EDGAR 10-K Filing

Company CIK: 1648903
Filing Year: 2021
Filename: 1648903_10-K_2021_0001477932-21-001185.json

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ITEM 1. BUSINESS
Item 1. Business.
First Foods Group, Inc. (the “Company” or “First Foods”) is a smaller reporting company focused on developing its specialty chocolate product line through its Holy Cacao subsidiary and participating in merchant cash advances (“MCAs”) through its 1st Foods Funding Division. First Foods continues to pursue new brands and concepts, including the wholesaling of various health-related products.
Holy Cacao is a majority owned subsidiary that is dedicated to producing, packaging, distributing and selling specialty chocolate products, including specialty chocolate products infused with a hemp-based ingredient in accordance with the Company’s understanding of the Agricultural Act of 2014 (the “2014 Farm Bill”) and/or the Agriculture Improvement Act of 2018 (the “2018 Farm Bill,” and together with the 2014 Farm Bill, collectively, the “Farm Bill”), which renders the production of hemp in compliance with the provisions of the Farm Bill federally lawful. The Company has not been, is not, and has no current plans to be involved in producing, packaging, distributing or selling any product that is infused with a marijuana-based ingredient, although it intends to revisit the matter as regulations change in jurisdictions in which it operates.
The Company is also dedicated to licensing its intellectual property (“IP”), including its name, brand, and packaging, to third parties. The Company may license its IP to third parties that may produce, package, and distribute hemp-based products pursuant with the Company’s understanding of the Farm Bill. The Company may license its IP to third parties that may produce, package, and distribute marijuana-based products, but only as such licensing is legal. Holy Cacao holds two trademarks for the brands, “The Edibles’ Cult.” and “Purely Irresistible” and the Company has submitted multiple trademark applications to the United States Patent and Trademark Office (the “USPTO”) for additional brand names, including “Mystere” and “Southeast Edibles” among others.
During the year ended December 31, 2020, the Company’s Board of Directors made a strategic decision to broaden the appeal of its hemp-based chocolate products to a wider base of customers, who are particularly discerning about the cleanliness of the Company’s manufacturing facility and purity of its hemp-based chocolate products, by successfully obtaining worldwide Kosher certification from the Union of Orthodox Jewish Congregations of America, Kashruth Division (the “OU”), which is the largest and most recognized certification of its kind in the world. On March 9, 2020, the Company retained Tartikov Beth Din (“BD”) to allow BD to supervise the hemp-based chocolate products produced by the Company in accordance with OU certification standards. The Company also retained Moises Davidovits as its full-time Master Chocolatier. Mr. Davidovits is a third-generation chocolatier who is responsible for the manufacturing, packaging and distribution of the Company’s chocolate product line, as well as the formulation of all of the Company’s proprietary chocolate recipes. On October 19, 2020, the Company entered into a chocolate sales agreement with B&A Brokerage for the greater metropolitan New York area. The Company also signed a lease agreement for a fully staffed and fully equipped state of the art manufacturing facility to produce its specialty chocolate product line for sale to retailers, manufacturing and wholesaling companies, and on-line customers.
Michael Kaplan was appointed to the Board of Directors and, as of August 1, 2020, accepted the role of Chief Marketing Officer with authority to oversee the Company’s retail and wholesale sales and marketing operations, and responsibility for developing oversight processes and procedures.
The Company currently has a contract with TIER Merchant Advances LLC (“TIER”) to participate in the purchase of future receivables from qualified TIER merchants for the purpose of generating near-term and long-term revenue for the Company. The Company also provides cash advances directly to merchants through its First Foods Funding Division.
OUR PRINCIPAL PRODUCTS AND SERVICES
We are primarily focused on developing our specialty chocolate product line and related IP through our Holy Cacao subsidiary. We have developed twenty-three (23) proprietary recipes for our specialty chocolate product line that we have tested in a fully staffed and fully equipped state of the art manufacturing facility. We actively market our specialty chocolate product line on a full-time basis through multiple distribution and sales agreements, as well as through multiple industry specific trade shows, through our on-line website presence, and through our ongoing collaboration with a diverse team of leading industry consultants who specialize in media relations, public relations, and investor relations.
We are secondarily involved in merchant cash advance participations through our First Foods Funding Division. The Company participates in the merchant cash advance industry by directly advancing sums to a merchant or a merchant advance provider, TIER, who in turn advances sums to merchants or other merchant cash advance providers.
TARGET MARKET AND OUR NICHE WITHIN
Our highest priority target market consists of chocolate wholesalers who have a desire to distribute our specialty chocolate products infused with a hemp-based ingredient to select retailers throughout the United States.
Our secondary target market consists of merchant cash advance participations. We are aware of an increasing demand for lending services and products for small businesses, and we believe the merchant cash advance market is in a growth mode that presents us with significant opportunity. Furthermore, we believe the small business lending market is underserved and the ability of small businesses to obtain credit with traditional banking institutions is difficult. Our niche approach is to participate with other syndicated participants in a broad range of merchant cash advances, as well as selectively issue merchant cash advances directly to merchants we know well.
COMPETITION, OUR COMPETITIVE STRATEGY AND METHODS OF COMPETITION
Our competition consists of companies that operate in the specialty hemp-based chocolate industry. Our competitive strategy is to target the consumers of specialty, high-end chocolate products infused with a hemp-based ingredient.
MARKETING, MARKETING OBJECTIVES AND STRATEGIES
The Company markets its specialty chocolate products, which are infused with a hemp-based ingredient, to existing and emerging food service companies, focusing specifically on brand development.
Our Marketing Objectives are as follows:
• Establishing and promoting our presence in our selected targeted market; and
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Building a network of food service industry professional relationships and referrals.
To promote and market our products, we have invoked the following strategies:
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Continued to enhance our online presence via our Company website reflecting our scope of products offered.
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Continued online retail sales through our Southeast Edibles website.
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Continued to expand our public relations (PR) campaign to obtain publicity and increase visibility for our business.
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Retained Michael Kaplan as our Chief Marketing Officer.
Currently, the Company’s officers and directors promote our specialty hemp-based chocolate products, through various channels, including networking at local industry events and Internet sources. The Company does not actively market its merchant cash advance participation because all marketing activities are performed by TIER. We anticipate that, as the Company grows over the next twelve months, pools of expertise will be acquired by recruiting within the food service and health-based wholesaling industry and by using technical and operational consultants, which will allow qualified individuals to join our management team and Board of Directors.
RESEARCH AND DEVELOPMENT
The Company has engaged market and branding consultants to assist its Master Chocolatier with the research and development of specialty hemp-based chocolate products targeted to particular states within the US.
EMPLOYEES
The Company’s employees consist of, Mark J. Keeley, who is a director and our Chief Financial Officer, Moises Davidovits, who is the Company’s Master Chocolatier, and three production assistants who report to Moises. Harold Kestenbaum is a director consultant serving in the role of interim Chief Executive Officer. Abraham Rosenblum is a director serving in the role of Secretary. Michael Kaplan is a director serving in the role of Chief Marketing Officer. These individuals, along with director Hershel Weiss, are responsible for overall Company operations, product development, sales and marketing, fund raising, implementation of our general strategy and execution of our business plan. Additionally, our Master Chocolatier, Moises Davidovits, runs the day-to-day manufacturing, packaging and distribution of the Company’s specialty hemp-based chocolate product line.
Our future business and operating results depend significantly on the continued contributions and active participation of the aforementioned individuals. These individuals would be difficult or impossible to replace. The loss of these key contributors, or their failure to perform, could materially and adversely affect our Company’s operations. While we may obtain Key Man insurance, such insurance may not be sufficient to cover the loss incurred in the event these individuals are lost.
Our officers and directors receive compensation for their services and are reimbursed for any out-of-pocket expenses they may incur on our behalf. We anticipate adding a permanent Chief Operations Officer over the next twelve (12) months and other employees and consultants as deemed necessary. We do not currently have any benefits, such as health or life insurance, available to our employee or directors.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Our current and prospective investors should carefully consider the following risks and all other information contained in this report, including our audited consolidated financial statements and the related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Cautionary Note Regarding Forward-Looking Statements,” before making investment decisions regarding our securities. The risks and uncertainties described below are not the only ones we face, but include the most significant factors currently known by us. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize, our business, financial condition and results of operations could be materially harmed. In that case, the trading price of our securities could decline, and you may lose some or all of your investment.
Risks Related to Our Business:
We have limited operating history, our financial position is not robust, and we lack profitable operations to date.
The Company has incurred net losses since inception and will likely continue to incur net losses while it builds its business and as such it may not achieve or maintain profitability. The Company’s limited operating history makes it difficult to evaluate its business and prospects, and there is no assurance that the business of the Company will grow or that it will become profitable. As of December 31, 2020, the Company had a purchase concentration of 49% and 14% from two vendors. The concentration of the Company’s purchases creates a potential risk to future supply in the event that the Company is not able to obtain supplies from other vendors.
We have limited cash on hand which creates substantial doubt about our ability to continue as a going concern.
In their reports for the years ended December 31, 2020 and 2019, our auditors have expressed that substantial doubt exists about our ability to continue as a going concern. We have incurred operating losses since our formation and expect to incur losses and negative operating cash flows for the twelve months following the audit report. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future. As a result, we will need to generate significant revenues or otherwise raise funds in order to achieve and maintain profitability. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.
We will need additional financing which may not be available.
Since our formation, we have raised substantial equity and debt financing to support the growth of our business. Because we intend to continue to make investments to support the growth of our business, we require additional capital to pursue our business objectives and growth strategy and respond to business opportunities, challenges or unforeseen circumstances, including participating in merchant cash advances. Accordingly, on a regular basis we need, or we may need, to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, in amounts we need, on terms that are acceptable to us or at all. Volatility in the credit markets in general or in the market for small business or merchant cash advances in particular may also have an adverse effect on our ability to obtain debt financing. Furthermore, the cost of our borrowing may increase due to market volatility, changes in the risk premiums required by lenders or if traditional sources of debt capital are unavailable. Volatility or depressed valuations or trading prices in the equity markets may similarly adversely affect our ability to obtain equity financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. In particular, we may require additional access to capital to support our merchant cash advance participation. In order to participate in merchant cash advances, we have used, and expect to continue to use, our available cash on hand. If we are unable to adequately maintain our cash resources, we may delay non-essential capital expenditures; implement cost cutting procedures; delay or reduce future hiring; or reduce our rate of future participation compared to the current level. There can be no assurance that we can obtain sufficient sources of external capital to support the growth of our business. Delays in doing so or failure to do so may require us to reduce merchant cash advance participation or reduce our operations, which would harm our ability to pursue our business objectives as well as harm our business, operating results and financial condition.
We may not be successful in our potential business combinations.
The Company may, in the future, pursue acquisitions of other complementary businesses. The Company may also pursue strategic alliances and joint ventures that leverage its core industry experience to expand its product offerings and geographic presence. The Company has limited experience with respect to acquiring other companies and limited experience with respect to forming collaborations, strategic alliances and joint ventures. If the Company were to make any acquisitions, it may not be able to integrate these acquisitions successfully into its existing business and could assume unknown or contingent liabilities. Any future acquisitions the Company makes could also result in large and immediate write-offs or the incurrence of debt and contingent liabilities, any of which could harm the Company’s operating results. Integrating an acquired company also may require management resources that otherwise would be available for ongoing development of the Company’s existing business.
If we fail to attract and retain key personnel, our business and operating results may be harmed.
Our future success depends to a significant degree on the skills, experience and efforts of key personnel in our senior management, whose vision for our company, knowledge of our business and expertise would be difficult to replace. If any one of our key personnel leaves, is unable to work, or fails to perform and we are unable to find a qualified replacement, we may be unable to execute our business strategy.
The specialty food industry is very competitive, which may result in limited revenue for us, as well as increased expenses associated with marketing our products.
The specialty food business is highly competitive. We have retained a Chief Marketing Officer to expand our wholesale and retail market presence. We plan to compete against other providers of quality foods, some of which sell their services globally, and some of these providers have considerably greater resources than we have. These competitors may have greater marketing and sales capacity, established distribution networks, significant goodwill and global name recognition.
We may license our Holy Cacao name, brand, and recipes, and sell the Company’s Holy Cacao packaging material in those states where such activity is legal.
New legislation or regulation, or the application of existing laws and regulations to the medical and consumer hemp industries could add additional costs and risks to doing business. We and our licensees, if any, will be subject to regulations applicable to businesses generally and laws or regulations directly applicable to communications over the Internet and access to e-commerce. It is reasonable to assume that as hemp use becomes more mainstream that the FDA and or other federal, state and local governmental agencies will impose regulations covering the purity, privacy, quality control, security and many other aspects of the industry, all of which will likely raise the cost of compliance thereby reducing profits or even making it more difficult to continue operations, either of which scenarios, if they occur, could have a negative impact on our business and operations.
The market may not readily accept our products.
Demand and market acceptance for our licensed brand and packaging for our hemp infused products are subject to a high level of uncertainty. This will also be true as we try to expand into the wholesaling of additional health-related products. The successful introduction of any new product requires a focused, efficient strategy to create awareness of and desire for the products. Our marketing strategy may be unsuccessful and is subject to change as a result of a number of factors, including changes in market conditions (including the emergence of new market segments which in our judgment can be readily exploited through the use of our technology), the nature of possible license and distribution arrangements and strategic alliances which may become available to us in the future and general economic, regulatory and competitive factors. There can be no assurance that our strategy will result in successful product commercialization or that our efforts will result in initial or continued market acceptance for our buyer’s proposed products. We currently have only limited resources to enhance our technology or to develop new products.
If we are unable to protect our intellectual property rights, competitors may be able to use our technology or trademarks, which could weaken our competitive position.
We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also intend to enter into confidentiality or license agreements with our employees, consultants and customers, and control access to and distribution of our packaging and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products.
We have entered into the Merchant Cash Advance (“MCA”) business which carries separate risk from the food industry.
Reliance on proprietary merchant cash advance credit models, which involve the use of qualitative factors that are inherently judgmental, could result in merchant defaults which would affect our profitability.
The MCA participations and MCA’s that we own will be relatively illiquid, and we may not be able to liquidate those investments in a timely manner.
Any MCA participations and MCA’s that we make or otherwise acquire will likely be relatively illiquid with no established market for their purchase and sale, and there can be no assurance that we will be able to liquidate those investments in a timely manner. Although these investments will likely generate income, the return of capital and the realization of gains, if any, from such investments generally will occur only upon the partial or complete disposition of such MCA participation or advance, or its repayment or collection.
Our MCA participations and advances may become uncollectible, and large amounts of uncollectible participations and advances may materially affect our performance.
Our MCA participations and advances will be relatively illiquid and substantial risks are involved. Most, and possibly all, of the merchants who receive cash advances from the MCA providers we use are required to sign a confession of judgement, which legally requires the merchant to pay back the advance, as long as the merchant continues as a going concern. Although we use background checks and other forms of due-diligence information to mitigate the risk of uncollectible debt resulting from bankruptcy, no assurance can be made that we will be able to do so. If our MCA portfolio contains a large portion of uncollectible debt, our performance will likely be negatively affected. In addition, if any business defaults on an MCA transaction, we may be required to expend monies in connection with foreclosure proceedings and other remedial actions, which expenditures could materially and adversely affect our financial performance. Although our MCA’s, both direct and syndicated, will be structured so as not to be characterized as loans, MCA’s present many of the same risks. For example, we may be unable to collect the full amount of the merchant cash advance receivable we acquire through an advance. In any such case, here again we may be required to expend monies in connection with remedial actions, which expenditures could materially and adversely affect our financial performance.
