
|
| - |
| - |
| - |
| - |
| 28,088 |
| - |
| 28,088 |
| - |
| 28,088 |
| ||||||||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (479,952 | ) |
|
| (479,952 | ) |
|
| (21,672 | ) |
|
| (501,624 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (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 | ) |
|
| 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 |
| - |
| 0 |
| - |
| 0 |
| 11,480 |
| 0 |
| 11,480 |
| 0 |
| 11,480 |
|
| - |
| - |
| - |
| - |
| 11,480 |
| - |
| 11,480 |
| - |
| 11,480 |
| ||||||||||||||||||||||||||||||||||
Accumulated catch up adjustment |
| - |
| 0 |
| - |
| 0 |
| (291,482 | ) |
| 0 |
| (291,482 | ) |
| 0 |
| (291,482 | ) |
| - |
| - |
| - |
| - |
| (291,482 | ) |
| - |
| (291,482 | ) |
| - |
| (291,482 | ) | ||||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (235,997 | ) |
|
| (235,997 | ) |
|
| (29,466 | ) |
|
| (265,463 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (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 | ) |
|
| 1,015,000 |
|
| $ | 1,015 |
|
|
| 27,058,338 |
|
| $ | 27,058 |
|
| $ | 11,894,629 |
|
| $ | (16,051,407 | ) |
| $ | (4,128,705 | ) |
| $ | (286,329 | ) |
| $ | (4,415,034 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 |
| 1,015,000 |
| $ | 1,015 |
| 27,058,338 |
| $ | 27,058 |
| $ | 11,916,116 |
| $ | (16,768,055 | ) |
| $ | (4,823,866 | ) |
| $ | (341,457 | ) |
| $ | (5,165,323 | ) | |||||||||||||||||||||||||||||||||||||||||||
Stock based compensation |
| - |
| - |
| - |
| - |
| 5,607 |
| - |
| 5,607 |
| - |
| 5,607 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (258,760 | ) |
|
| (258,760 | ) |
|
| 304 |
|
|
| (258,456 | ) | ||||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 |
|
| 1,015,000 |
|
| $ | 1,015 |
|
|
| 27,058,338 |
|
| $ | 27,058 |
|
| $ | 11,921,723 |
|
| $ | (17,026,815 | ) |
| $ | (5,077,019 | ) |
| $ | (341,153 | ) |
| $ | (5,418,172 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation |
| - |
| - |
| - |
| - |
| 5,670 |
| - |
| 5,670 |
| - |
| 5,670 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (170,055 | ) |
|
| (170,055 | ) |
|
| 534 |
|
|
| (169,521 | ) | ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 |
|
| 1,015,000 |
|
| $ | 1,015 |
|
|
| 27,058,338 |
|
| $ | 27,058 |
|
| $ | 11,927,393 |
|
| $ | (17,196,870 | ) |
| $ | (5,241,404 | ) |
| $ | (340,619 | ) |
| $ | (5,582,023 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
5 |
Table of Contents |
First Foods Group, Inc. and Subsidiary |
Condensed Consolidated Statements of Cash Flows |
(Unaudited) |
|
| For the Six Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
| ||||||
Net loss |
| $ | (767,088 | ) |
| $ | (1,328,496 | ) | ||||||||
Net Loss |
| $ | (427,977 | ) |
| $ | (767,088 | ) | ||||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Non-employee stock based compensation |
| 0 |
| 5,000 |
| |||||||||||
Employee stock based compensation |
| 83,142 |
| 227,666 |
|
| 11,277 |
| 83,142 |
| ||||||
Amortization of debt discount |
| 3,862 |
| 105,394 |
| |||||||||||
Accumulative catch up adjustment |
| (291,482 | ) |
| 0 |
|
| - |
| (291,482 | ) | |||||
Loss on extinguishment of loans payable |
| 0 |
| 299,773 |
| |||||||||||
Impairment of asset |
| 92,736 |
| 0 |
| |||||||||||
Amortization of debt discount |
| 105,394 |
| 253,549 |
| |||||||||||
Depreciation and amortization expense |
| 31,108 |
| 28,566 |
|
| - |
| 31,108 |
| ||||||
Impairment of assets |
| - |
| 92,736 |
| |||||||||||
Change in merchant allowance |
| 41,385 |
| (143,986 | ) |
| - |
| 41,385 |
| ||||||
Merchant cash advance direct write off |
| 0 |
| (1,312 | ) | |||||||||||
Non-cash lease expense |
| 33,887 |
| 30,193 |
|
| - |
| 33,887 |
| ||||||
Put liability |
| 0 |
| 23,490 |
| |||||||||||
Inventory reserve |
| 23,625 |
| 0 |
|
| - |
| 23,625 |
| ||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable |
| 0 |
| (23,654 | ) | |||||||||||
Inventory |
| (279 | ) |
| (9,373 | ) |
| 63 |
| (279 | ) | |||||
