0001477932-19-002647.txt : 20190513 0001477932-19-002647.hdr.sgml : 20190513 20190513172620 ACCESSION NUMBER: 0001477932-19-002647 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 43 CONFORMED PERIOD OF REPORT: 20190331 FILED AS OF DATE: 20190513 DATE AS OF CHANGE: 20190513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: First Foods Group, Inc. CENTRAL INDEX KEY: 0001648903 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 474145514 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-206260 FILM NUMBER: 19819538 BUSINESS ADDRESS: STREET 1: C/O INCORP SERVICES, INC. STREET 2: 3773 HOWARD HUGHES PARKWAY, SUITE 500S CITY: LAS VEGAS STATE: NV ZIP: 89169-6014 BUSINESS PHONE: 201-471-0988 MAIL ADDRESS: STREET 1: C/O INCORP SERVICES, INC. STREET 2: 3773 HOWARD HUGHES PARKWAY, SUITE 500S CITY: LAS VEGAS STATE: NV ZIP: 89169-6014 FORMER COMPANY: FORMER CONFORMED NAME: Litera Group Inc DATE OF NAME CHANGE: 20150722 10-Q 1 fifg_10q.htm FORM 10-Q fifg_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For Quarterly Period Ended March 31, 2019

 

or

 

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

 

For the Transition period from __________ to __________

 

Commission File Number: 333-206260

 

FIRST FOODS GROUP, INC.

(Exact name of registrant as specified in its charter)

 

NEVADA

 

47-4145514

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

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

3773 Howard Hughes Parkway, Suite 500S,

Las Vegas, NV 89169-6014

(Address of principal executive offices) (Zip Code)

 

(201) 471-0988

Registrant’s telephone number, including area code

 

___________________________________________________________

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

 

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

 

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

 

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

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

Emerging growth company

¨

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

As of May 9, 2019, the number of shares outstanding of the registrant’s class of common stock was 17,966,587, par value of $0.001 per share.

 

 
 
 
 

 

TABLE OF CONTENTS

 

 

Pages

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018

 

3

 

Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2019 and 2018

 

4

 

Condensed Statement of Changes in Deficit for the Three months ended March 31, 2019 and 2018

 

5

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

 

6

 

Notes to Condensed Consolidated Financial Statements

 

7

 

Item 2.

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

 

20

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

23

 

Item 4.

Controls and Procedures

 

24

 

PART II OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

25

 

Item 1A.

Risk Factors

 

25

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

 

Item 3.

Defaults Upon Senior Securities

 

25

 

Item 4.

Mine Safety Disclosures

 

25

 

Item 5.

Other Information

 

25

 

Item 6.

Exhibits

 

26

 

SIGNATURES

27

 

 
2
 
 

  

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

First Foods Group, Inc. and Subsidiary

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

March 31,
2019

 

 

December 31,
2018

 

ASSETS

CURRENT ASSETS:

 

 

 

 

 

 

Cash

 

$55,229

 

 

$30,426

 

Merchant cash advances, net of allowance $64,810 and $82,354, respectively

 

 

391,254

 

 

 

562,488

 

Prepaid expenses and other current assets

 

 

64,194

 

 

 

36,506

 

Deferred merchant advance commissions

 

 

30,101

 

 

 

50,759

 

TOTAL ASSETS

 

$540,778

 

 

$680,179

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND DEFICIT

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$418,898

 

 

$317,356

 

Deferred revenue

 

 

120,229

 

 

 

176,115

 

Current portion of long term loans, net

 

 

114,483

 

 

 

-

 

Related party loans, net

 

 

374,645

 

 

 

372,835

 

TOTAL CURRENT LIABILITIES

 

 

1,028,255

 

 

 

866,306

 

 

 

 

 

 

 

 

 

 

Long term loans, net

 

 

276,747

 

 

 

342,119

 

TOTAL LIABILITIES

 

 

1,305,002

 

 

 

1,208,425

 

 

 

 

 

 

 

 

 

 

Commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DEFICIT

 

 

 

 

 

 

 

 

FIRST FOODS GROUP, INC. DEFICIT:

 

 

 

 

 

 

 

 

Preferred stock, 20,000,000 shares authorized: Series A convertible preferred stock: $0.001 par value, 1 share authorized, 1 issued and outstanding ($577,005 liquidation preference)

 

 

-

 

 

 

-

 

Series B convertible preferred stock: $0.001 par value, 4,999,999 shares authorized, 473,332 issued and outstanding ($160,000 liquidation preference)

 

 

473

 

 

 

473

 