We will have the right to obtain credit lines as part of our investment strategy, even though we presently do not intend to do so. Any leverage we incur in building and growing our business may substantially increase our risk of loss.
Although we do not presently have intentions to obtain credit lines, we will not be restricted from doing so and we may in the future determine that this is an effective way to capitalize the Company. In such a case, the use of leverage (debt) may increase both net returns as well as risk since we may not be able to pay interest obligations associated with our own borrowing.
Our MCA participations may be concentrated, which could lead to increased risk.
Our MCA participations may be concentrated in a limited number of investments or investments to one business or affiliated businesses. Thus, our stockholders may have limited diversification. In addition, if we make an investment in a single transaction with the intent of refinancing or selling a portion of the investment, there is a risk that we will be unable to successfully complete such a refinancing or sale. This could lead to increased risk as a result of having an unintended long-term investment and reduced diversification.
If third parties default or file for bankruptcy, we could suffer losses.
We could suffer losses if our MCA recipients were to default. Any such default or bankruptcy could have a material and adverse impact on our results of operation, our financial condition and our business prospects.
We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our results of operations and our ability to attract and retain qualified executives and board members.
As a public company we incur significant legal, accounting, and other expenses and these expenses will increase after we cease to be a “smaller reporting company.” In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the Securities and Exchange Commission (“SEC”), Nasdaq and the New York Stock Exchange (“NYSE”), impose various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations and future regulations will continue to increase our legal, accounting and financial compliance costs and will make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers. In addition, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or “Section 404.” As long as we remain a “smaller reporting company” we may elect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be a “smaller reporting company” and, when our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. We expect to have in place accounting, internal audit and other management systems and resources that will allow us to maintain compliance with the requirements of the Sarbanes-Oxley Act at the end of any phase-in periods permitted by Nasdaq, the NYSE, the SEC and the JOBS Act. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal control from our independent registered public accounting firm.
Our business is subject to regulation, and changes in laws and regulations governing our business, or changes in the interpretation of such laws and regulations, could negatively affect our business.
Over the last few years, federal and state regulatory and other policymaking entities have taken an increased interest in marketplace and online lending, including online small business lending. For example, in July 2015, the U.S. Department of the Treasury issued a public request for information regarding expanding access to credit through online marketplace lending. Activity in various states has also increased, including in the states of California and New York. In December 2015, the California Department of Business Oversight announced an inquiry into the marketplace lending industry and requested information from fourteen marketplace and online lenders. The New York Department of Financial Services opened a formal investigation of marketplace and online lending in March 2019. In May 2019, the Federal Trade Commission held a forum, “Strictly Business,” that explored small business lending practices, regulations, and policies. The forum consisted of three panels: (1) Overview of the Small Business Financing Marketplace, (2) Case Study on Merchant Cash Advances, and (3) Consumer Protection Risks and the Path Ahead. These initiatives were presented as information gathering projects to assist federal and state officials in better understanding, among other things, the methods, role and impact of online and marketplace lending on credit markets. These initiatives either have resulted, or are expected to result, in policy recommendations that could impact merchant cash advance business practices and operations, if the recommendations result in new laws or regulations. As of December 31, 2020, the above federal and state initiatives have not resulted in formal regulation that could foreclose the future of merchant cash advances as a viable financial product. However, the aforementioned regulatory authorities have continued to respond to complaints that provide a glimpse into what merchant cash advance companies should expect in a regulated future for the industry. In particular, authorities consistently warn against the recharacterization of merchant cash advances as loans, which provides significant guidance for not only the drafting of MCA agreements, but also the underwriting and marketing of MCA. Also, if a federal or state regulatory authority were to enact legislation requiring licensure by commercial lenders or imposing certain applicable rate caps or other provisions inconsistent with current merchant cash advance business practices and alternative solutions were not available, we could be required to reevaluate our participation in merchant cash advances. We expect these and other types of legislative and regulatory activities to continue in the future as marketplace and online lending grow and become the subject of greater public interest. For example, with the prospect of easing regulatory burdens at the federal level under the current administration, some states have indicated their intention to take more aggressive regulatory action. We cannot predict the outcome of these or other comparable future activities, when or whether they will lead to new laws, regulations or other actions or what they might be. However, the impact and cost of any possible future changes to laws or regulations could be substantial and could also require us to change our business practices and operations in a manner that adversely impacts our business. Changes in laws or regulations, including recent changes under the Tax Cuts and Jobs Act of 2017 (and any related Treasury regulations, rules or interpretations, if and when issued), or the regulatory application or judicial interpretation of the laws and regulations applicable to us could adversely affect our ability to operate in the manner in which we currently conduct business or make it more difficult or costly for us to participate in merchant cash advances. A material failure to comply with any such laws or regulations could result in regulatory actions, lawsuits and damage to the merchant cash advance industry, which could have a material adverse effect on our business and financial condition. A proceeding relating to one or more allegations or findings of our merchant cash advance provider’s violation of such laws could impair the ability to collect payments on advances or to participate in additional advances.
Public perception of merchant cash advance businesses as predatory or abusive could adversely affect our business.
In recent years, much of the media reporting on the merchant cash advance industry has focused on the cost to a small business for this type of financing arrangement, which is higher than the interest typically charged by traditional banking institutions in situations where they are willing to engage in traditional credit transactions. On occasion, media reports have characterized merchant cash advance businesses as predatory or abusive toward small business clients. If this negative characterization of our business becomes widely accepted, demand for our services could significantly decrease, which could adversely affect our results of operations primarily by decreasing our revenues. Negative perception of our business activities could also result in our industry being subject to more restrictive laws and regulations and greater exposure to litigation.
General economic conditions will likely affect our charge-offs and demand for our services, and accordingly, our results of operations could be adversely affected by a general economic slowdown or other negative economic conditions.
Provision for MCA participation losses and MCA losses, net of recoveries, may comprise one of our largest operating expenses. Any changes in economic factors that adversely affect MCA customers, such as an economic downturn or high unemployment, could result in higher loss experiences than anticipated, which could in turn adversely affect our charge-offs. Moreover, a sustained deterioration in the economy would likely cause a decrease in demand for merchant cash advance services. Any general economic conditions negatively affecting our charge-offs or demand for our services could materially and adversely affect our operating results.
When we make MCA’s either by ourselves or as part of a syndicated group, we will be subject to the risk of fraud by small business clients seeking the advance.
We will be subject to fraud risk whenever we make an MCA by ourselves or as part of a syndicated group. Small business recipients of the advance may, for example, present information that is false. In any such case, we will likely be unable to collect our receivable relating to an MCA. Widespread fraud of this type could adversely affect our operating results and the prospects for our business. This could also be a concern with respect to our MCA participations.
Coronavirus (“COVID-19”) creates significant uncertainty regarding potential business disruptions that could have a material adverse impact on the Company’s financial position.
In December 2019, a novel strain of coronavirus (“COVID-19”) surfaced. The spread of COVID-19 around the world in 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations in the future. The Company’s operations have been affected by the recent and ongoing outbreak of COVID-19 which in March 2020, was declared a pandemic by the World Health Organization. The ultimate disruption which may be caused by the outbreak is uncertain; however, it has resulted in a material adverse impact on the Company’s financial position, MCA operations and cash flows. COVID-19 has not had an adverse impact on the Company’s primary operations; Holy Cacao. As of December 31, 2019, the Company disclosed areas that either have or may be affected include, but are not limited to, disruption to the Company’s customers and revenue, labor workforce, unavailability of products and supplies used in operations, and the decline in value of assets held by the Company, including, inventories and merchant cash advance receivables.
Risks Related to the Securities Markets and Ownership of Our Common and Preferred Stock
Our Common Stock is Subject to the “Penny Stock” Rules of the SEC and the Trading Market in our Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.
The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price, for warrants or options or conversion price for convertible notes, of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a person’s account for transactions in penny stocks; and
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the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
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Obtain financial information and investment experience objectives of the person; and
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Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
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Sets forth the basis on which the broker or dealer made the suitability determination, and
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That the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Shares eligible for future sale under Rule 144 and/or Rule 905 may adversely affect the market for our securities.
From time to time, certain of our stockholders who hold restricted securities may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to and reliant upon certain exceptions promulgated under the Securities Act. Although current stockholders may have no current intention or ability to sell their shares, any substantial sales by holders of our common stock in the future pursuant to such exceptions may have a material adverse effect on the market price of our securities.
The price of our common stock is subjected to volatility.
The market for the Company’s common stock may be highly volatile. The trading price of the Company’s common stock is subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to their markets or relating to the Company could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of the Company’s stock prices may cause investment losses for their shareholders. If securities class action litigation is brought against the Company, such litigation could result in substantial costs while diverting management’s attention and resources.
Our Board of Directors has sole discretion to create new classes of preferred stock.
Our Certificate of Incorporation authorizes the issuance of preferred stock with such rights and preferences as our Board of Directors may determine from time to time in its sole discretion. Accordingly, under the Certificate of Incorporation, the Board may designate and issue preferred stock with dividend, liquidation, conversion, voting, redemption or other rights that could impact the rights of the holders of our common shares.
Disruptions in global financial markets and deteriorating global economic conditions could cause lower returns to investors.
Disruptions in global financial markets and deteriorating global economic conditions could adversely affect the value of the Company’s common stock. The current state of the economy and the implications of future potential weakening may negatively impact market fundamentals, resulting in lower revenues and values for the Company’s business opportunities and investments.
If we fail to remain current on our reporting requirements, we could be removed from quotation by the OTCQB, which would limit the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.
Companies quoted on the OTCQB must be current in their publicly filed reports containing information mandated under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTCQB. If we fail to remain current on our reporting requirements, we could be removed from the OTCQB. As a result, the market liquidity for our securities could be adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.
We have not voluntarily implemented various corporate governance measures.
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or Nasdaq, on which their securities are listed. As directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), the SEC has adopted rules requiring public companies to include a report of management on the Company’s internal control over financial reporting in its annual reports. While we expect to expend significant resources in developing the necessary documentation and testing procedures required by SOX 404, the Company as of this filing does not have effective controls. At present, there is no precedent available with which to measure compliance adequately. In the event we identify significant deficiencies or material weaknesses in our internal control over financial reporting that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements and our ability to obtain equity or debt financing could suffer. Also, among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight and the adoption of a Code of Ethics. The Company has not adopted exchange-mandated corporate governance measures and, since our securities are not listed on a national securities exchange, we are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
We have a large number of authorized but unissued shares of our common and preferred stock.
We have a large number of authorized but unissued shares of common and preferred stock, which our management may issue without further stockholder approval, thereby causing dilution of your holdings of our common stock. Our management will continue to have broad discretion to issue shares of our common and preferred stock in a range of transactions, including capital-raising transactions, mergers, acquisitions and other transactions, without obtaining stockholder approval. If our management determines to issue shares of our common or preferred stock with conversion rights or special voting rights from the large pool of authorized but unissued shares for any purpose in the future, your ownership position would be diluted without your further ability to vote on that transaction. Under the Company’s Certificate of Incorporation, the Board of Directors may designate and issue preferred stock with dividend, liquidation, conversion, voting, redemption or other rights that are senior in right to common stock. For example, the Company’s Class A Preferred Stock provides 50% voting rights to the Company’s two founding Directors.
Shares of our common stock may continue to be subject to illiquidity because our shares may continue to be thinly traded and may never become eligible for trading on a national securities exchange.
While we may at some point be able to meet the requirements necessary for our common stock to be listed on a national securities exchange, we cannot assure you that we will ever achieve a listing of our common stock on a national securities exchange. Our shares are currently only eligible for quotation on the OTCQB, which is not an exchange. Initial listing on a national securities exchange is subject to a variety of requirements, including minimum trading price and minimum public “float” requirements, and could also be affected by the general skepticism of such markets concerning companies that are the result of mergers with inactive publicly-held companies. There are also continuing eligibility requirements for companies listed on public trading markets. If we are unable to satisfy the initial or continuing eligibility requirements of any such market, then our stock may not be listed or could be delisted. This could result in a lower trading price for our common stock and may limit your ability to sell your shares, any of which could result in you losing some or all of your investments.
The market valuation of our business may fluctuate due to factors beyond our control and the value of your investment may fluctuate correspondingly.
The market valuation of smaller reporting companies, such as us, frequently fluctuate due to factors unrelated to the past or present operating performance of such companies. Our market valuation may fluctuate significantly in response to a number of factors, many of which are beyond our control, including:
i.
changes in securities analysts’ estimates of our financial performance, although there are currently no analysts covering our stock;
ii.
fluctuations in stock market prices and volumes, particularly among securities of emerging growth companies;
iii.
changes in market valuations of similar companies;
iv.
announcements by us or our competitors of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments;
v.
variations in our quarterly operating results;
vi.
fluctuations in related commodities prices;
vii.
additions or departures of key personnel; and
viii.
new industry regulations associated with hemp.
As a result, the value of your investment in us may fluctuate.
We have never paid dividends on our common stock.
We have never paid cash dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future. Investors should not look to dividends as a source of income. In the interest of reinvesting initial profits back into our business, we do not intend to pay cash dividends in the foreseeable future. Consequently, any economic return will initially be derived, if at all, from appreciation in the fair market value of our stock, and not as a result of dividend payments.
Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.
Two of our directors have perpetual voting rights with respect to all company matters. They may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of voting power may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
The Company has no SEC staff comments.

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ITEM 2. PROPERTIES
Item 2. Properties.
The Company does not own property. The Company pays a fee to Incorp Services, Inc. to maintain a corporate office headquartered at 3773 Howard Hughes Parkway, Suite 500S, Las Vegas, NV 89169-6014. All directors and officers of the Company work remotely at no cost to the Company. The Company has access to and uses a fully staffed and fully equipped state of the art manufacturing facility to produce its specialty chocolate product line.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
As of March 3, 2021, we were not a party to any legal proceedings that could have a material adverse effect on the Company’s business, financial condition or operating results. Further, to the Company’s knowledge, no such proceedings have been threatened against the Company.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issue Purchases of Equity Securities.
Market Information
Our common stock is quoted on the OTC Markets (“OTCQB”) under the symbol “FIFG.”
The closing sales price of the Company’s common stock on March 1, 2021 was $0.30 per share.
Holders
As of the date of this report there were approximately 49 holders of record of Company common stock. This does not include an indeterminate number of persons who hold our common stock in brokerage accounts and otherwise in “street name.”
Dividends
Holders of common stock are entitled to receive such dividends as may be declared by the Company’s Board of Directors. The Company did not declare or pay dividends on our common stock during the year ended December 31, 2020.
Transfer Agent and Registrar
The transfer agent and registrar for First Foods’ common stock is Manhattan Transfer Registrar Co., 38B Sheep Pasture Rd. Port Jefferson, NY 11777, telephone 631-928-7655.
Authorization of Our Securities
On October 25, 2017, and as amended on November 2, 2018, the Board of Directors of the Company designated 100,000,000 authorized common shares and 20,000,000 authorized preferred shares to have preferences and terms as shall be determined by the Board of Directors from time to time. The preferred shares were authorized into three series: Series A Convertible Preferred Shares was designated with one share, which share is issued and outstanding; Series B Convertible Preferred Shares was designated with 4,999,999 shares, of which 473,332 shares are outstanding; and Series C Convertible Preferred Shares was designated with 3,000,000 shares, of which 660,000 shares are outstanding.
The Series A Convertible Preferred Share has voting rights equal to fifty percent (50%) of the voting rights of all outstanding classes of capital stock of the Company and the share is convertible into five (5) shares of the Company’s common stock, including liquidation preference over common stock.