Merchant cash advances |
| (4,566 | ) |
| 212,502 |
|
| - |
| (4,566 | ) | |||||
Prepaid expenses and other current assets |
| (3,489 | ) |
| 30,783 |
|
| (60 | ) |
| (3,489 | ) | ||||
Operating lease liabilities |
| (33,080 | ) |
| (29,643 | ) |
| (38,653 | ) |
| (33,080 | ) | ||||
Accounts payable and accrued liabilities |
| 337,968 |
| 231,881 |
|
| 225,320 |
| 337,968 |
| ||||||
Accounts payable and accrued liabilities – related party |
| 144,633 |
| 142,784 |
| |||||||||||
Accrued compensation and liabilities - related party |
| 39,481 |
| 144,633 |
| |||||||||||
Deferred revenue |
|
| (31,207 | ) |
|
| (14,221 | ) |
|
| 375 |
|
|
| (31,207 | ) |
Net cash used in operating activities |
|
| (237,313 | ) |
|
| (64,498 | ) |
|
| (186,312 | ) |
|
| (237,313 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| |||||||||||
Purchase of equipment |
|
| 0 |
|
|
| (877 | ) | ||||||||
Net cash used in investing activities |
|
| 0 |
|
|
| (877 | ) | ||||||||
|
|
|
|
|
| |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from sale of common stock – related party |
| 0 |
| 100,000 |
| |||||||||||
Proceeds from loans |
| 30,000 |
| 103,601 |
|
| - |
| 30,000 |
| ||||||
Repayment of loans |
| 0 |
| (33,429 | ) |
| (3,600 | ) |
| - |
| |||||
Proceeds from related party loans |
| 218,000 |
| 112,500 |
|
|
| 191,550 |
|
|
| 218,000 |
| |||
Repayments of related party loans |
|
| 0 |
|
|
| (75,411 | ) | ||||||||
Net cash provided by financing activities |
|
| 248,000 |
|
|
| 207,261 |
|
|
| 187,950 |
|
|
| 248,000 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
NET INCREASE IN CASH AND RESTRICTED CASH |
| 10,687 |
| 141,886 |
|
| 1,638 |
| 10,687 |
| ||||||
CASH AND RESTRICTED CASH AT BEGINNING OF THE PERIOD |
|
| 11,527 |
|
|
| 50,386 |
|
|
| 6,425 |
|
|
| 11,527 |
|
CASH AND RESTRICTED CASH AT END OF THE PERIOD |
| $ | 22,214 |
|
| $ | 192,272 |
|
| $ | 8,063 |
|
| $ | 22,214 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH AND RESTRICTED CASH CONSIST OF THE FOLLOWING: |
|
|
|
|
|
|
|
|
|
| ||||||
END OF THE PERIOD |
|
|
|
|
|
|
|
|
|
| ||||||
Cash |
| $ | 16,314 |
| $ | 168,782 |
|
| 2,163 |
| 16,314 |
| ||||
Restricted Cash |
|
| 5,900 |
|
|
| 23,490 |
|
|
| 5,900 |
|
|
| 5,900 |
|
|
| $ | 22,214 |
|
| $ | 192,272 |
|
| $ | 8,063 |
|
| $ | 22,214 |
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
| ||||||
NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
| ||||||
Common stock issued with loans |
| $ | 12,600 |
|
| $ | 4,680 |
|
| $ | - |
|
| $ | 12,600 |
|
Common stock issued with related party loans |
| $ | 0 |
|
| $ | 59,360 |
| ||||||||
Common stock and warrants issued for conversion of loan payable |
| $ | 0 |
|
| $ | 250,000 |
| ||||||||
Common stock issued for conversion of loan payable |
| $ | 0 |
|
| $ | 25,000 |
| ||||||||
$Warrants issued with loans |
| $ | 28,088 |
|
| $ | 0 |
| ||||||||
Warrants issued with loans |
| $ | - |
|
| $ | 28,088 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH PAID FOR: |
|
|
|
|
|
|
|
|
|
| ||||||
Interest |
| $ | 5,052 |
|
| $ | 83,034 |
|
| $ | 7,175 |
|
| $ | 5,052 |
|
Income taxes |
| $ | 0 |
|
| $ | 0 |
|
| $ | - |
|
| $ | - |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
6 |
Table of Contents |
NOTE 1 – BUSINESS SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND LIQUIDITYGOING CONCERN
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 pursueDivision, and introducing new health-related brands, and concepts including the wholesaling of various health-relatedand products through its FFGI WholesaleWholesaling 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.
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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 June 30, 20222023 and the results of operations and cash flows for the interim periods ended June 30, 20222023 and 2021,2022, 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, 20212022 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on April 14, 2022.17, 2023. Operating results for the three and six months ended June 30, 20222023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.