Series C convertible preferred stock: $0.001 par value, 3,000,000 shares authorized, 660,000 shares issued and outstanding ($169,950 liquidation preference)

 

 

660

 

 

 

660

 

Common stock: $0.001 par value, 100,000,000 shares authorized, 17,866,587 and 17,709,087 shares issued and outstanding, respectively

 

 

17,867

 

 

 

17,709

 

Additional paid-in capital

 

 

7,212,014

 

 

 

7,081,559

 

Accumulated deficit

 

 

(7,996,573)

 

 

(7,637,029)

Total First Foods Group, Inc. Deficit

 

 

(765,559)

 

 

(536,628)

Noncontrolling interests

 

 

1,335

 

 

 

8,382

 

Total deficit

 

 

(764,224)

 

 

(528,246)

TOTAL LIABILITIES AND DEFICIT

 

$540,778

 

 

$680,179

 

 

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

 

 
3
 
Table of Contents

 

First Foods Group, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

For the Three Months Ended
March 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Merchant cash advance income, net

 

$114,837

 

 

$60,295

 

TOTAL REVENUE

 

 

114,837

 

 

 

60,295

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Professional fees

 

 

29,232

 

 

 

22,069

 

General and administrative

 

 

398,908

 

 

 

439,743

 

Provision for merchant cash advances

 

 

28,338

 

 

 

22,784

 

Total Operating Expenses

 

 

456,478

 

 

 

484,596

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(341,641)

 

 

(424,301)

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Interest expense

 

 

(24,950)

 

 

(16,238)

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(366,591)

 

 

(440,539)

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(366,591)

 

 

(440,539)

 

 

 

 

 

 

 

 

 

Non-controlling interest share of loss

 

 

7,047

 

 

 

-

 

Dividends on preferred stock

 

 

(4,950)

 

 

-

 

 

 

 

 

 

 

 

 

 

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

 

$(364,494)

 

$(440,539)

 

 

 

 

 

 

 

 

 

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

 

$(0.02)

 

$(0.03)

 

 

 

 

 

 

 

 

 

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

 

 

17,822,004

 

 

 

16,927,449

 

 

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

 

 
4
 
Table of Contents

 

First Foods Group, Inc. and Subsidiary

Condensed Consolidated Statements of Changes in Deficit

(Unaudited)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional
paid-in

 

 

Accumulated

 

 

Total First Foods Group,

 

 

Non-
controlling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

Inc. deficit

 

 

interests

 

 

deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

1

 

 

$-

 

 

 

16,919,524

 

 

$16,920

 

 

$5,255,402

 

 

$(5,675,169)

 

$(402,847)

 

$20,000

 

 

$(382,847)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock issued for cash

 

 

660,000

 

 

 

660

 

 

 

-

 

 

 

-

 

 

 

164,340

 

 

 

-

 

 

 

165,000

 

 

 

-

 

 

 

165,000

 

Common stock issued to consultants for services

 

 

-

 

 

 

-

 

 

 

13,262

 

 

 

13

 

 

 

5,987

 

 

 

-

 

 

 

6,000

 

 

 

-

 

 

 

6,000

 

Common stock issued for CFO services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

140,625

 

 

 

-

 

 

 

140,625

 

 

 

-

 

 

 

140,625

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

72,009

 

 

 

-

 

 

 

72,009

 

 

 

-

 

 

 

72,009

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(440,539)

 

 

(440,539)

 

 

-

 

 

 

(440,539)

Balance at March 31, 2018

 

 

660,001

 

 

$660

 

 

 

16,932,786

 

 

$16,933

 

 

$5,638,363

 

 

$(6,115,708)

 

$(459,752)

 

$20,000

 

 

$(439,752)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

7,500

 

 

 

8

 

 

 

1,492

 

 

 

-

 

 

 

1,500

 

 

 

-

 

 

 

1,500

 

Warrants issued for director services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

71,553

 

 

 

-

 

 

 

71,553

 

 

 

-

 

 

 

71,553

 

Warrants issued for consultant services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25,385

 

 

 

-

 

 

 

25,385

 

 

 

-

 

 

 

25,385

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

100,000

 

 

 

100

 

 

 

29,900

 

 

 

-

 

 

 

30,000

 

 

 

-

 

 

 

30,000

 

Common stock issued for loans payable

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

50

 

 

 

7,075

 

 

 

-

 

 

 

7,125

 

 

 

-

 

 

 

7,125

 

Dividend on preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,950)

 

 

-

 

 

 

(4,950)

 

 

-

 

 

 