Series B Convertible Preferred Shares have voting rights equal to five (5) votes per share and each share is convertible into five (5) shares of the Company’s common stock, including liquidation preference over common stock.
Series C Convertible Preferred Shares have voting rights equal to one (1) vote per share and each share is convertible into one (1) share of the Company’s common stock, including liquidation preference over common stock.
Repurchases of Our Securities
None of the shares of our common stock were repurchased by the Company during the year ended December 31, 2020.
Unregistered Sales of Securities
The Company issued warrants to purchase up to 3,496,000 and 1,060,000 shares of the Company’s common stock during the years ended December 31, 2020 and 2019, respectively.
The Company issued warrants to purchase up to 500,000 and 600,000 shares of the Company’s preferred series B stock during the year ended December 31, 2020 and 2019, respectively.
The unregistered sales of the warrants were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Act”). No underwriters were retained to serve as placement agents for the sales and the warrants. The Preferred Shares were sold directly through our management. No commission or other consideration was paid in connection with the sales of the warrants and there was no advertisement or general solicitation made in connection with the offer and sales of the warrants.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
First Foods is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statements.
This annual report contains “forward-looking statements,” as that term is used in federal securities laws, about First Foods Group, Inc.’s financial condition, results of operations and business.
These statements include, among others:
•
statements concerning the potential benefits that First Foods Group, Inc. (“First Foods”, “we”, “our”, “us”, the “Company”, or “management”) may experience from its business activities and certain transactions it contemplates or has completed; and
•
statements of First Foods’ expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “opines,” or similar expressions used in this Form 10-K. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause First Foods’ actual results to be materially different from any future results expressed or implied by First Foods in those statements. The most important facts that could prevent First Foods from achieving its stated goals include, but are not limited to, the following:
(a)
volatility or decline of First Foods’ stock price;
(b)
potential fluctuation of quarterly results;
(c)
failure of First Foods to earn significant revenues or profits;
(d)
inadequate capital to continue or expand its business, and inability to raise additional capital or financing to implement its business plans;
(e)
decline in demand for First Foods’ products and services;
(f)
rapid adverse changes in markets;
(g)
litigation with or legal claims and allegations by outside parties against First Foods, including but not limited to challenges to First Foods’ intellectual property rights;
(h)
reliance on proprietary merchant advance credit models, which involve the use of qualitative factors that are inherently judgmental and which could result in merchant defaults; and
(i)
New regulations impacting the business.
In addition, there is no assurance that (i) First Foods will be profitable, (ii) First Foods will be able to successfully develop, manage or market its products and services, (iii) First Foods will be able to attract or retain qualified executives and personnel, (iv) First Foods will be able to obtain customers for its products or services, (v) additional dilution in outstanding stock ownership will not be incurred due to the issuance of more shares, warrants and stock options, or the exercise of outstanding warrants and stock options, and (vi) there are no other risks inherent in First Foods’ business.
Because the forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. First Foods cautions you not to place undue reliance on the statements, which speak only of management’s plans and expectations as of the date of this Form 10-K. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that First Foods or persons acting on its behalf may issue. First Foods does not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-K, or to reflect the occurrence of unanticipated events.
General
First Foods is currently a “smaller reporting company” under the JOBS Act. A company loses its “smaller reporting company” status on (i) the day its public float becomes greater than or equal to $250,000,000 or (ii) had annual revenues of less than $100,000,000 and either: (A) had no public float or (B) had a public float of less than $700,000,000. As a “smaller reporting company,” First Foods is exempt from certain obligations of the Exchange Act, including those found in Section 14A(a) and (b) related to shareholder approval of executive compensation and golden parachute compensation and Section 404(b) of the Sarbanes-Oxley Act of 2002 related to the requirement that management assess the effectiveness of the Company’s internal control for financial reporting. Furthermore, Section 103 of the JOBS Act provides that as a “smaller reporting company”, First Foods is not required to comply with the requirement to provide an auditor’s attestation of ICFR under Section 404(b) of the Sarbanes-Oxley Act for as long as First Foods qualifies as a “smaller reporting company.” In addition, a “smaller reporting company” may include less extensive narrative disclosure than required of other reporting companies, particularly in the description of executive compensation and provide audited financial statements for two fiscal years, in contrast to other reporting companies, which must provide audited financial statements for three fiscal years. However, a “smaller reporting company” is not exempt from the requirement to perform management’s assessment of internal control over financial reporting.
First Foods is focused on developing its specialty chocolate product line and participating in merchant cash advances through its 1st Foods Funding Division. First Foods continues to pursue new brands and concepts, including the wholesaling of various health-related products.
Holy Cacao is a majority owned subsidiary that is dedicated to producing, packaging, distributing and selling specialty chocolate products, including specialty chocolate products infused with a hemp-based ingredient in accordance with the Company’s understanding of the Agricultural Act of 2014 (the “2014 Farm Bill”) and/or the Agriculture Improvement Act of 2018 (the “2018 Farm Bill,” and together with the 2014 Farm Bill, collectively, the “Farm Bill”), which renders the production of hemp in compliance with the provisions of the Farm Bill federally lawful. The Company has not been, is not, and has no current plans to be involved in producing, packaging, distributing or selling any product that is infused with a marijuana-based ingredient, although it intends to revisit the matter as regulations change in jurisdictions in which it operates.
The Company is also dedicated to licensing its intellectual property (“IP”), including its name, brand, and packaging, to third parties. The Company may license its IP to third parties that may produce, package, and distribute hemp-based products pursuant with the Company’s understanding of the Farm Bill. The Company may license its IP to third parties that may produce, package, and distribute marijuana-based products, but only as such licensing is legal. Holy Cacao holds two trademarks for the brands, “The Edibles’ Cult.” and “Purely Irresistible” and the Company has submitted multiple trademark applications to the United States Patent and Trademark Office (the “USPTO”) for additional brand names, including “Mystere” and “Southeast Edibles” among others.
During the year ended December 31, 2020, the Company’s Board of Directors made a strategic decision to broaden the appeal of its hemp-based chocolate products to a wider base of customers, who are particularly discerning about the cleanliness of the Company’s manufacturing facility and quality of its hemp-based chocolate products, by successfully obtaining worldwide Kosher certification from the Union of Orthodox Jewish Congregations of America, Kashruth Division (the “OU”), which is the largest and most recognized certification of its kind in the world. On March 9, 2020, the Company retained Tartikov Beth Din (“BD”) to allow BD to supervise the hemp-based chocolate products produced by the Company in accordance with OU certification standards. The Company also retained Moises Davidovits as its full-time Master Chocolatier. Mr. Davidovits is a third-generation chocolatier who is responsible for the manufacturing, packaging and distribution of the Company’s chocolate product line, as well as the formulation of all of the Company’s proprietary chocolate recipes. On October 19, 2020, the Company entered into a chocolate sales agreement with B&A Brokerage for the greater metropolitan New York area. The Company also signed a lease agreement for a fully staffed and fully equipped state of the art manufacturing facility to produce its specialty chocolate product line for sale to retailers, manufacturing and wholesaling companies, and on-line customers.
Michael Kaplan was appointed to the Board of Directors and, as of August 1, 2020, accepted the role of Chief Marketing Officer with authority to oversee the Company’s retail and wholesale sales and marketing operations, and responsibility for developing oversight processes and procedures.
The Company currently has a contract with TIER Merchant Advances LLC (“TIER”) to participate in the purchase of future receivables from qualified TIER merchants for the purpose of generating near-term and long-term revenue for the Company. The Company also provides cash advances directly to merchants through its First Foods Funding Division.
The Company is quoted on the OTCQB under “FIFG.”
The Company’s principal executive offices are located at First Foods Group, Inc. c/o Incorp Services, Inc., 3773 Howard Hughes Parkway, Suite 500S, Las Vegas, NV 89169-6014. Our telephone number is (201) 471-0988.
As of December 31, 2020, our cash balance was $50,386 with current liabilities of $2,927,493.
Results of Operations
Results of Operations for the Year Ended December 31, 2020 compared to the Year Ended December 31, 2019
We had $208,167 of revenue for the year ended December 31, 2020 compared to $326,285 in revenue for the year ended December 31, 2019, a decrease of $118,118 or 36%. Our decrease in revenue was the result of a decrease in participation in merchant cash advances, partially offset by an increase in our product sales.
Cost of product sales for the year ended December 31, 2020 was $35,077 compared to $21,003 for the year ended December 31, 2019. The increase in cost of product sales was due to an increase in product sales.
Professional fees for the year ended December 31, 2020 was $61,641 compared to $72,860 for the year ended December 31, 2019. This decrease in professional fees was due to lower legal expenses.
General and administrative expenses for the year ended December 31, 2020 was $1,993,427 compared to $2,642,684 for the year ended December 31, 2019. The decrease in general and administrative expenses was primarily due to decreased costs associated with stock-based compensation, consulting and accounting fees, advertising and promotion, charitable contributions, lower fees and commissions for our cash advances and travel.
Provision for merchant cash advances for the year ended December 31, 2020 was $141,790 compared to $87,154 for the year ended December 31, 2019. The increase in provision for merchant cash advances was due to an increase in our reserve allowance for our merchant cash advances related to COVID-19.
Liquidity and Capital Resources
Net cash used in operating activities amounted to $163,541 for the year ended December 31, 2020 and $1,013,873 for the year ended December 31, 2019. This resulted in a working capital deficit of $(1,810,983) at December 31, 2020 and $(732,653) at December 31, 2019. This decrease in working capital was due primarily to an increase in accounts payable and accrued expenses and a decrease in merchant cash advances.
Net cash used in investing activities amounted to $199,328 for the year ended December 31, 2020 and $0 for the year ended December 31, 2019. This was due to the purchase of equipment in 2020.
Net cash provided by financing activities amounted to $388,902 for the year ended December 31, 2020 and $1,007,800 for the year ended December 31, 2019. This was due to a decrease of proceeds from the issuance of loans in 2020 as compared to 2019.
Concentration Risks
The Company recognizes the concentration of its merchant cash advances, which could inherently create a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of the outstanding merchant cash advances. The Company actively mitigates its portfolio concentration risk by monitoring its merchant cash advance provider’s ability to participate in merchant cash advances from alternative providers and spreading merchant cash advance participation across various merchants.
As of December 31, 2020, the Company’s receivables from merchant cash advances included $59,719 from two merchants ($25,929 and $33,790), representing 49.3% of the Company’s merchant cash advances. The Company earned $84,525 and $27,175 of MCA income from two merchants, representing 53.5% and 17.2%, respectively of the Company’s MCA income for the twelve months ended December 31, 2020.
As of December 31, 2019, the Company’s receivables from merchant cash advances included $713,124 from two merchants ($179,853 and $533,271), representing 81.3% of the Company’s merchant cash advances. The Company earned $130,243 of MCA income from one merchant, representing 44.2% of the Company’s MCA income for the twelve months ended December 31, 2019.
As of December 31, 2020 and 2019, there was no accounts payable concentration other than amounts owed to related parties which makes up 74% and 61% of the balance, respectively.
For the year ended December 31, 2020, the Company had purchase concentrations of 49% and 14% from two vendors.
For the year ended December 31, 2019, the Company had purchase concentrations of 34%, 26%, 15% and 12% from four vendors.
Going Concern
The Company’s consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing. However, neither any members of management nor any significant shareholders are currently committed to invest funds with us and; therefore, we cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The Company does not have sufficient cash flow for the next twelve months from the issuance of these audited consolidated financial statements. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying audited consolidated financial statements do not include any adjustments that might be necessary, if the Company is unable to continue as a going concern.
In December 2019, a novel strain of coronavirus surfaced (COVID-19). The spread of COVID-19 around the world in 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. The Company’s financial position, MCA operations, and cash flows as of December 31, 2020 have been adversely affected, and may be further affected in the future, by the recent and ongoing outbreak of COVID-19. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. Possible areas that may be affected include, but are not limited to, disruption to the Company’s labor workforce, unavailability of products and supplies used in operations, and the decline in value of assets held by the Company. As of December 31, 2020 and through the filing date of the financial statements, the Company has continued to collect its receivables from its cash advances but has experienced an increase in payment delinquencies and has had two customers renegotiate the terms of their cash advance due to COVID-19. COVID-19 has not had an adverse impact on the Company’s primary operations; Holy Cacao. As of December 31, 2020, the Company’s primary operations have experienced no disruption in customers and revenue, labor workforce, availability of products and supplies used in operations, and the value of assets held by the Company, including inventories. On the contrary, the Company’s Holy Cacao sales increased from $32,183 to $48,983 or 52%.
Off-Balance Sheet Arrangements
No off-balance sheet arrangements exist.
Contractual Obligations
N/A.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates, if past experience or other assumptions do not turn out to be substantially accurate.
Certain of our accounting policies are particularly important to the portrayal and understanding of our financial position and results of operations and require us to apply significant judgment in their application. As a result, these policies are subject to an inherent degree of uncertainty. In applying these policies, we use our judgment in making certain assumptions and estimates. Our critical accounting policies are outlined in Note 1 in the Notes to the Consolidated Financial Statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
First Foods is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
FIRST FOODS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS - TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
Audited Financial Statements:
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020 and 2019
Consolidated Statements of Changes in Deficit for the years ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of First Foods Group, Inc. and Subsidiary
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of First Foods Group, Inc. and Subsidiary (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, changes in deficit, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has recurring losses from operations which raises substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the board of directors and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Stock Based Compensation - Initial Measurement of Fair Value
Description of the Matter
As described in Note 1 of the consolidated financial statements, the Company measures and recognizes compensation expense for all stock-based payments at fair value over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and warrants. In particular, management’s estimates were sensitive to assumptions about the volatility of the Company’s stock price, expected exercise term and fair value determination method.
How We Addressed the Matter in Our Audit
Our audit procedures related to the initial measurement of fair value of the compensation included the following procedures, among others. We evaluated the expertise and experience of the accounting consultant who determined the fair value measurements on behalf of the Company. We reviewed the methodologies employed by the consultant in determining the value of the compensation and determined whether the use of a Black Scholes model was reasonable. We reviewed the key assumptions utilized in the valuation, including volatility, the expected impact of dilution, the risk-free rate, and discounts for illiquidity by comparing them to the terms of the compensation agreements, historical information and market data. We also conducted an independent expectation to assist us in evaluating the appropriateness and reasonableness of the Black Scholes calculations.
Allowance for credit Losses - Merchant Cash Advances
Description of the Matter
As described in Note 1 of the consolidated financial statements, the Company reviews the carrying value of merchant cash advances (“MCA’s”) and determines to what extent an impairment reserve is necessary. The Company uses an assessment of actual historic performance and current status of the MCA. Management’s estimates of allowance for credit losses involved subjectivity based on the underlying estimates that rely on industry and economic factors. In particular, the COVID-19 pandemic has had a significant and adverse impact on the credit worthiness of the Company’s MCAs due to the small business nature of a majority of the MCA’s.
How We Addressed the Matter in Our Audit
Our audit procedures related to the allowance of credit losses - merchant cash advances included the following procedures, among others. We obtained an understanding and evaluated the Company’s allowance for doubtful accounts review process, including management’s review of historical write-off percentages experienced and current collection trends. To test the estimated allowance for doubtful accounts, we performed audit procedures that included, among others, testing the Company’s write-off percentages and the data used by the Company in its calculation. Additionally, we evaluated events subsequent to the balance sheet date in assessing the reasonableness of management’s estimates.