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 six months ended June 30, 2022 and the year ended December 31, 2021, the Company impaired property and equipment for a total of $92,736 and $46,368, respectively.2023.
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 June 30, 2022,2023, the Company had approximately $1,364,000$1,369,000 in third-party short-term debt and approximately $3,100$700 in associated debt discount and approximately $708,000$1,062,000 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 continue to increase revenue, obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing. However, neither any members of management nor any significant shareholders are currently committed to invest funds with us and,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. These reasons raise substantial doubt about the Company’s ability to continue as a going concern.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation
The Company’s consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
Table of Contents |
The noncontrolling interest represents the proportionate share of the proceeds received and also the income and loss pickup from the fifteen-percent sale of equity interest in our 85% owned subsidiary; Holy Cacao.
Principles of Consolidation
The consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiary in conformity with GAAP. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of twelve months or less to be cash equivalents. At June 30, 2023 and December 31, 2022, the Company had no cash equivalents.
The Company’s cash is held with financial institutions, and the account balances may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit at times. Accounts are insured by the FDIC up to $250,000 per financial institution. The Company has not experienced any losses in such accounts with these financial institutions.
Restricted Cash
As of June 30, 2023 restricted cash included $5,900, which was restricted pursuant to the requirements in the sales consultant agreement entered into November 2020.
Merchant Cash Advances
The Company participates in the merchant cash advance industry by directly advancing sums to a merchant or a merchant advance provider, TIER, who in turn advances sums to merchants or other merchant cash advance providers. Each reporting period, the Company reviews the carrying value of these advances and determines whether an impairment reserve is necessary. At June 30, 2023, the Company reserved an amount equal to 100% of the outstanding merchant cash advance balance at period end based on the potential impact of COVID 19. As of June 30, 2023 and December 31, 2022 the outstanding reserve balance was $166,640 and $163,842, respectively.
Revenue Recognition
We completed, related to our merchant cash advance business line, our assessment of the impact of Accounting Standards Codification (“ASC”) 606 and determined that we recognize revenue in accordance with ASC 860, Transfers and Servicing, which is explicitly excluded from the scope of ASC 606. We participate in the servicing of merchant cash advances that have been provided to third parties, which in accordance with ASC 860, causes us to recognize merchant cash advance (“MCA”) income. We also have product sales from our Holy Cacao division that follow ASC 606.
Product sales are measured based on consideration specified in a contract with a customer that we expect to receive in exchange for goods, net of any variable considerations (e.g. rights to return product, sales incentives, etc.). The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customer’s carrier. The Company applied the practical expedient available under ASC 606 to disregard determining significant financing components, if the good is transferred and payment is received within one year.
When a merchant cash advance is purchased, the Company records a merchant cash advance participation receivable for the purchase price. The purchase price consists of the merchant cash advance principal plus an up-front commission that is amortized over the term of the merchant cash advance. The amount of the commission is negotiated between the Company and TIER for each contract. The standard commission is 15% of the merchant cash advance principal but can be reduced depending upon the credit worthiness of the merchant. The average commission paid by the Company since inception has been approximately 7%. If a merchant cash advance contract is signed in one period, but not paid until a subsequent period, a corresponding liability is established in the current period.
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At the time the Company participates in a merchant cash advance, the Company records a deferred revenue liability, which is the total future receivable due to the Company less the principal amount of the merchant cash advance. Revenue is recognized and the deferred liability is reduced over the term of the merchant cash advance.
TIER maintains a bank account on behalf of the Company. Each day, TIER receives payment, reflected in the bank account, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of platform fees. Platform fees are a daily charge associated with the ACH service and the financial and reporting management software platform provided by TIER. The platform fees are also negotiated between the Company and TIER for each contract but are typically 4% of the daily merchant cash advance principal amount.
For each merchant cash advance entered into by the Company, TIER receives a daily payment as payments are made on the advance, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of a 2% commission to TIER.
The following table shows net sales by category for June 30, 2023 and 2022: |
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| ||||||
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| 2023 |
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| Change |
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| 2022 |
| |||
Net sales by category: |
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|
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|
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|
|
|
| |||
Chocolate products |
| $ | 4,311 |
|
|
| -94 | % |
| $ | 78,334 |
|
Merchant cash advances |
|
| 539 |
|
|
| 43 | % |
|
| 377 |
|
Total net sales |
| $ | 4,850 |
|
|
| -94 | % |
| $ | 78,711 |
|
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and sets up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off when all attempts to collect have been exhausted. The Company considers an invoice past due once the term of the invoice has passed and payment has not been received. No interest is charged on past due invoices. Recoveries of accounts receivable previously written off are recorded as income when received. As of June 30, 2023, the Company had no allowance for doubtful accounts.
Inventory
Inventory, consisting of raw materials, work in process and products available for sale, are accounted for using the first-in, first-out method, and are valued at the lower of cost or net realizable value. This valuation requires management to make judgements based on currently available information, about the likely method of disposition, such as through sales to individual customers and returns. The Company has an allowance for inventory reserves.
Inventory consisted of the following as of June 30, 2023 and December 31, 2022:
|
| June 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Raw Materials |
| $ | 24,249 |
|
| $ | 24,249 |
|
Work in Process |
|
| 11,948 |
|
|
| 11,948 |
|
Finished Goods |
|
| 2,036 |
|
|
| 2,099 |
|
Inventory Allowance |
|
| (38,190 | ) |
|
| (38,190 | ) |
Total |
| $ | 43 |
|
| $ | 106 |
|
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Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense when incurred, while renewals and betterments that materially extend the life of an asset are capitalized. When assets are sold, retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheets and any resulting gain or loss is reflected in the consolidated statements of operations and stockholders’ deficit in the period realized.
Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, which are as follows:
Property – Leasehold improvements | 4 years | ||
Equipment | 5 years |
Impairment of Assets
The Company evaluates its 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.
Leases
The Company determines if an arrangement is a lease at the inception of a contract. Operating lease right-of-use (“ROU”) assets are included in right-of-use assets on the consolidated balance sheets. The current and long-term components of operating lease liabilities are included in the operating lease liabilities and operating lease liabilities – long term, respectively on the consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Certain leases may include options to extend or terminate the lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded in the consolidated balance sheet.
The company does not include the non-lease components that are associated with the lease and accounts for them outside of the lease in accordance with ASC Topic 842 Leases. The percentage of cost associated with the lease component was 100%.