Assessment of Impairment on Long Lived Assets
Description of the Matter
As described in Note 1 of the consolidated financial statements, the Company’s long lived tangible assets are stated at cost, less accumulated depreciation and amortization. The Company’s right of use assets and operating lease liability are stated at the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates, less current period non cash lease expense and amortization. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the asset group.
How We Addressed the Matter in Our Audit
Our audit procedures related to the assessment of impairment on long lived assets included the following procedures, among others. We obtained an understanding and evaluated the procedures over management’s impairment review process. We reviewed management’s significant assumptions and data inputs utilized in the calculation of future undiscounted and discounted cash flows. To test the Company’s estimated future cash flows used to test for the recoverability of the respective assets and, if applicable, the measurement of an impairment loss, we performed audit procedures that included, among others, testing the significant assumptions discussed above and the underlying data used by the Company in its impairment analyses, evaluating the methodologies applied by management, and recalculating the total undiscounted and discounted cash flows, if applicable, for each asset analyzed. We compared the significant assumptions used by management to historical sales data, sales trends, and observable market-specific data. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the assets that would result from changes in the assumptions.
/S/ Friedman LLP
We have served as the Company’s auditor since 2017.
Marlton, New Jersey
March 3, 2021
First Foods Group, Inc. and Subsidiary
Consolidated Balance Sheets
December 31,
December 31,
ASSETS
CURRENT ASSETS
Cash
$ 50,386
$ 24,353
Accounts receivable, net
13,487
Inventory, net
46,240
10,556
Merchant cash advances, net of allowance $291,380 and $97,495, respectively
121,079
877,457
Prepaid expenses and other current assets
148,144
56,935
Deferred merchant advance commissions
15,290
TOTAL CURRENT ASSETS
366,510
998,078
Property and equipment, net
242,438
-
Operating lease right-of-use assets
239,247
-
TOTAL ASSETS
$ 848,195
$ 998,078
LIABILITIES AND DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities
$ 1,110,598
$ 751,675
Deferred revenue
105,058
193,163
Loans, net of unamortized debt discount
966,155
165,270
Related party loans, net of unamortized debt discount
685,279
620,623
Operating lease liabilities
60,403
-
TOTAL CURRENT LIABILITIES
2,927,493
1,730,731
Loans, net of unamortized debt discount - long term
300,024
483,240
Operating lease liabilities - long term
179,053
-
TOTAL LIABILITIES
3,406,570
2,213,971
Commitments
-
-
DEFICIT
FIRST FOODS GROUP, INC. DEFICIT:
Preferred stock, 20,000,000 shares authorized:
Series A convertible preferred stock: $0.001 par value, 1 share authorized, 1 issued and outstanding ($577,005 liquidation preference)
-
-
Series B convertible preferred stock: $0.001 par value, 4,999,999 shares authorized, 473,332 issued and outstanding ($160,000 liquidation preference)
Series C convertible preferred stock: $0.001 par value, 3,000,000 shares authorized, 660,000 shares issued and outstanding ($165,000 liquidation preference)
Common stock: $0.001 par value,100,000,000 shares authorized, 22,367,179 and 20,313,771 shares issued and outstanding, respectively
22,367
20,314
Additional paid-in capital
10,515,601
9,116,998
Accumulated deficit
(12,954,696 )
(10,293,260 )
Total First Foods Group, Inc. Deficit
(2,415,595 )
(1,154,815 )
Noncontrolling interests
(142,780 )
(61,078 )
Total deficit
(2,558,375 )
(1,215,893 )
TOTAL LIABILITIES AND DEFICIT
$ 848,195
$ 998,078
The accompanying notes are an integral part of these consolidated financial statements.
First Foods Group, Inc. and Subsidiary
Consolidated Statements of Operations
For the Years Ended December 31,
REVENUES
Product sales, net
$ 48,983
$ 32,183
Merchant cash advance income, net
159,184
294,102
Total Revenues
208,167
326,285
OPERATING EXPENSES
Cost of product sales
35,077
21,003
Professional fees
61,641
72,860
General and administrative
1,993,427
2,642,684
Provision for merchant cash advances
141,790
87,154
Total Operating Expenses
2,231,935
2,823,701
LOSS FROM OPERATIONS
(2,023,768 )
(2,497,416 )
OTHER INCOME (EXPENSE)
Other income
1,000
2,500
Interest expense
(720,370 )
(230,775 )
Loss before income taxes
(2,743,138 )
(2,725,691 )
Provision for income taxes
-
-
NET LOSS
(2,743,138 )
(2,725,691 )
Non-controlling interest share of loss
81,702
69,460
Dividends on preferred stock
-
(11,550 )
Net loss attributed to shareholders of First Foods Group, Inc.
$ (2,661,436 )
$ (2,667,781 )
BASIC AND DILUTED LOSS PER COMMON SHARE ATTRIBUTABLE TO FIRST FOODS GROUP, INC. STOCKHOLDERS
$ (0.12 )
$ (0.14 )
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ATTRIBUTABLE TO FIRST FOODS GROUP, INC. STOCKHOLDERS
21,449,269
18,523,221
The accompanying notes are an integral part of these consolidated financial statements.
First Foods Group, Inc. and Subsidiary
Consolidated Statements of Changes in Deficit
Preferred Stock
Common Stock
Additional
Total First
Non-
Shares
Amount
Shares
Amount
paid-in
capital
Accumulated deficit
Foods Group, Inc. deficit
controlling interests
Total
deficit
Balance at December 31, 2019
1,133,333
$ 1,133
20,313,771
$ 20,314
$ 9,116,998
$ (10,293,260 )
$ (1,154,815 )
$ (61,078 )
$ (1,215,893 )
Common stock issued for cash to a related party
-
-
499,998
99,500
-
100,000
-
100,000
Common stock issued to consultants for services
-
-
600,000
130,750
-
131,350
-
131,350
Common stock issued for related party loan
-
-
579,410
125,823
-
126,402
-
126,402
Common stock issued with loans payable
-
-
374,000
99,258
-
99,632
-
99,632
Stock based compensation
-
-
-
-
170,644
-
170,644
-
170,644
Warrants issued for director services
-
-
-
-
501,911
-
501,911
-
501,911
Warrants issued with loan payable
-
-
-
-
20,717
-
20,717
-
20,717
Warrants issued in lieu of deferred compensation
-
-
-
-
250,000
-
250,000
-
250,000
Net loss
-
-
-
-
-
(2,661,436 )
(2,661,436 )
(81,702 )
(2,743,138 )
Balance at December 31, 2020
1,133,333
$ 1,133
22,367,179
$ 22,367
$ 10,515,601
$ (12,954,696 )
$ (2,415,595 )
$ (142,780 )
$ (2,558,375 )
Balance at December 31, 2018
1,133,333
$ 1,133
17,709,087
$ 17,709
$ 7,081,559
$ (7,637,029 )
$ (536,628 )
$ 8,382
$ (528,246 )
Common stock issued to consultants for services
-
-
1,342,174
1,342
347,508
-
348,850
-
348,850
Common stock issued to consultants for services - related party
-
-
75,000
18,675
-
18,750
-
18,750
Common stock issued for services
-
-
100,000
29,900
-
30,000
-
30,000
Common stock issued for loans payable
-
-
1,062,500
1,063
308,650
-
309,713
-
309,713
Common stock issued for related party loan
-
-
25,000
5,225
-
5,250
-
5,250
Warrants issued for director services
-
-
-
-
1,010,186
-
1,010,186
-
1,010,186
Warrants issued for consultant services
-
-
-
-
34,179
-
34,179
-
34,179
Warrants issued with loan payable
-
-
-
-
292,666
-
292,666
-
292,666
Dividend on preferred stock
-
-
-
-
(11,550 )
-
(11,550 )
-
(11,550 )
Net loss
-
-
-
-
-
(2,656,231 )
(2,656,231 )
(69,460 )
(2,725,691 )
Balance at December 31, 2019
1,133,333
$ 1,133
20,313,761
$ 20,314
$ 9,116,998
$ (10,293,260 )
$ (1,154,815 )
$ (61,078 )
$ (1,215,893 )
The accompanying notes are an integral part of these consolidated financial statements.
First Foods Group, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss
$ (2,743,138 )
$ (2,725,691 )
Adjustments to reconcile net loss to net cash used in operating activities:
Non-employee stock based compensation
131,350
413,029
Non-employee stock based compensation - related party
-
18,750
Employee stock based compensation
672,555
1,010,186
Amortization of debt discount
499,986
124,308
Depreciation and amortization expense
37,077
-
Change in merchant allowance
193,885
15,140
Provision for merchant cash advances
141,790
87,154
Non-cash lease expense
28,457
-
Changes in operating assets and liabilities:
Accounts receivable
13,063
(27,469 )
Inventory
(5,870 )
(10,556 )
Merchant cash advances
420,703
(417,263 )
Deferred merchant advance commissions
15,053
35,469
Prepaid expenses and other current assets
(72,985 )
(20,429 )
Operating lease liabilities
(28,248 )
-
Accounts payable and accrued liabilities
620,886
466,451
Deferred revenue
(88,105 )
17,048
Net cash used in operating activities
(163,541 )
(1,013,873 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment
(199,328 )
-
Net cash used in investing activities
(199,328 )
-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock
100,000
-
Dividend payment
-
(29,700 )
Proceeds from loans
351,200
1,037,500
Repayment of loans
(136,709 )
-
Proceeds from related party loans
174,411
-
Repayments of related party loans
(100,000 )
-
Net cash provided by financing activities
388,902
1,007,800
NET INCREASE (DECREASE) IN CASH
26,033
(6,073 )
CASH AT BEGINNING OF YEAR
24,353
30,426
CASH AT END OF YEAR
$ 50,386
$ 24,353
SUPPLEMENTAL CASH FLOW INFORMATION:
NON-CASH FINANCING ACTIVITIES:
Common stock issued with loans
$ 99,632
$ 309,713
Common stock issued with related party loans
$ 126,402
$ 5,250
Warrants issued with loans
$ 20,717
$ 292,665
Warrants issued in lieu of deferred compensation
$ 250,000
$ -
Purchase of assets and settlement of accrued expenses through issuance of loan payable
$ 140,188
$ -
Right-of-use assets obtained in exchange for liabilities
$ 267,704
$ -
CASH PAID FOR:
Interest
$ 137,519
$ 105,667
Income taxes
$ -
$ -
The accompanying notes are an integral part of these consolidated financial statements.
NOTE 1 - BUSINESS SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND LIQUIDITY
Nature of Business
First Foods Group, Inc. (the “Company” or “First Foods”) is a smaller reporting company focused on developing its specialty chocolate product line through its Holy Cacao subsidiary and participating in merchant cash advances (“MCAs”) through its 1st Foods Funding Division. First Foods continues to pursue new brands and concepts, including the wholesaling of various health-related products.
Holy Cacao is a majority owned subsidiary that is dedicated to producing, packaging, distributing and selling specialty chocolate products, including specialty chocolate products infused with a hemp-based ingredient in accordance with the Company’s understanding of the Agricultural Act of 2014 (the “2014 Farm Bill”) and/or the Agriculture Improvement Act of 2018 (the “2018 Farm Bill,” and together with the 2014 Farm Bill, collectively, the “Farm Bill”), which renders the production of hemp in compliance with the provisions of the Farm Bill federally lawful. The Company has not been, is not, and has no current plans to be involved in producing, packaging, distributing or selling any product that is infused with a marijuana-based ingredient, although it intends to revisit the matter as regulations change in jurisdictions in which it operates.
The Company is also dedicated to licensing its intellectual property (“IP”), including its name, brand, and packaging, to third parties. The Company may license its IP to third parties that may produce, package, and distribute hemp-based products pursuant with the Company’s understanding of the Farm Bill. The Company may license its IP to third parties that may produce, package, and distribute marijuana-based products, but only as such licensing is legal. Holy Cacao holds two trademarks for the brands, “The Edibles’ Cult.” and “Purely Irresistible” and the Company has submitted multiple trademark applications to the United States Patent and Trademark Office (the “USPTO”) for additional brand names, including “Mystere” and “Southeast Edibles” among others.
During the year ended December 31, 2020, the Company’s Board of Directors made a strategic decision to broaden the appeal of its hemp-based chocolate products to a wider base of customers, who are particularly discerning about the cleanliness of the Company’s manufacturing facility and quality of its hemp-based chocolate products, by successfully obtaining worldwide Kosher certification from the Union of Orthodox Jewish Congregations of America, Kashruth Division (the “OU”), which is the largest and most recognized certification of its kind in the world. On March 9, 2020, the Company retained Tartikov Beth Din (“BD”) to allow BD to supervise the hemp-based chocolate products produced by the Company in accordance with OU certification standards. The Company also retained Moises Davidovits as its full-time Master Chocolatier. Mr. Davidovits is a third-generation chocolatier who is responsible for the manufacturing, packaging and distribution of the Company’s chocolate product line, as well as the formulation of all of the Company’s proprietary chocolate recipes. On October 19, 2020, the Company entered into a chocolate sales agreement with B&A Brokerage for the greater metropolitan New York area. The Company also signed a lease agreement for a fully staffed and fully equipped state of the art manufacturing facility to produce its specialty chocolate product line for sale to retailers, manufacturing and wholesaling companies, and on-line customers.
Michael Kaplan was appointed to the Board of Directors and, as of August 1, 2020, accepted the role of Chief Marketing Officer with authority to oversee the Company’s retail and wholesale sales and marketing operations, and responsibility for developing oversight processes and procedures.
The Company currently has a contract with TIER Merchant Advances LLC (“TIER”) to participate in the purchase of future receivables from qualified TIER merchants for the purpose of generating near-term and long-term revenue for the Company. The Company also provides cash advances directly to merchants through its First Foods Funding Division.
Liquidity and Going Concern
The Company’s audited consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. As of December 31, 2020, the Company had approximately $966,000 in third-party short-term debt that is due within the next twelve months. Management’s plan is to use anticipated increased revenues to repay such debt as it becomes due and to the extent any shortfall exists, to obtain such additional resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing. However, we are not assured of any significant increases in revenues nor are any members of management nor any significant shareholders currently committed to invest funds with us and; therefore, we cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The Company does not have sufficient cash flow for the next twelve months from the date of this report. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying audited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation
The Company’s consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
The noncontrolling interest represents the proportionate share of the proceeds received and also the income and loss pickup from the fifteen-percent sale of equity interest in our wholly owned subsidiary; Holy Cacao.
Principles of Consolidation
The consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiary in conformity with GAAP. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of twelve months or less to be cash equivalents. At December 31, 2020 and 2019, the Company had no cash equivalents.
The Company’s cash is held with financial institutions, and the account balances may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit at times. Accounts are insured by the FDIC up to $250,000 per financial institution. The Company has not experienced any losses in such accounts with these financial institutions.
Merchant Cash Advances
The Company participates in the merchant cash advance industry by directly advancing sums to a merchant or a merchant advance provider, TIER, who in turn advances sums to merchants or other merchant cash advance providers. Each reporting period, the Company reviews the carrying value of these advances and determines whether an impairment reserve is necessary. At December 31, 2020, the Company reserved an amount equal to 70.6% of the outstanding merchant cash advance balance at period end based on management’s assessment of actual historic performance. In addition, throughout the year the Company wrote off twenty three (23) merchant advances for a total of $28,061 for the year ended December 31, 2020. These expenses are included in provision for merchant cash advances expenses on the accompanying consolidated statements of operations.