Research and Development
The Company’s policy is to engage market and branding consultants to research and develop specialty chocolate products, including chocolate products infused with a hemp-based ingredient, and packaging targeted to particular states within the US. The research and development costs for the six months ended June 30, 2023 and 2022, were approximately $16,200 and $37,800, respectively. These expenses are included in general and administrative expenses on the accompanying consolidated statements of operations.
Deferred Financing Costs
The Company records origination and other expenses related to its debt obligations as deferred financing costs. These expenses are deferred and amortized over the life of the related debt instrument. In accordance with Accounting Standards Update (“ASU”) No. 2015-03, deferred finance costs, net of accumulated amortization have been included as a contra to the corresponding loans in the accompanying consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively.
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Stock Based Compensation
The Company measures and recognizes compensation expense for all stock-based payments at fair value over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and warrants. For restricted stock grants, fair value is determined as the closing price of our common stock on the date of grant. Equity-based compensation expense is recorded in administrative expenses based on the classification of the employee or vendor. The determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price, as well as by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
Income Taxes
The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2022, the Company had a full valuation allowance against deferred tax assets. With the historical change in ownership, the Company is subject to certain NOL limitations under Section 382 of the Internal Revenue Code.
Per Share Data
In accordance with “ASC-260 - Earnings per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive shares outstanding as of June 30, 2023 and December 31, 2022 because their effect would be antidilutive.
The Company had 5,333,775 and 5,429,775 warrants to purchase common stock outstanding at June 30, 2023 and December 31, 2022, respectively. The Company had 4,470,000 warrants to purchase Series B preferred stock outstanding at June 30, 2023 and December 31, 2022. The Company has outstanding one (1) Series A preferred share that is convertible into five (5) shares of the Company’s common stock outstanding at June 30, 2023 and December 31, 2022. Additionally, the Company has 354,999 Series B preferred shares, and 660,000 Series C preferred shares outstanding that are convertible into 1,774,995 and 660,000 shares of common stock, respectively, at June 30, 2023 and December 31, 2022, respectively. The warrants and preferred stock were not included in the Company’s weighted average number of common shares outstanding because they would be anti-dilutive.
Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value. The carrying value of cash, merchant cash advances, accounts receivable, vendor deposits, prepaid expenses, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments. Management is of the opinion that the Company is not exposed to significant market or credit risks arising from these financial instruments.
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Advertising and Promotion
Advertising and promotion costs are expensed as incurred. Advertising and promotion costs for the six months ended June 30, 2023 and 2022, were approximately $14,400 and $28,000, respectively. These expenses are included in general and administrative expenses on the accompanying consolidated statements of operations.
Non-Controlling Interests in Condensed Consolidated Financial Statements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued ASC 810-10-65-1, to clarify that a non-controlling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. During the year ended December 31, 2017, the Company entered into a subscription agreement for the sale of a ten-percent equity interest in its then wholly owned subsidiary, Holy Cacao, for $200,000 in cash proceeds, in the aggregate. During the year ended December 31, 2019, 5% equity was issued to a service provider due to the completion of Holy Cacao’s first sale of its product, as per the agreement with the service provider. The Company’s periodic reporting now includes the results of operations of Holy Cacao, with the fifteen-percent ownership reported as non-controlling interests.
The following table summarizes the results of operations for Holy Cacao for the period:
|
| For The Six Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Revenue |
| $ | 4,311 |
|
| $ | 78,711 |
|
Cost of Goods Sold |
|
| (76 | ) |
|
| (40,474 | ) |
Operating Expense |
|
| (116,648 | ) |
|
| (1,096,807 | ) |
Other Income |
|
| 118,000 |
|
|
| 291,482 |
|
Income (Loss) from Operations |
| $ | 5,587 |
|
| $ | (767,088 | ) |
The Company conducts business as two operating segments, First Foods and Holy Cacao. The Company does not distinguish between the two segments and has only one reportable segment based on quantitative thresholds. The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, ”Codification“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“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 theThe Company is an SRC, implementation is not needed untiladopted ASU 2016-13 as of January 1, 2023. The Company will continue to evaluate the effect adopting ASU 2016-13 will have2023, there was no material impact on the Company’sits consolidated financial statements.
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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 ofCompany adopted ASU 2021-04 onas of January 1, 2022, did not have athere was no material impact on its unaudited condensed consolidated financial statements.
NOTE 2 – RELATED PARTY TRANSACTIONS
Employment Agreement
On March 1, 2017, Mark J. Keeley assumed the role of Chief Financial Officer (“CFO”). Pursuant to his Employment Agreement, the CFO shall receive $20,833 per month. Additionally, Mr. Keeley earns an additional $40,000 per year for his role as a Director of the Board. As of June 30, 2023 and December 31, 2022, the Company has accrued $954,167 and $829,167, respectively, in relation to the employment agreements and $29,641 and $27,828, respectively, in relation to the payroll tax liability.
Consulting Agreements
On February 27, 2017, Harold Kestenbaum assumed the role of Chairman of the Board of Directors and Interim Chief Executive Officer (“Interim CEO”). Mr. Kestenbaum earned $40,000 per year for his role as Chairman of the Board and no longer takes compensation. As of June 30, 2022,2023, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under thea previous agreement.
As of June 30, 2022, theThe Company has a consulting agreement with R and W Financial (a company owned by a director) for $5,000 a month. The agreement is for an indefinite period of time and is subject to cancellation by either party with written notice of 30 days. The outstanding balance as of June 30, 2023 and 2022 was $230,765 and December 31, 2021 was $177,960 and $146,303,$162,068, respectively.
Related Party Loans
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|
|
| Associated equity instruments recorded as debt discount |
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| Original |
| New |
| Common |
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| Fair Value of Common |
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| Fair Value of |
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|
| Interest |
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| Maturity |
| Maturity |
| Shares |
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| Shares |
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| Warrants |
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| Warrants |
|
| June 30, |
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| December 31, |
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| Rate |
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| Date |
| Date** |
| issued |
|
| issued |
|
| issued |
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| issued |
|
| 2022 |
|
| 2021 |
| ||||||||
| 1 |
|
|
| 12%* |
| 4/17/22 |
| 10/31/22 |
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|
|
| $ | 100,000 |
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| $ | 100,000 |
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During the six months ended June 30, 2022 |
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| - |
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| - |
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| - |
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| - |
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During the six months ended June 30, 2021 |
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| - |
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| - |
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| - |
|
|
| - |
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| 2 |
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| 0%* |
| 4/24/22 |
| 8/31/22 |
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|
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|
|
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|
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|
|
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|
|
|
|
| 179,813 |
|
|
| 179,813 |
| |
During the six months ended June 30, 2022 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
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|
|
|
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|
|
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During the six months ended June 30, 2021 |
|
| - |
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|
| - |
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| - |
|
|
| - |
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| ||||||||||
| 3 |
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| 12%* |
| 4/16/22 |
| 8/30/22 |
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|
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|
|
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|
|
|
|
|
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|
|
| 150,000 |
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|
| 150,000 |
| |
During the six months ended June 30, 2022 |
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| - |
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|
| - |
|
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| - |
|
|
| - |
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|
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During the six months ended June 30, 2021 |
|
| 130,000 |
|
|
| 26,500 |
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|
| 100,000 |
|
|
| 20,200 |
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| 4 |
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| 0%* |
| 9/15/22 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 500 |
|
|
| 500 |
| |
During the six months ended June 30, 2022 |
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| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
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| ||||||||||