Revenue Recognition
We completed, related to our merchant cash advance business line, our assessment of the impact of ASC 606 and determined that we recognize revenue in accordance with ASC 860, Transfers and Servicing, which is explicitly excluded from the scope of ASC 606. We participate in the servicing of merchant cash advances that have been provided to third parties, which in accordance with ASC 860, causes us to recognize merchant cash advance (“MCA”) income. We also have product sales from our Holy Cacao division that follow ASC 606.
Product sales are measured based on consideration specified in a contract with a customer that we expect to receive in exchange for goods, net of any variable considerations (e.g. rights to return product, sales incentives, etc.). The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customer’s carrier. The Company applied the practical expedient available under ASC 606 to disregard determining significant financing components, if the good is transferred and payment is received within one year.
When a merchant cash advance is purchased, the Company records a merchant cash advance participation receivable for the purchase price. The purchase price consists of the merchant cash advance principal plus an up-front commission that is amortized over the term of the merchant cash advance. The amount of the commission is negotiated between the Company and TIER for each contract. The standard commission is 15% of the merchant cash advance principal but can be reduced depending upon the credit worthiness of the merchant. The average commission paid by the Company since inception has been approximately 7%. If a merchant cash advance contract is signed in one period, but not paid until a subsequent period, a corresponding liability is established in the current period.
At the time the Company participates in a merchant cash advance, the Company records a deferred revenue liability, which is the total future receivable due to the Company less the principal amount of the merchant cash advance. Revenue is recognized and the deferred liability is reduced over the term of the merchant cash advance.
TIER maintains a bank account on behalf of the Company. Each day, TIER receives payment, reflected in the bank account, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of platform fees. Platform fees are a daily charge associated with the ACH service and the financial and reporting management software platform provided by TIER. The platform fees are also negotiated between the Company and TIER for each contract but are typically 4% of the daily merchant cash advance principal amount.
For each merchant cash advance entered into by the Company, TIER receives a daily payment as payments are made on the advance, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of a 2% commission to TIER.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and sets up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off when all attempts to collect have been exhausted. The Company considers an invoice past due once the term of the invoice has passed and payment has not been received. No interest is charged on past due invoices. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2020, the Company had no allowance for doubtful accounts.
Inventory
Inventory, consisting of raw materials, work in process and products available for sale, are accounted for using the first-in, first-out method, and are valued at the lower of cost or net realizable value. This valuation requires management to make judgements based on currently available information, about the likely method of disposition, such as through sales to individual customers and returns. The Company has no allowance for inventory reserves.
Inventory consisted of the following as of December 31, 2020 and 2019:
December 31,
December 31,
Raw Materials
$ 37,259
$ 2,854
Work in Process
2,790
5,410
Finished Goods
6,191
2,292
Total
$ 46,240
$ 10,556
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense when incurred, while renewals and betterments that materially extend the life of an asset are capitalized. When assets are sold, retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheets and any resulting gain or loss is reflected in the consolidated statements of operations and members’ deficit in the period realized.
Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, which are as follows:
Property - Leasehold improvements
4 years
Equipment
5 years
Impairment of Long-Lived Assets
Long-lived assets are comprised of property and equipment. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Management conducted an impairment analysis and concluded that there were no impairments to long-lived assets for the year ended December 31, 2020.
Research and Development
The Company’s policy is to engage market and branding consultants to research and develop specialty chocolate products, including chocolate products infused with a hemp-based ingredient, and packaging targeted to particular states within the US. The research and development costs for the years ended December 31, 2020 and 2019, were approximately $87,000 and $85,000, respectively. These expenses are included in general and administrative expenses on the accompanying consolidated statements of operations.
Deferred Financing Costs
The Company records origination and other expenses related to its debt obligations as deferred financing costs. These expenses are deferred and amortized over the life of the related debt instrument. In accordance with Accounting Standards Update (“ASU”) No. 2015-03, deferred finance costs, net of accumulated amortization have been included as a contra to the corresponding loans in the accompanying consolidated balance sheets as of December 31, 2020 and 2019, respectively.
Stock Based Compensation
The Company measures and recognizes compensation expense for all stock-based payments at fair value over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and warrants. For restricted stock grants, fair value is determined as the closing price of our common stock on the date of grant. Equity-based compensation expense is recorded in administrative expenses based on the classification of the employee or vendor. The determination of fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price, as well as by assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
Income Taxes
The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2020 and 2019, the Company had a full valuation allowance against deferred tax assets. With the historical change in ownership, the Company is subject to certain net operating loss (NOL) limitations under Section 382 of the Internal Revenue Code.
Per Share Data
In accordance with “ASC-260 - Earnings per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive shares outstanding as of December 31, 2020 and 2019 because their effect would be antidilutive.
The Company had 4,899,750 and 1,403,750 warrants to purchase common stock outstanding at December 31, 2020 and 2019, respectively. The Company had 4,470,000 and 3,970,000 warrants to purchase Series B preferred stock outstanding at December 31, 2020 and 2019, respectively. The Company has outstanding one (1) Series A preferred share that is convertible into five (5) shares of the Company’s common stock. Additionally, the Company has 473,332 Series B preferred shares, and 660,000 Series C preferred shares outstanding that are convertible into 2,366,660 and 660,000 shares of common stock, respectively, at December 31, 2020 and 2019, respectively. The warrants and preferred stock were not included in the Company’s weighted average number of common shares outstanding because they would be anti-dilutive.
Fair Value of Financial Instruments
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value. The carrying value of cash, merchant cash advances, prepaid expenses, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these instruments. Management is of the opinion that the Company is not exposed to significant market or credit risks arising from these financial instruments.
Advertising and Promotion
Advertising and promotion costs are expensed as incurred. Advertising and promotion costs recognized in the consolidated statements of operations in general and administrative expenses for the years ended December 31, 2020 and 2019, were $35,000 and $115,000, respectively.
Non-Controlling Interests in Consolidated Financial Statements
In June 2011, the FASB issued ASC 810-10-65-1, to clarify that a non-controlling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. During the year ended December 31, 2017, the Company entered into two subscription agreements for the sale of 800,000 shares of its common stock and a ten-percent equity interest in its wholly owned subsidiary, Holy Cacao, for $200,000 in cash proceeds, in the aggregate. The Company recorded ten-percent of the cash proceeds or $20,000 as noncontrolling interests for the year ended December 31, 2017. On July 16, 2018, the Company entered into a consulting agreement with a service provider that contained the following terms: 5% equity ownership in the Company’s Holy Cacao subsidiary will be awarded immediately upon the successful launch of the Holy Cacao product line and the sale of the first production run of Holy Cacao product. During the year ended December 31, 2019, this part of the agreement was completed, and 5% equity was issued. The Company’s periodic reporting now includes the results of operations of Holy Cacao, with the fifteen-percent ownership reported as noncontrolling interests. The cost of goods sold and operating expense for Holy Cacao for the years ended December 31, 2020 and 2019 was $35,077 and $511,963, respectively and $21,003 and $522,967, respectively. For the years ended December 31, 2020 and 2019, revenue for Holy Cacao was $48,983 and $32,183, respectively.
During 2020 the Company primarily conducted business as two operating segments, First Foods and Holy Cacao. The Company does not distinguish between the two segments and has only one reportable segment based on quantitative thresholds. The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, ”Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, ”Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company’s consolidated financial statements.
NOTE 2 - RELATED PARTY TRANSACTIONS
Employment Agreement
On March 1, 2017, Mark J. Keeley assumed the role of Chief Financial Officer (“CFO”). Pursuant to his Employment Agreement, the CFO shall receive $20,833 per month. Additionally, Mr. Keeley earns an additional $40,000 per year for his role as a Director of the Board. On March 18, 2020, the Company issued its CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary (see Note 6). As of December 31, 2020 and 2019, the Company has accrued $329,167, respectively, in relation to the employment agreements and $20,578 and $16,953, respectively, in relation to the payroll tax liability.
Consulting Agreements
On February 27, 2017, Harold Kestenbaum assumed the role of Chairman of the Board of Directors and Interim Chief Executive Officer (“Interim CEO”). Mr. Kestenbaum earns $40,000 per year for his role as Chairman of the Board. As of December 31, 2020, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under a previous agreement.
As of December 31, 2020, the Company has a consulting agreement with R and W Financial (a company owned by a director) for $5,000 a month. The agreement is for an indefinite period of time and is subject to cancellation by either party with written notice of 30 days. The outstanding balance owed to R and W Financial in connection with the agreement mentioned above as of December 31, 2020 was $82,988.
Related Party Loans
December 31,
December 31,
1.
Note payable at 12%, matures 4/17/2021
{a} *
$ 100,000
$ 100,000
2.
Non-interest bearing note payable, matures on 4/25/2021
*
179,813
179,813
3.
Note payable at 12%, matures 3/13/2021. The Company has recorded debt discount and amortized it over the applicable life of the debt.
{b} *
100,000
100,000
4.
Note payable at 12%, matures 4/9/2021. The Company has recorded debt discount and amortized it over the applicable life of the debt.
{c} *
250,000
250,000
5.
Non-interest bearing note payable, matures on 1/05/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
{d} *
74,411
-
Unamortized debt discount
(18,945 )
(9,190 )
Total
$ 685,279
$ 620,623
{a}
- On October 16, 2020, the Company extended the note to April 17, 2021 based on the same terms and conditions.
{b}
- On December 29, 2020, the Company extended the note to March 13, 2021 based on the same terms and conditions. In association with this and prior extensions the company issued 95,000 shares of common stock with a fair value of $18,944, which will be recorded a debt discount and amortized over the life of the loan.
{c}
- On April 10, 2020, the Company extended the note to April 9, 2021 based on the same terms and conditions. In association with the extension the company issued 250,000 shares of common stock with a fair value of $60,000, which will be recorded a debt discount and amortized over the life of the loan.
{d}
- On December 2, 2020, the Company issued a non-interest bearing promissory note of $74,411. In connection with this note the company issued 74,410 shares of common stock with a fair value of $17,858, which was recorded as a debt discount and amortized over the life of the loan. On January 5, 2021, the Company fully repaid the loan.
*
- unsecured note
During the year ended December 31, 2020 and 2019, the Company recorded $116,648 and $24,336 of interest expense related to the amortization of debt discount and $54,148 and $49,024 of regular interest, respectively. As of December 31, 2020 and 2019, accrued interest was $45,889 and $21,753, respectively.
All of the above transactions were approved by disinterested directors.
Director Agreements
On May 10, 2018, the directors of the Company were awarded share-based compensation for the service period of May 10, 2018 through December 31, 2020, as a one-time award of the ability to purchase a particular amount of warrants, ranging from 80,000 to 400,000 (collectively the “Warrants”) with the following terms:
·
Number and Type - Each Director is entitled to a one-time award of Warrants for the number of shares of Series B Preferred Stock of the Company. Each share of Series B Preferred Stock shall have voting rights equal to five (5) votes per share. Each share of Series B Preferred Stock is convertible into five (5) shares of the Company’s Common Stock (the “Common Stock”), including liquidation preference over Common Stock.
·
Duration - The Warrants entitle each Director to purchase the Series B Preferred Stock from the Company, after January 1, 2019 and before December 31, 2027.
·
Purchase Price - The purchase price is $0.60 per share of Series B Preferred Stock.
·
Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
·
Vesting - The Warrants are subject to a 32-month period whereby the Warrants vest in equal monthly increments from May 10, 2018 through December 31, 2020. Any unvested warrants are forfeited, if the Director ceases to be a Director.
The Company issued warrants with respect to 1,280,000 Series B Preferred Stock, in the aggregate. The Company will expense the fair value of these warrants in the amount of $768,000 ratably during the years ended December 31, 2018, 2019 and 2020. For the years ended December 31, 2020 and 2019, the Company recorded $290,981 and $290,186 as compensation expense related to the warrants, respectively.
On February 26, 2019, the Company entered into director agreements with each of the Directors of the Company. Pursuant to the agreements, each Director may be compensated with share-based and/or cash-based compensation. The Directors’ compensation for the period January 1, 2019 through December 31, 2019 was $10,000 per quarter per Director to be paid on a date determined by the Board of Directors. In addition, the Directors were able to receive a one-time award of the ability to purchase a particular amount of warrants, as determined by the Board of Directors.
On January 1, 2020, the director agreements were renewed with the same terms. As of December 31, 2020 and 2019 the Company has accrued $320,000 and $160,000, respectively, in relation to the director agreements.
On December 31, 2019, three of the Directors of the Company were awarded share-based compensation for services performed during the service period of January 1, 2019 through December 31, 2019, as a one-time award to each purchase 200,000 warrants (collectively the “Warrants”) with the following terms:
·
Number and Type - Each Director is entitled to a one-time award of Warrants for the number of shares of Series B Preferred Stock of the Company. Each share of Series B Preferred Stock shall have voting rights equal to five (5) votes per share. Each share of Series B Preferred Stock is convertible into five (5) shares of the Company’s common stock, including liquidation preference over common stock.
·
Duration - The Warrants entitle each Director to purchase the Series B Preferred Stock from the Company after December 31, 2019 and before December 30, 2029.
·
Purchase Price - The purchase price is $1.20 per share of Series B Preferred Stock. These warrants have a price protection clause which was triggered resulting in the warrants being reset to an exercise price of $0.75. The effect was immaterial.
·
Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
·
Vesting - The Warrants are fully vested at issuance.
The Company issued warrants with respect to 600,000 Series B Preferred Stock, in the aggregate. The Company expensed the fair value of these warrants in the amount of $720,000 during the year ended December 31, 2019.
On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors.
Mr. Kaplan’s compensation as a director for the initial twelve months will consist of one million (1,000,000) warrants which will vest at the rate of 83,333 warrants per month for the initial eleven months and the balance in the twelfth month, provided he is a director on each vesting date, with the initial tranche vesting on the day he takes office and then on each monthly anniversary of such date thereafter. Each Warrant will be exercisable for 36 months after it vests and will be exercisable at a price of $0.18 per share. The warrants are valued at $177,200 based on the Black Scholes Model. If he remains in office beyond twelve months, commencing with month thirteen, his compensation will be similar to the majority of the directors then in office. For the year ended December 31, 2020, the Company recorded $85,930 as compensation expense related to the warrants.
Prior to Mr. Kaplan’s appointment to the Board of Directors, on July 7, 2020 we entered into (i) a Subscription Agreement with Mr. Kaplan to sell to him one million (1,000,000) shares of common stock at a purchase price of $0.20 per share for a total purchase price of $200,000, which shares shall be purchased in twelve (12) equal monthly installments of 83,333 shares (the last installment to cover 83,337 shares) with the initial purchase occurring on the date thereof and subsequent installments on each monthly anniversary thereafter (ii) a Consulting Agreement with Mr. Kaplan to award him, as full compensation for two (2) years of service, warrants to purchase two million (2,000,000) shares of common stock at an exercise price of $0.18 per share, which was the closing price of our common stock on such date. The warrants are valued at $354,400 based on the Black Scholes Model; and (iii) an arrangement with Mr. Kaplan that in the event he raises outside investment in the Company in the amount of $500,000 - $2,000,000, he will receive a warrant with one underlying share for each dollar he so raises. For the year ended December 31, 2020, the Company recorded $99,353 as compensation expense related to the warrants.
The warrants shall vest upon the occurrence to the Company of certain milestone events through the efforts of the consultant. (See Note 6).
If terminated with cause by the Company, the consultant shall not thereafter be entitled to any form of compensation, the unvested warrants shall terminate, and he shall be paid a buyout fee in the amount of 250,000 fully vested warrants. If terminated without cause by the Company, all unvested warrants shall be accelerated and vest in one-half the time it was previously scheduled to vest.