During the six months ended June 30, 2021 |
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| - |
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| - |
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| - |
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|
| - |
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| 5 |
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| 0%* |
| 5/30/22 |
| 12/31/22 |
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|
|
|
|
|
|
|
|
|
|
|
| 278,000 |
|
|
| 60,000 |
| |
During the six months ended June 30, 2022 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
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| ||||||||||
During the six months ended June 30, 2021 |
|
| - |
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| - |
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| - |
|
|
| - |
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| ||||||||||
| 6 |
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| 0%* |
| Loans fully repaid in 2021 |
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|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
| |
During the six months ended June 30, 2022 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| ||||||||||
During the six months ended June 30, 2021 |
|
| 60,000 |
|
|
| 12,660 |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
| ||||||||||
Unamortized debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
| (19,304 | ) | |||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 708,313 |
|
| $ | 471,009 |
|
|
|
|
|
|
|
| Associated equity instruments recorded as debt discount |
|
|
|
|
| ||||||||||||||||
|
|
|
|
| Original |
| New |
| Common |
| Fair Value of Common |
|
|
| Fair Value of |
|
|
|
|
|
|
| ||||||
|
|
| Interest |
|
| Maturity |
| Maturity |
| Shares |
| Shares |
| Warrants |
| Warrants |
|
| June 30, |
|
| December 31, |
| |||||
|
|
| Rate |
|
| Date |
| Date** |
| issued |
| issued |
| issued |
| issued |
|
| 2023 |
|
| 2022 |
| |||||
| 1 |
|
|
| 12 | %* |
| 4/17/22 |
| 10/31/23 |
|
|
|
|
|
|
|
|
|
| $ | 100,000 |
|
| $ | 100,000 |
| |
| 2 |
|
|
| 0 | %* |
| 4/24/22 |
| 7/15/23 |
|
|
|
|
|
|
|
|
|
|
| 179,813 |
|
|
| 179,813 |
| |
| 3 |
|
|
| 12 | %* |
| 4/16/22 |
| 7/31/23 |
|
|
|
|
|
|
|
|
|
|
| 150,000 |
|
|
| 150,000 |
| |
| 4 |
|
|
| 0 | %* |
| 9/15/22 |
| 7/15/23 |
|
|
|
|
|
|
|
|
|
|
| 500 |
|
|
| 500 |
| |
| 5 |
|
|
| 0 | %* |
| 5/30/22 |
| 12/31/23 |
|
|
|
|
|
|
|
|
|
|
| 624,550 |
|
|
| 433,000 |
| |
| 6 |
|
|
| 0 | %* |
| 8/24/22 |
| 7/15/23 |
|
|
|
|
|
|
|
|
|
|
| 7,000 |
|
|
| 7,000 |
| |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,061,863 |
| $ | 870,313 |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
* - unsecured note ** - During the six month end periods ended June 30, 2023 and 2022, 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 $0, for the period ended June 30, 2023 and 2022,
During the six months ended June 30,
During the three months ended June 30,
As of June 30,
Related Party Payables
As of June 30,
Director Agreements
The Company annually revisits the board of
On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
NOTE 5 – LOANS AND LONG-TERM LOANS
* - 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 six
During the
As of June 30,
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 six months ended June 30,
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
On August 4, 2020, the Company signed an Employment Agreement for a term of three years with an annual base salary of
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:
A summary of the Company’s warrants to purchase common stock activity is as follows:
As of June 30, 2022, 4,144,775 warrants for common stock were exercisable and the intrinsic value of these warrants was $0, the weighted average remaining contractual life for warrants outstanding was 1.67 years and the remaining expense is $4,416 over the remaining amortization period which is three months.
Preferred Stock Warrants
A summary of the Company’s warrants to purchase Series B Preferred Stock activity is as follows:
As of June 30, 2023, 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 4.87 years.
As of June 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 5.87
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 each of the six months ended June 30,
The Company’s weighted-average remaining lease term relating to its operating leases is
The Company had cash payments for operating leases of $44,305 and $43,015
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of June 30,
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
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
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. During the six months ended June 30, 2023 and 2022, no shares have been issued, respectively.
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
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.
NOTE 9 – CONCENTRATION RISKS
The Company recognizes the concentration of its merchant cash advances, which could inherently create a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of the outstanding merchant cash advances. The Company actively mitigates its portfolio concentration risk by monitoring its merchant cash advance provider’s ability to participate in merchant cash advances from alternative providers and spreading merchant cash advance participation across various merchants. As of June 30, 2023 and December 31, 2022, the
2023, the Company had no purchase concentrations. For the three months ended June 30, 2022, the Company had purchase concentrations of 52%, 29% and 11% from three vendors. For the concentrations. For the six months ended June 30, 2022, the Company had purchase concentrations of 31%, 22%, 17%, 11%, and 10% from five vendors.
NOTE 10 – SUBSEQUENT EVENTS
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:
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.
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
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
The Company is also dedicated to licensing its intellectual property (“IP”), including its name, brand, and packaging, to third parties. The Company may license its IP to third parties that may produce, package, and distribute hemp-based products pursuant with the Company’s understanding of the Farm Bill. The Company may license its IP to third parties that may produce, package, and distribute marijuana-based products, but only as such licensing is legal. Holy Cacao holds four trademarks for the brands, “The Edibles Cult”, “Purely Irresistible”, “Mystere” and “Southeast Edibles”.
The Company also has a contract with TIER Merchant Advances LLC (“TIER”) to participate in the purchase of future receivables from qualified TIER merchants for the purpose of generating near-term and long-term revenue for the Company. The Company also provides cash advances directly to merchants.
The Company’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 June 30,
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates, if past experience or other assumptions do not turn out to be substantially accurate.
Certain of our accounting policies are particularly important to the portrayal and understanding of our financial position and results of operations and require us to apply significant judgment in their application. As a result, these policies are subject to an inherent degree of uncertainty. In applying these policies, we use our judgment in making certain assumptions and estimates. Our critical accounting policies are outlined in Note 1 in the Notes to the Unaudited Condensed Consolidated Financial Statements.
Results of Operations for the Three Months Ended June 30, Fiscal Q1 2022 Highlights
Total net sales decreased
Products Performance
The following table shows net sales by category for the three months ended June 30,
Chocolate products
Chocolate products sales decreased during
Merchant cash advances
Merchant cash advances sales
Cost of Product Sales
Products cost of sales for
Cost of product sales
The decrease in cost of product sales in June 30,
Legal fees for the three months ended June 30,
General and administrative expenses for the three months ended June 30,
Provision for merchant cash advances for the three months ended June 30,
Results of Operations for the Six Months Ended June 30,
Total net sales decreased
Products Performance
The following table shows net sales by category for the six months ended June 30,
Chocolate products
Chocolate products sales decreased during the six months ended June 30,
Merchant cash advances
Merchant cash advances sales
Cost of Product Sales
Products cost of sales for the six months ended June 30,
Cost of product sales
The decrease in cost of product sales in June 30,
Legal fees for the six months ended June 30,
General and administrative expenses for the six months ended June 30,
Provision for merchant cash advances for the six months ended June 30,
Impairment of assets expense for the six months ended June 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 six months ended June 30,
Liquidity and Capital Resources
The following table presents our cash flows:
Operating Activities
Our primary uses of cash from our operating activities include payments for compensation and related costs and other general corporate expenditures.
Net cash used in operating activities
Investing Activities
There
Financing Activities
Cash provided by financing activities consists of proceeds from issuance of
Net cash provided by financing activities
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.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. As of June 30,
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 June 30, 2023 and December 31, 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.
For the 2023, the Company had no purchase concentrations. For the three months ended June 30, 2022, the Company had purchase concentrations of 52%, 29% and 11% from three vendors. For the concentrations. For the six months ended June 30, 2022, the Company had purchase concentrations of 31%, 22%, 17%, 11%, and 10% from five
Off-Balance Sheet Arrangements
No off-balance sheet arrangements exist.
Contractual Obligations
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
The Company’s management, including the chief executive officer and chief financial officer, do not expect that its disclosure controls or internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
As of June 30,
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30,
PART II OTHER INFORMATION
Item 1. Legal Proceedings
As of June 30, On July 20, 2023, the Company was sued by Jenisa Angeles in the Supreme Court of the State of New York, County of New York. The lawsuit claims that the Company engaged in discriminatory business practices inasmuch as our website contained access barriers that prevented visually impaired and/or legally blind individuals from purchasing products thereon. It is too early in the process to make any determination as to our possible liability or estimate the amount of any possible damages. We intend to investigate the matter and take appropriate action in response thereto.
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,
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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
Item 6. Exhibits
(a) Exhibits
Item 6. Exhibits, Financial Statement Schedules
___________
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.
|