Effective August 1, 2020, Mr. Kaplan will also have the title Chief Marketing Officer with authority to oversee the Company’s sales and marketing operations, and responsibility for developing oversight processes and procedures.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
December 31,
December 31,
Leasehold improvements
$ 40,000
$ -
Equipment
239,515
-
Less: Accumulated depreciation and amortization
(37,077 )
-
Total
$ 242,438
$ -
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
December 31,
December 31,
Accounts payable
$ 572,496
$ 305,679
Interest
109,747
24,136
Salaries
389,745
386,121
Other
38,610
35,739
Total
$ 1,110,598
$ 751,675
NOTE 5 - LOANS AND LONG-TERM LOANS
December 31, 2020
December 31, 2019
1.
Note payable at 12%, matures 7/24/2021. In connection with the original issuance, as well as subsequent extension, the Company has recorded debt discount and amortized it over the applicable life of the debt.
{a} *
$ 50,000
$ 100,000
2.
Note payable at 12%, matures 1/22/2021. In connection with the original issuance, as well as subsequent extension, the Company has recorded debt discount and amortized it over the applicable life of the debt.
{b} *
18,000
18,000
3.
Note payable at 12%, matures 1/8/2022. In connection with the original issuance, as well as subsequent extension, the Company has recorded debt discount and amortized it over the applicable life of the debt.
{c} *
50,000
50,000
4.
Note payable at 12%, matures 6/11/2021. In connection with the original issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
*
25,000
25,000
5.
Note payable at 12%, matures 7/21/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
*
250,000
250,000
6.
Note payable at 12%, matures 10/1/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
*
410,000
410,000
7.
Note payable at 12%, matures 10/15/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
*
140,000
140,000
8.
Note payable at 12%, matures 10/30/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
*
200,000
200,000
9.
Note payable at 12%, matures 7/9/2021. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
*
60,000
-
10.
Note payable at 12%, matures 1/28/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
*
96,000
-
11.
Note payable at 3.75%, matures 6/25/2050 - EIDL.
**
150,000
-
12.
Non-interest bearing note payable, matures on 9/30/2021.
{d} *
53,479
-
13.
Note payable at 12%, matures 3/9/2022. In connection with the issuance, the Company has recorded debt discount and amortized it over the applicable life of the debt.
{e} *
50,000
-
Unamortized debt discount
(286,300 )
(544,490 )
Total
1,266,179
648,510
Less: short term loans, net
966,155
165,270
Total long-term loans, net
$ 300,024
$ 483,240
{a} - On July 24, 2020, the Company extended the note to July 24, 2021 based on the same terms and conditions. In association with the extension the company issued 50,000 shares of common stock with a fair value on $17,500, which will be recorded a debt discount and amortized over the new life of the loan.
{b} - On March 1, 2021, the Company extended the note to July 22, 2021 based on the same terms and conditions. In association with the extension the company issued 18,000 shares of common stock with a fair value on $5,400, which will be recorded a debt discount and amortized over the new life of the loan.
{c} - On July 8, 2020, the Company extended the note to January 8, 2022 based on the same terms and conditions. In association with the extension the company issued 50,000 shares of common stock with a fair value on $16,000, which will be recorded a debt discount and amortized over the new life of the loan.
{d} - On June 23, 2020, the Company issued a non-interest bearing promissory note for $140,188. In exchange for this note the Company received $80,187 of equipment and leasehold improvement, $29,814 of inventory, $18,224 of prepaid expenses and $11,963 of settlement of accrued expenses. During the period the Company made $86,709 of payments.
{e} - On September 10, 2020, the Company issued a promissory note for $50,000. In connection with this note the company issued 50,000 shares of common stock with a fair value of $12,000, which was recorded as a debt discount and amortized over the life of the loan.
* - unsecured note
** - secured note and collateralized by all tangible and intangible personal property
During the years ended December 31, 2020 and 2019, the Company recorded $383,338 and $99,972 of interest expense related to the amortization of debt discount and $160,216 and $54,617 of regular interest, respectively. As of December 31, 2020 and 2019, accrued interest was $61,099 and $2,383, respectively.
NOTE 6 - STOCKHOLDERS’ DEFICIT
The following table shows the changes in shares of common stock for 2020 and 2019:
Shares
Amount
Shares
Amount
Common stock outstanding, beginning balances
20,313,771
17,709,087
Common stock issued for cash to a related party
499,998
$ 100,000
-
$ -
Common stock issued to consultants for services
600,000
131,350
1,342,184
348,850
Common stock issued to consultants for services - related party
-
-
75,000
18,750
Common stock issued with loans payable
374,000
99,632
1,062,500
309,713
Common stock issued for related party loan
579,410
126,402
25,000
5,250
Common stock issued for services
-
-
100,000
30,000
Common stock outstanding, ending balances
22,367,179
$ 457,384
20,313,771
$ 712,563
Warrant Activity
Common Stock Warrants
On February 5, 2019, the Company signed a Consulting Agreement for a six (6) month term with a consultant to run the day-to-day manufacturing, packaging and distribution of the Company’s chocolate product line. The Consulting Agreement has a $7,000 monthly fee. In addition, the Company issued a warrant to the Consultant to purchase 60,000 shares of the Company’s common stock at the closing market price of $0.30 on February 5, 2019 with a term of three (3) years. The Company valued these warrants using the Black-Scholes option pricing model with the following inputs: exercise price of $0.30; fair market value of underlying stock of $0.30; expected term of 3 years; risk free rate of 2.50%; volatility of 388.56%; and dividend yield of 0%. The total fair value of these warrants is $17,988 and was expensed at issuance. On August 4, 2020, the Company entered into an employee agreement with the consultant.
On July 22, 2019, the Company issued a promissory note of $250,000. In connection with this note the Company issued a warrant to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.25 per share. The warrant was valued at $99,925 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested and was fully expensed as of the issue date with an exercise term of three (3) years.
On October 2, 2019, the Company issued a promissory note for $410,000. In connection with this note the Company issued warrants to purchase 205,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrant was valued at $52,501 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested and was fully expensed as of the issue date with an exercise term of three (3) years.
On October 16, 2019, the Company issued a promissory note for $140,000. In connection with this note the Company issued warrants to purchase 205,000 and 140,000 shares of the Company’s common stock with an exercise price of $0.30 and $0.50 per share, respectively. The warrants were valued at $83,060 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years.
On October 31, 2019, the Company issued a promissory note of $200,000. In connection with this note the Company issued warrants to purchase 200,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrants are valued at $57,180 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years.
On January 29, 2020, the Company issued a promissory note of $96,000 (see Note 5). In connection with this note the Company issued warrants to purchase 96,000 shares of the Company’s common stock with an exercise price of $0.22 per share. The warrants are valued at $20,717 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue dates with an exercise term of three (3) years.
On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors. Mr. Kaplan’s compensation as a director for the initial twelve months will consist of one million (1,000,000) warrants which will vest at the rate of 83,333 warrants per month for the initial eleven months and the balance in the twelfth month, provided he is a director on each vesting date, with the initial tranche vesting on the day he takes office and then on each monthly anniversary of such date thereafter. Each Warrant will be exercisable for 36 months after it vests and will be exercisable at a price of $0.18 per share. The warrants are valued at $177,200 based on the Black Scholes Model.
Prior to Mr. Kaplan’s appointment to the Board of Directors, on July 7, 2020 the Company entered into a Consulting Agreement with Mr. Kaplan to award him, as full compensation for two (2) years of service, warrants to purchase two million (2,000,000) shares of common stock at an exercise price of $0.18 per share, which was the closing price of our common stock on such date. The warrants are valued at $354,400 based on the Black Scholes Model. Due to the fact that management has assessed the probability of certain milestones being met as probable, the warrants are being straight-lined over the term of services, and accelerated whenever a milestone is met. The probability of the remaining milestone being met is reviewed by management every quarter. For the year ended December 31, 2020, the Company recorded $99,353 as compensation expense related to the warrants.
The warrants shall vest upon the occurrence to the Company of the following milestone events through the efforts of the consultant:
No. of Warrants
Milestone
100,000
Acceptance by the Company of a full go-to market strategy for the Company's products. This milestone has been achieved as of December 31, 2020.
100,000
Acceptance by the Company of a social marketing platform and PR strategy and onboarding of such.
300,000/500,000
300,000 for each MULO retailer that is onboarded - regardless of store count carrying the product; and 500,000, if the onboarded MULO is a national chain.
300,000
Deliverance of full due diligence package for each potential acquisition for which the Company requests the consultant perform due diligence
500,000
Upon the closing of any acquisition which the consultant brought to the Company and provided due diligence.
500,000
Additional compensation in board seat agreement.
On July 31, 2020, the Company issued a warrant to purchase 100,000 shares of the Company’s common stock to a consultant for services. The warrants are valued at $31,500 based on the Black Scholes Model and were fully vested at issuance.
On August 4, 2020, the Company signed an Employment Agreement for a term of three years with an annual base salary of eighty-four thousand dollars ($84,000). As part of the agreement the Company issued a warrant to the employee to purchase 300,000 shares of the Company’s common stock with a term of three (3) years. The warrants are valued at $97,470 based on the Black Scholes Model. In addition, the employee will receive a warrant to purchase 300,000 of the Company’s common stock for each of the two remaining years under the Employment Agreement with an exercise price equal to the closing market price of the Company’s common stock on the first day of each of such two annual employment periods. The warrants will be subject to a 12-month period whereby the warrants will vest in equal monthly increments for each year of the employment period. Each of the warrants will be exercisable within a three-year period from the date of issue. Once per quarter, the employee may waive the right to receive 25,000 warrants and receive in exchange for $5,000 worth of shares of the Company’s common stock. In the event the employee’s employment is terminated by the Company without cause, the employee shall be entitled to receive severance in an amount equal to the lesser of three month’s salary or the amount of salary otherwise payable until the termination date. The employee additionally shall be entitled to retain all warrants scheduled to vest within the following six months.
A summary of the Company’s warrants to purchase common stock activity is as follows:
Number of
Warrants
(in common
shares)
Weighted
Average
Exercise
Price
Outstanding, December 31, 2018
343,750
$ 0.08
Granted
1,060,000
0.31
Exercised
-
-
Forfeited or cancelled
-
-
Outstanding, December 31, 2019
1,403,750
$ 0.26
Granted
3,496,000
0.20
Exercised
-
-
Forfeited or cancelled
-
-
Outstanding, December 31, 2020
4,899,750
$ 0.21
As of December 31, 2020, 2,303,917 warrants for common stock were exercisable and the intrinsic value of these warrants was $71,056, the weighted average remaining contractual life for warrants outstanding was 2.87 years and the remaining expense is $403,998 over the remaining amortization period which is 1.50 years.
As of December 31, 2019, 1,403,750 warrants for common stock were exercisable and the intrinsic value of these warrants was $55,688 and the weighted average remaining contractual life for warrants outstanding was 2.41 years.
Preferred Stock Warrants
On May 10, 2018, the Company issued warrants to purchase 1,280,000 shares of Series B Preferred Stock, in the aggregate, to its Board of Directors as compensation expense for services to be performed for the period May 10, 2018 through December 31, 2020. The warrants have an exercise price of $0.60, vest over a 32-month period starting May 10, 2018 through December 31, 2020, and are exercisable from January 1, 2019 through December 31, 2027. As of December 31, 2019, there were 800,000 Series B Preferred Stock warrants exercisable. The Company will expense the fair value of these warrants in the amount of $768,000 ratably during the years ended December 31, 2018, 2019 and 2020. For the year ended December 31, 2020 and 2019, the Company recorded $290,981 and $290,186, respectively, as compensation expense related to the warrants.
On December 30, 2019, the Company issued warrants to purchase 600,000 shares of Series B Preferred Stock, in the aggregate, to three members of its Board of Directors as compensation expense for additional services performed during the year ended December 31, 2019. The warrants have an exercise price of $1.20 per share, are fully vested at issuance, and are exercisable from December 31, 2019 through December 30, 2029. The Company expensed the fair value of these warrants in the amount of $720,000 during the year ended December 31, 2019.
On March 18, 2020, the Company issued its CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary. The warrants have an exercise price of $0.75 per share, are fully vested at issuance, and are exercisable from March 18, 2020 through March 17, 2030. The fair value of these warrants was $375,000 and the additional $125,000 over the deferred salary amount was recorded as compensation expense during the year ended December 31, 2020. As a result of this issuance, the price protection clause on the director’s warrants issued on December 31, 2019 was triggered resulting in the warrants being reset to an exercise price of $0.75, and the effect was immaterial.
A summary of the Company’s warrants to purchase Series B Preferred Stock activity is as follows:
Number of
Warrants
(in Series B
Preferred
Stock)
Weighted
Average
Exercise Price
Outstanding, December 31, 2018
3,370,000
$ 0.57
Granted
600,000
1.20
Outstanding, December 31, 2019
3,970,000
$ 0.67
Granted
500,000
0.75
Exercised
-
-
Forfeited or cancelled
-
-
Outstanding, December 31, 2020
4,470,000
$ 0.68
As of December 31, 2020, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $1,932,750, the weighted average remaining contractual life for warrants outstanding was 7.37 years and the warrants have been fully expensed.
As of December 31, 2019, 3,490,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $1,826,100. As of December 31, 2019, the weighted average remaining contractual life was 8.14 years for warrants outstanding and the remaining expense is $290,981 over the remaining amortization period which is 1 year.
NOTE 7 - LEASES
On June 23, 2020, the Company entered into an operating lease agreement with terms of 4 years, and an option to extend for three years, comprising of office and warehouse space. This option is included in the lease term when it is reasonably certain that the option will be exercised and failure to exercise such option will result in economic penalty and as such the option to extend for the three year term is not included in the below calculation.
The assets and liabilities from operating leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the consolidated balance sheet.
The Company’s operating lease does not provide an implicit rate that can readily be determined. Therefore, the Company uses a discount rate based on our incremental borrowing rate, which is determined using the average interest rate of our long-term debt as of June 23, 2020.
The Company’s weighted-average remaining lease term relating to its operating leases is 3.33 years, with a weighted-average discount rate of 12.00%.
For the year ended December 31, 2020, the Company incurred lease expense for its operating leases of $43,821 which was included in general and administrative expenses on the accompanying consolidated statements of operations.
The Company had operating cash flows used in operating leases of $43,612 for the year ended December 31, 2020.
The Company does not include the non-lease components that are associated with the lease and accounts for them outside of the lease in accordance with ASC Topic 842 Leases. The percentage of cost associated with the lease component was 100%.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of December 31, 2020.
Maturity of Lease Liability
$ 85,860
86,881
89,487
30,122
Total undiscounted operating lease payments
$ 292,350
Less: Imputed interest
52,894
Present value of operating lease liabilities
$ 239,456
NOTE 8 - COMMITMENTS
On July 16, 2018, the Company entered into a consulting agreement with a service provider that contains the following terms:
•
A $6,000 per month advance of Holy Cacao equity distribution will be awarded every month Holy Cacao earns a net profit over a period of twenty-four (24) consecutive months following the initial product launch and production sale.
•
300,000 warrants for shares of the Company’s common stock will be awarded after each of two consecutive twelve (12) month periods in which Holy Cacao earns a net profit from gross annual product sales of at least $1M. Each of the two 300,000 warrant awards will vest equally over a twelve (12) month period.
On August 14, 2019, the Company entered into an agreement with a CFN Media. In consideration for the services and deliverables provided by CFN Media, the Company will make three (3) cash payments to CFN Media totaling $30,000. Payments will be made in accordance with the following staged schedule:
“Stage 1” - $10,000 due upon the signing of the agreement for the Stage 1 services and deliverables: the interview, lead generation system and two (2) articles, including syndication, distribution and placement. This payment has been made.
“Stage 2” - $10,000 due upon the Company’s receipt of CFN Media’s invoice issued after CFN Media’s completion of Stage 1 and the Company’s confirmation they are ready to continue with Stage 2, which will include CFN Media’s delivery of two (2) Articles with the embedded interview and lead generation, as well as syndication, distribution and placement of services and deliverables.
“Stage 3” - $10,000 due upon the Company’s receipt of CFN Media’s invoice issued after CFN Media’s completion of Stage 2 and the Company’s confirmation they are ready to continue with Stage 3, which will include CFN Media’s delivery of two (2) Articles with the embedded interview and lead generation, as well as syndication, distribution and placement of services and deliverables.
On October 10, 2019, the Company signed a master distribution agreement with CBD Unlimited, Inc., which is a public company and a master distributor, to distribute the Company’s hemp-based chocolate products. The term of this agreement is four years. The agreement includes the issuance of 250,000 shares of the Company’s common stock at the closing market price of $0.26 per share as of the date of the agreement. Additionally, FIFG shall pay the distributor a commission for its services hereunder amounting to applicable percentage of the sales price of any sales or sales contract with a customer.
On January 14, 2020, the Company entered into an agreement with a Sales Consultant to further the business purpose of the Company. In consideration for the services provided by the Consultant, the Consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers.
On October 15, 2020, the Company entered into a chocolate sales agreement with a sales consultant. The Consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers. The Consultant shall receive a sales commission of the gross sales (net of returns) directly generated by the Consultant to such distributor and such distributor shall receive a commission of such gross sales (net of returns). Commissions shall be paid within 30 days of the end of the quarter in which they are deemed earned. No commissions are due as of December 31, 2020. In addition, once Salesman has made $75,000 of gross sales (net of returns) he shall receive 75,000 shares of the Company’s common stock. This agreement shall continue for sixty months from the date of the agreement and will automatically extend for additional successive sixty-month terms unless written notice is delivered at least thirty days prior to the end of the current term.
On October 19, 2020, the Company entered into a chocolate sales agreement with B&A Brokerage for the greater metropolitan New York area. The term of the agreement is for one year and will automatically renew itself in one-year increments unless either party gives written notice of termination at least sixty days prior to the end of the term. During the initial term, the broker will receive a minimum monthly commission or a percentage of paid invoices for all sales in the territory, whichever is greater. After the initial term, the broker will receive a monthly commission of paid invoices for all sales in the territory. No commissions are due as of December 31, 2020.
On November 9, 2020, the Company entered into an agreement with a consultant. The consultant shall provide the following services: develop a marketing plan and act as a sales agent with respect to the wholesale of various products by the Company. As compensation for the services, the consultant shall receive a cash payment in an amount in excess of 9% of the profit margin. However, in the event the average closing price of the Company’s common stock on the common stock’s primary market over the final ten (10) trading days of any month is greater than or equal to $0.50, then the cash compensation for such month shall only be the amount of profit margin generated by the sales of the products in excess of 14% of gross sales and the amount of profit margin between 9% and 14% of gross sales shall completely belong to the Company. Prior to the payment date of each month, the consultant can elect to receive all or part of the cash compensation due for such month in the form of common stock by providing written notice of such election to the Company. The number of shares to be issued shall be calculated based upon a per share value equal to 80% of the valuation price. This agreement shall commence on the effective date and shall continue for a term of two (2) years. Prior to six months after the effective date this agreement may not be cancelled without cause. After six months this agreement may be sooner terminated by either party upon sixty days written notice.
On November 9, 2020, the Company entered into a grant agreement with a sales consultant. As compensation for the services, the Company will issue up to three million (3,000,000) shares to the sales consultant in monthly installments over the twenty (24) month term of the agreement. The number of shares to be issued by the Company to the sales consultant on a monthly basis will be determined by the amount of net sales of various wholesale products generated by the sales consultant at the end of each month multiplied by a fixed percentage of nine percent (9%) divided by the last closing market price of the shares as of the effective date. In addition to the shares to be issued, the sales consultant shall be issued three million (3,000,000) warrants to purchase shares. One warrant shall be fully vested for every share issued. The exercise price of each warrant shall be equal to the grant price and each warrant shall be exercisable for thirty-six (36) months following the date of vesting. Until such time as the shares underlying the warrants are registered, the warrants may be exercised via a cashless exercise.
NOTE 9 - CONCENTRATION RISKS
The Company recognizes the concentration of its merchant cash advances, which could inherently create a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of the outstanding merchant cash advances. The Company actively mitigates its portfolio concentration risk by monitoring its merchant cash advance provider’s ability to participate in merchant cash advances from alternative providers and spreading merchant cash advance participation across various merchants.
As of December 31, 2020, the Company’s receivables from merchant cash advances included $59,719 from two merchants ($25,929 and $33,790), representing 49.3% of the Company’s merchant cash advances. The Company earned $84,525 and $27,175 of MCA income from two merchants, representing 53.5% and 17.2%, respectively of the Company’s MCA income for the twelve months ended December 31, 2020.
As of December 31, 2019, the Company’s receivables from merchant cash advances included $713,124 from two merchants ($179,853 and $533,271), representing 81.3% of the Company’s merchant cash advances. The Company earned $130,243 of MCA income from one merchant, representing 44.2% of the Company’s MCA income for the twelve months ended December 31, 2019.
As of December 31, 2020 and 2019, there was no accounts payable concentration other than amounts owed to related parties which makes up 74% and 61% of the balance, respectively.
For the year ended December 31, 2020, the Company had purchase concentrations of 49% and 14% from two vendors.
For the year ended December 31, 2019, the Company had purchase concentrations of 34%, 26%, 15% and 12% from four vendors.
NOTE 10 - SUBSEQUENT EVENTS
On January 1, 2021, the Company issued 40,000 shares of the Company’s common stock based on the fair market value on the date of issuance, in connection with the extension of the maturity date of related party note 3. (See Note 2).
On January 14, 2021, the Company entered into an agreement with a Sales Consultant to further the business purpose of the Company. In consideration for the services provided by the Consultant, the Consultant will receive a commission of the gross sales (net of returns) that were directly generated by the consultant to new customers. This agreement shall continue for sixty months from the date of the agreement and will automatically extend for additional successive sixty month terms unless written notice is delivered at least thirty days prior to the end of the current term.
On January 19, 2021, the Company sold 83,333 shares of common stock at a purchase price of $0.20 per share for a total purchase price of $16,667.
On February 1, 2021, the Company issued 36,765 shares of common stock to a consultant at $0.14 per share, which was a 20% discount to the fair market closing price, for a total of $5,000.
On February 9, 2021, the Company sold 83,333 shares of common stock at a purchase price of $0.20 per share for a total purchase price of $16,667.
On March 1, 2021, the Company extended the third party note payable note 2 to July 22, 2021 based on the same terms and conditions. (See Note 5).

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. As further discussed below, we have identified material weaknesses in the effectiveness, design and operation of our disclosure controls and procedures.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and includes those policies and procedures that:
1.
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
2.
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
3.
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
The Company’s management, including the chief executive officer and chief financial officer, do not expect that its disclosure controls or internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
As of December 31, 2020, management has not completed an effective assessment of the Company’s internal controls over financial reporting based on the 2013 Committee of Sponsoring Organizations (COSO) framework. Management has concluded that, during the period covered by this report, our internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP. Management identified the following material weaknesses set forth below in our internal control over financial reporting.
1. We lack the necessary corporate accounting resources to maintain adequate segregation of duties.
2. We did not perform an effective risk assessment or monitor internal controls over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only the management’s report in this annual report.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Identification of Directors and Executive Officers:
As of March 3, 2021, our Board of Directors consisted of five members. Each director holds office until his successor is duly elected by the stockholders. The executive officers serve at the pleasure of the Board of Directors. Our current directors and executive officers are:
Name
Age
Position
Year Appointed
Harold Kestenbaum
Interim Chief Executive Officer and Chairman of the Board of Directors
Mark J. Keeley
Chief Financial Officer and Director
Abraham Rosenblum
Secretary and Director
Hershel Weiss
Director
Michael Kaplan
Chief Marketing Officer and Director
HAROLD L. KESTENBAUM is an attorney who has specialized in franchise law and other matters relating to franchising since 1977. From May 1982 until September 1986, Harold served as franchise and general counsel to Sbarro, Inc., the national franchisor of over 1,000 family-style Italian restaurants, and was a director from March 1985 to December 2006. From September 1983 to October 1989, he served as President and Chairman of the Board of FranchiseIt Corporation, the first publicly traded company specializing in providing franchise marketing and consulting services and equity financing to emerging franchise companies, which he co-founded. Harold has authored the first book dedicated to the entrepreneur who wants to franchise his/her business called “So You Want To Franchise Your Business.” It is a step-by-step guide to what a business person needs to know and do to properly roll out a franchise program.
He has served as a Director of numerous nationally and internationally known franchisors. He has been practicing franchise law since 1981. He was with Gordon & Rees, a San Francisco based national law firm, from September 2011 to June 2014. On May 1, 2019, he merged his practice with the Philadelphia based law firm, Spadea and Lignana and is a partner in that firm.
Harold is a member of the American Bar Association’s Antitrust Section, a member of the Antitrust Section’s Forum Committee on Franchising since 1978, a member of the Subcommittee on Franchising of the American Bar Association’s Corporation Banking and Business Law Section, is a founding member and past Chairman of the New York State Bar Association’s Franchise, Distribution and Licensing Law Section, and he currently serves as Chairman for its Education and Seminar Subcommittee (he has chaired Statewide seminar programs for New York State attorneys in 1997, 2000, 2002, 2004 and 2005 and chaired seminars on Franchise Law for the Nassau and Suffolk County Bar Associations) and was a member of the International Franchise Association’s Supplier Forum Advisory Board. He has published many articles related to franchising and frequently lectures and appears before numerous organizations and law schools speaking on various topics in franchising. He has been chosen one of the top 100 franchise attorneys in North America by Franchise Times in 2004-2011 and was named one of the three best franchise attorneys in the New York metro area by New York Magazine for 2005-2009 and was named New York Super Lawyer as one of the Top Attorneys in the New York Metro Area for 2007-2016.
Harold received his Bachelor of Arts Degree in 1971 from Queens College, Queens, New York and earned his Juris Doctor Degree from the University of Richmond School of Law, Richmond, Virginia, in 1975, where he was a member of Law Review.
MARK J. KEELEY is a Certified Public Accountant (CPA) who began his career in public accounting with KPMG LLP in August 1985, after graduating Summa Cum Laude from the University of Massachusetts with a Bachelor’s Degree in Accounting and Computer Science. He obtained a Master’s Degree in Finance from Boston College in May 1988 and continued his public accounting career at Coopers & Lybrand LLP in September 1990 and was admitted to the Partnership when Coopers & Lybrand LLP merged with Price Waterhouse LLP to become PricewaterhouseCoopers LLP (PwC) in October 1988. He retired from PwC in July 2014. From April 2015 through November 2016, he served as the Chief Financial Officer (CFO) of Bradley, Foster & Sargent, Inc.; a Registered Investment Advisor (RIA) and SEC registrant with over $3B of assets under management.
Mr. Keeley is a qualified audit committee financial expert and one of the first holders of the Certified Information Technology Professional (CITP) designation granted by the American Institute of Public Accountants (AICPA). He has applied his accounting, financial management and information technology experience to a broad range of national and international companies, including the development of artificial intelligence (AI) solutions for the restaurant and restaurant franchise industry.
He has regularly worked with the highest levels of senior management, boards of directors, external auditors, investors, and regulators to build consensus and reach a common understanding of complex financial matters. He has testified to the United States Congress regarding financial accounting and auditing aspects of the U.S. Federal Government and served as PwC’s representative to Congressman Mr. Michael Conaway.
ABRAHAM ROSENBLUM began his career in the automotive industry as a distributor of wholesale parts, and eventually moved into owning and developing real estate. Mr. Rosenblum has worked with “A rated” tenants with several large corporations such as TD Bank, Walgreens and Family Dollar. In 2007, Mr. Rosenblum began investing in real estate along with institutional lenders. Mr. Rosenblum was the President of a telecommunications carrier network, Tandem Transit, which he helped form and finance for five years. Mr. Rosenblum was educated at YTC in Brooklyn New York. He served on the Board of Directors for several technology companies and automotive distribution outlets. Mr. Rosenblum remains active in several charitable organizations.
HERSHEL (HERSHY) WEISS is the Co-Founding Member of First Foods Group Inc. Mr. Weiss has been active in the New Jersey, Connecticut and Massachusetts real estate market for the last 21 years. As an employee at Basad Management LLC and as a principal, Mr. Weiss has been involved in residential, office, industrial and retail sectors of the market, starting in maintenance, moving up to renovations and construction, environmental remediation, then on to financing, including complicated deal structures with lenders and investors and finally acquisitions and redevelopment. Mr. Weiss actively negotiates leases in the commercial and retail sectors and has become very familiar with the retail food industry by working with tenants starting out in the industry.
MICHAEL KAPLAN is a highly experienced marketing executive with over three decades of enterprise retail and wholesale presence amongst the world’s largest entities. He is a global sourcing expert who has built merchandising programs on both private label and licensed brands. He also has strong P&L management experience coupled with skills in the areas of brand positioning, marketing strategy, creative new product innovation, integrated marketing communications and total product lifecycle management. He has delivered aggressive revenue and earnings growth across multiple retail and wholesale channels while following market trends amongst retailers to compare data. He has led teams across grocery, mass, drug, warehouse and specialty retailers throughout North America, Europe and the Middle East and produced multi-billion-dollar sales and royalties.
Penalties or Sanctions
None of our directors or executive officers has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor making an investment decision.
Personal Bankruptcies
None of our directors or executive officers, nor any personal holding company of any such person has, within the last ten years become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or been subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that person.
Employment Agreements
Executive Officer (“Interim CEO”). Mr. Kestenbaum earns $40,000 per year for his role as Chairman of the Board. As of December 31, 2020, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under a previous agreement.
On March 1, 2017, Mark J. Keeley assumed the role of Chief Financial Officer (“CFO”). Pursuant to his Employment Agreement, the CFO shall receive $20,833 per month. Additionally, Mr. Keeley earns an additional $40,000 per year for his role as a Director of the Board. On March 18, 2020, the Company issued its CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary (see Note 6). As of December 31, 2020 and 2019, the Company has accrued $329,167 for each such year in relation to the employment agreements and $20,578 and $16,953 in each such year in relation to the payroll tax liability.
Family Relationships
There are no family relationships between any of our directors or executive officers and any other directors or executive officers.
Term of Office
All directors hold office for a one (1) year period and have been duly elected and qualified. Directors will be elected at the annual meetings to serve for one-year terms and until their successors are duly elected and assume office. Each officer of the Company is appointed by and serves at the discretion of the Board of Directors. None of the officers or directors of the Company is currently an officer or director of a company required to file reports with the Securities and Exchange Commission, other than the Company.
Involvement in Certain Legal Proceedings
During the past five years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Board Committees
Audit Committee
We do not have a separately-designated standing audit committee. The Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board of Directors when performing the functions that would generally be performed by an audit committee. The Board of Directors approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board of Directors reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters, including fees to be paid to the independent auditor and the performance of the independent auditor.
Compensation and Nominations Committees
We currently have no compensation or nominating committee or other board committee performing equivalent functions. Currently, the members of our Board of Directors participate in discussions concerning executive officer compensation and nominations to the Board of Directors.
Shareholder Communications
The Company does not have a process for security holders to send communications to the board of directors due to the fact that minimal securities are publicly traded.
Code of Conduct and Ethics
We have not adopted a Code of Ethics, as required by sections 406 and 407 of the Sarbanes-Oxley Act of 2002. Our management believes that the size of our company and current operations at this time do not require a code of ethics to govern the behavior of our officers. We anticipate that we will adopt a code of ethics once we are in a position to do so.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
On February 27, 2017, Harold Kestenbaum assumed the role of Chairman of the Board of Directors and Interim Chief Executive Officer (“Interim CEO”). Mr. Kestenbaum earns $40,000 per year for his role as Chairman of the Board. As of December 31, 2020, the Company has accrued a total of $40,000 of compensation for his role as Interim CEO under a previous agreement.
On March 1, 2017, Mark J. Keeley assumed the role of Chief Financial Officer (“CFO”). Pursuant to his Employment Agreement, the CFO shall receive $20,833 per month. Additionally, Mr. Keeley earns an additional $40,000 per year for his role as a Director of the Board. On March 18, 2020, the Company issued its CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary (see Note 6). As of December 31, 2020 and 2019, the Company has accrued $329,167 in each such year in relation to the employment agreements and $20,578 and $16,953 in each such year in relation to the payroll tax liability.
Stock Option Plan
We do not have a stock option plan; however, we have issued warrants to acquire our securities, as detailed in the notes to the consolidated financial statements.
Employee Pension, Profit Sharing or Other Retirement Plans
We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.
Director’s Compensation
On May 10, 2018, the directors of the Company were awarded share-based compensation for the service period of May 10, 2018 through December 31, 2020, as a one-time award of the ability to purchase a particular amount of warrants, ranging from 80,000 to 400,000 (collectively the “Warrants”) with the following terms:
·
Number and Type - Each Director is entitled to a one-time award of Warrants for the number of shares of Series B Preferred Stock of the Company. Each share of Series B Preferred Stock shall have voting rights equal to five (5) votes per share. Each share of Series B Preferred Stock is convertible into five (5) shares of the Company’s Common Stock (the “Common Stock”), including liquidation preference over Common Stock.
·
Duration - The Warrants entitle each Director to purchase the Series B Preferred Stock from the Company, after January 1, 2019 and before December 31, 2027.
·
Purchase Price - The purchase price is $0.60 per share of Series B Preferred Stock.
·
Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
·
Vesting - The Warrants are subject to a 32-month period whereby the Warrants vest in equal monthly increments from May 10, 2018 through December 31, 2020. Any unvested warrants are forfeited, if the Director ceases to be a Director.
The Company issued warrants with respect to 1,280,000 Series B Preferred Stock, in the aggregate. The Company will expense the fair value of these warrants in the amount of $768,000 ratably during the years ended December 31, 2018, 2019 and 2020. For the year ended December 31, 2020 and 2019, the Company recorded $290,981 and $290,186 as compensation expense related to the warrants, respectively.
On February 26, 2019, the Company entered into director agreements with each of the Directors of the Company. Pursuant to the agreements, each Director may be compensated with share-based and/or cash-based compensation. The Directors’ compensation for the period January 1, 2019 through December 31, 2019 was $10,000 per quarter per Director to be paid on a date determined by the Board of Directors. In addition, the Directors were able to receive a one-time award of the ability to purchase a particular amount of warrants, as determined by the Board of Directors.
On January 1, 2020, the director agreements were renewed with the same terms. As of December 31, 2020 and 2019 the Company has accrued $320,000 and $160,000, respectively, in relation to the director agreements.
On December 31, 2019, three of the Directors of the Company were awarded share-based compensation for services performed during the service period of January 1, 2019 through December 31, 2019, as a one-time award to each purchase 200,000 warrants (collectively the “Warrants”) with the following terms:
·
Number and Type - Each Director is entitled to a one-time award of Warrants for the number of shares of Series B Preferred Stock of the Company. Each share of Series B Preferred Stock shall have voting rights equal to five (5) votes per share. Each share of Series B Preferred Stock is convertible into five (5) shares of the Company’s common stock, including liquidation preference over common stock.
·
Duration - The Warrants entitle each Director to purchase the Series B Preferred Stock from the Company after December 31, 2019 and before December 30, 2029.
·
Purchase Price - The purchase price is $1.20 per share of Series B Preferred Stock. These warrants have a price protection clause which was triggered resulting in the warrants being reset to an exercise price of $0.75. The effect was immaterial.
·
Cashless Exercise - If on the date the Director surrenders all or a portion of the Warrants for the purchase of Series B Preferred Stock or the equivalent number of shares of Common Stock, the per share market value of one share of Common Stock is greater than the exercise price of the equivalent Warrant, in lieu of exercising the Warrant by payment of cash, the Director may exercise the Warrant by a cashless exercise and shall receive a ratably lower number of shares of Series B Preferred Stock or the equivalent number of shares of Common Stock.
·
Vesting - The Warrants are fully vested at issuance.
The Company issued warrants with respect to 600,000 Series B Preferred Stock, in the aggregate. The Company expensed the fair value of these warrants in the amount of $720,000 during the year ended December 31, 2019.
On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors.
Mr. Kaplan’s compensation as a director for the initial twelve months will consist of one million (1,000,000) warrants which will vest at the rate of 83,333 warrants per month for the initial eleven months and the balance in the twelfth month, provided he is a director on each vesting date, with the initial tranche vesting on the day he takes office and then on each monthly anniversary of such date thereafter. Each Warrant will be exercisable for 36 months after it vests and will be exercisable at a price of $0.18 per share. The warrants are valued at $177,200 based on the Black Scholes Model. If he remains in office beyond twelve months, commencing with month thirteen, his compensation will be similar to the majority of the directors then in office.
Prior to Mr. Kaplan’s appointment to the Board of Directors, on July 7, 2020 we entered into (i) a Subscription Agreement with Mr. Kaplan to sell to him one million (1,000,000) shares of common stock at a purchase price of $0.20 per share for a total purchase price of $200,000, which shares shall be purchased in twelve (12) equal monthly installments of 83,333 shares (the last installment to cover 83,337 shares) with the initial purchase occurring on the date thereof and subsequent installments on each monthly anniversary thereafter (ii) a Consulting Agreement with Mr. Kaplan to award him, as full compensation for two (2) years of service, warrants to purchase two million (2,000,000) shares of common stock at an exercise price of $0.18 per share, which was the closing price of our common stock on such date. The warrants are valued at $354,400 based on the Black Scholes Model; and (iii) an arrangement with Mr. Kaplan that in the event he raises outside investment in the Company in the amount of $500,000 - $2,000,000, he will receive a warrant with one underlying share for each dollar he so raises.
The warrants shall vest upon the occurrence to the Company of certain milestone events through the efforts of the consultant. (See Note 6 in the notes to the consolidated financial statements.)
If terminated with cause by the Company, the consultant shall not thereafter be entitled to any form of compensation, the unvested warrants shall terminate, and he shall be paid a buyout fee in the amount of 250,000 fully vested warrants. If terminated without cause by the Company, all unvested warrants shall be accelerated and vest in one-half the time it was previously scheduled to vest.
Related Party Transactions
Related party transactions are detailed in Note 2 in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The following table sets out the compensation received for the years ended December 31, 2020 and 2019 with respect to each of the individuals who served as the Company’s principal executive officer and principal financial officer at any time during the last fiscal year:
SUMMARY COMPENSATION TABLE
Name and Principal Position
Fiscal Year
Salary
Bonus
Stock
Awards
Option
Awards
Non-Equity Incentive Plan Compensation
Non-Qualified Deferred Plan Compensation
All
Other Compensation
Total
Mark J.
$ (1)250,000
$ -
$ -
$ -
$ -
$ -
$ -
$ 250,000
Keeley
$ 241,667
$ -
$ -
$ -
$ -
$ -
$ -
$ 241,667
_____________
(1) On March 18, 2020, the Company issued the CFO and Director warrants to purchase 500,000 shares of Series B Preferred Stock in lieu of $250,000 of deferred salary. All remaining salary due was accrued. No cash was issued.
Equity Compensation Plan Information - Employment Agreements
Equity compensation issued in employment agreements in place on December 31, 2020 and 2019 are detailed in Note 2 in the Notes to the Financial Statements included elsewhere in this Annual Report on Form 10-K.
Outstanding Equity Awards at Fiscal Year-End
A summary of the Company’s outstanding warrant awards at fiscal year end is as follows:
Number of
Securities
Underlying Unexercised
Options
Exercisable
(#)
Number of
Securities
Underlying Unexercised
Options
Unexercisable
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units
of Stock
that have not
Vested
(#)
Market
Value of
Shares or
Units of
Stock that
have not
Vested
(#)
Mark J. Keeley
1,950,000
-
0.51 - 1.20
Various
-
-
Abraham Rosenblum
1,200,000
-
0.51 - 1.20
Various
-
-
Hershel Weiss
1,200,000
-
0.51 - 1.20
Various
-
-
Harold Kestenbaum
120,000
-
0.51 - 1.20
Various
-
-
Michael Kaplan
579,167
2,420,833
0.18
July 26, 2024
-
-
Director’s Compensation
The following table sets forth the Company’s fees and compensation paid or earned by directors for the years ended December 31, 2020 and 2019.
DIRECTORS COMPENSATION
Name
Year
Fees
Earned or
Paid
in Cash
Stock
Awards
Option
Awards
Non-Equity
Incentive Plan
Compensation
Non-Qualified
Deferred Plan
Compensation
All
Other
Compensation
Total
Abraham Rosenblum
$ 40,000
$ -
$ -
$ -
$ -
$ -
$ 40,000
$ 40,000
$ -
$ 240,000
$ -
$ -
$ -
$ 280,000
Hershel Weiss
$ 40,000
$ -
$ -
$ -
$ -
$ -
$ 40,000
$ 40,000
$ -
$ 240,000
$ -
$ -
$ -
$ 280,000
Mark J. Keeley
$ 40,000
$ -
$ -
$ -
$ -
$ -
$ 40,000
$ 40,000
$ -
$ 240,000
$ -
$ -
$ -
$ 280,000
Harold Kestenbaum
$ 40,000
$ -
$ -
$ -
$ -
$ -
$ 40,000
$ 40,000
$ -
$ -
$ -
$ -
$ -
$ 40,000
Michael Kaplan (*)
$ -
$ -
$ 177,200
$ -
$ -
$ -
$ 177,200
$ -
$ -
$ -
$ -
$ -
$ -
$ -
(*) the compensation above is only reflective of the compensation paid to Michael Kaplan with regard to his Director duties. He is compensated for other services outside of the scope of his role as Director, which is expensed through sales, general and administrative expenses (SG&A).

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
As of March 3, 2021, the Company had 22,628,610 shares of its common stock issued and outstanding. The following table sets forth the beneficial ownership of the Company’s common stock as of March 3, 2021 by each person who is known to have beneficial ownership of more than 5% of any class of First Foods voting securities, and by each executive officer and director and the directors and executive officers of the Company as a group:
Title of Class
Name of
Beneficial Owner (1)
Amount of
Shares
Percent of
Class (2)
Common Stock
Rosenweiss Capital LLC (4)
8,000,000
%(3)
Common Stock
Hershel Weiss
6,591,665
%(5)
Common Stock
Abraham Rosenblum
6,591,665
%(5)
Common Stock
Harold Kestenbaum
1,941,665
%(6)
Common Stock
Mark J. Keeley
11,091,665
%(7)
Common Stock
Michael Kaplan
1,579,164
%(8)
Common Stock
Officers and Directors as a group (5 people)
27,962,490
%
(1)
In care of First Foods Group, Inc. c/o Incorp Services, Inc., 3773 Howard Hughes Parkway, Suite 500S, Las Vegas, NV 89169-6014
(2)
Calculated from the total of outstanding shares of common stock and common stock equivalents as of March 20, 2021.
(3)
Rosenweiss Capital LLC also owns a Series A Preferred Share with fifty percent (50%) voting rights.
(4)
Rosenweiss Capital LLC is owned by Abraham Rosenblum and Hershel Weiss.
(5)
Does not include the shares owned by Rosenweiss Capital LLC. Does include 591,665 Series B Convertible Preferred Shares and 5,500,000 Series B Convertible Preferred Share Warrants for each beneficial owner.
(6)
Includes 591,665 Series B Convertible Preferred Shares and 500,000 Series B Convertible Preferred Share Warrants.
(7)
Includes 591,665 Series B Convertible Preferred Shares and 9,750,000 Series B Convertible Preferred Share Warrants.
(8)
Includes 829,167 Common Stock Share Warrants.
Voting Rights
Holders of the Series A Preferred Shares shall have voting rights equal to fifty percent (50%) of the voting rights of all outstanding classes of capital stock of the Company. Holders of the Series B Preferred Shares shall have voting rights equal to five (5) votes per each share of the Series B Stock. Holders of the Series C Preferred Shares shall have voting rights equal to one (1) vote per each share of the Series C Stock.
Security Ownership of Certain Beneficial Owners
As of March 3, 2021, the Company is not aware of any persons that beneficially own more than 5% of its outstanding common stock who are not listed in the above referenced tables.
Change in Control Arrangements
As of March 3, 2021, there are no arrangements that would result in a change in control of the Company.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Controlling Persons
The Company is not aware of any agreements or understandings by a person or group of persons that could be construed as a controlling person.
Related Transactions
Related party transactions are detailed in Note 2 in the notes to the consolidated financial statements.
Director independence
Currently, the majority of the Board of Directors of the Company are not considered “independent” board members.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
The following table sets forth the aggregate fees paid during the years ended December 31, 2020 and 2019 for professional services rendered by Friedman LLP for the 2020 and 2019 reviews and audits:
Accounting Fees and Services
Audit Fees
$ 86,625
$ 72,150
Audit Related Fees
-
-
Tax Fees
-
-
All Other Fees
-
-
TOTAL
$ 86,625
$ 72,150
The category of “Audit Fees” includes fees for our annual audit and services rendered in connection with regulatory filings with the SEC, such as the issuance of comfort letters and consents.
All above audit services and audit-related services were pre-approved by the Board of Directors, which concluded that the provision of such services by all parties was compatible with the maintenance of the respective firm’s independence in the conduct of its audits.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
3.1
Amendment to Articles of Incorporation of the Registrant (1) for Preferred Stock Designations
3.2
By-laws of the Registrant (1)
3.3
Compensatory Arrangements of Directors (2)
3.4
Assignment of Lease and Consent to Assignment and Amendment
10.1
Consulting Agreement, dated February 27, 2017, by and between First Foods Group, Inc. and Harold Kestenbaum (3)
10.2
Employment Agreement, dated March 1, 2017, by and between First Foods Group, Inc. and Mark J. Keeley (4)
21.1
List of Subsidiaries
31.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certifications of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
___________
(1)
Filed as an Exhibit to the Form S-1, filed by First Foods Group, Inc. on August 10, 2015, and incorporated herein by reference.
(2)
Filed as an Exhibit to Form 8-K, filed by First Foods Group, Inc. on January 2, 2018, and incorporated herein by reference.
(3)
Filed as an Exhibit to Form 8-K, filed by First Foods Group, Inc. on March 2, 2017, and incorporated herein by reference.
(4)
Filed as an Exhibit to Form 8-K, filed by First Foods Group, Inc. on March 7, 2017, and incorporated herein by reference.