(4,950)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(359,544)

 

 

(359,544)

 

 

(7,047)

 

 

(366,591)

Balance at March 31, 2019

 

 

1,133,333

 

 

$1,133

 

 

 

17,866,587

 

 

$17,867

 

 

$7,212,014

 

 

$(7,996,573)

 

$(765,559)

 

$1,335

 

 

$(764,224)

 

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

 

 
5
 
Table of Contents

 

First Foods Group, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

For the Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net Loss

 

$(366,591)

 

$(440,539)

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

 

 

 

 

 

 

 

 

Non-employee stock based compensation

 

 

56,885

 

 

 

212,635

 

Employee stock based compensation

 

 

71,553

 

 

 

6,000

 

Amortization of debt discount

 

 

8,046

 

 

 

8,749

 

Provision for merchant cash advances

 

 

28,338

 

 

 

22,784

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Merchant cash advances

 

 

142,896

 

 

 

(190,109)

Deferred merchant advance commissions

 

 

20,658

 

 

 

(21,653)

Prepaid expenses and other current assets

 

 

(27,688)

 

 

(24,382)

Accounts payable and accrued liabilities

 

 

96,592

 

 

 

65,083

 

Deferred revenue

 

 

(55,886)

 

 

49,686

 

Deferred compensation

 

 

-

 

 

 

42,564

 

Net cash used in operating activities

 

 

(25,197)

 

 

(269,182)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from the sale of Series C convertible preferred stock

 

 

-

 

 

 

165,000

 

Proceeds from long term loans

 

 

50,000

 

 

 

-

 

Net cash provided by financing activities

 

 

50,000

 

 

 

165,000

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH

 

 

24,803

 

 

 

(104,182)

CASH AT BEGINNING OF PERIOD

 

 

30,426

 

 

 

136,188

 

CASH AT END OF PERIOD

 

$55,229

 

 

$32,006

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Common stock issued for long term loans

 

$7,125

 

 

$-

 

 

 

 

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

 

 

 

Interest

 

$27,966

 

 

$3,001

 

Income taxes

 

$-

 

 

$-

 

 

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

 

 
6
 
Table of Contents

 

NOTE 1 – BUSINESS SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND LIQUIDITY

 

Nature of Business

 

First Foods Group, Inc. (the "Company" or “First Foods”) is a smaller reporting company focused on developing its specialty chocolate line and participating in merchant cash advances through its 1st Foods Funding Division (the “Division”). First Foods continues to pursue new foodservice brands and menu concepts.

 

On August 31, 2017, the Company formed Holy Cacao, Inc., a Nevada corporation (“Holy Cacao”). Holy Cacao has 100 shares of no par value common stock authorized, issued and outstanding with 90 shares owned by the Company and 10 shares owned by non-controlling interests. Holy Cacao is dedicated to producing, packaging, distributing and selling specialty chocolate, as well as licensing its intellectual property (“IP”), including its name, brand, and packaging, to third parties. 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 hemp-based or marijuana-based ingredient, although it intends to revisit the matter as laws change in jurisdictions in which it operates. The Company is in the business of licensing its IP to third parties that may produce, package, distribute or sell hemp-based or marijuana-based products, but only in those states where such activities are legal. Through the end of the first quarter 2019, the Company had not sold any product and had not earned any revenue from its Holy Cacao business. On February 27, 2019 the United States Patent and Trademark Office (the “USPTO”) approved Holy Cacao’s trademark brand, “The Edibles’ Cult”. Holy Cacao has submitted multiple applications to the USPTO for additional brand names, including “Mystere” among others. On February 5, 2019, the Company signed a Consulting Agreement with a consultant to assist in the manufacturing, packaging and distribution of the Company’s chocolate product line. On March 26, 2019 the Company signed a Facility Access and Wholesale Production Purchase and Sale Agreement that allows it to use a fully staffed and fully equipped state of the art manufacturing facility to begin producing its specialty chocolate and selling it to manufacturing and wholesaling companies. On May 6, 2019 the Company received and accepted a purchase order to manufacture and sell three of its specialty chocolate products.

 

On October 25, 2017, the Company entered into 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 may also provide cash advances directly to merchants.

 

Liquidity and Going Concern

 

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

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. 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, the Company cannot provide any assurances that it 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 this report. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 
7
 
Table of Contents

  

Use of Estimates

 

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

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on March 29, 2019.

 

In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2019 may not be indicative of results for the full year. 

 

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

 

Principles of Consolidation

 

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

 

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 March 31, 2019 and December 31, 2018, 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

 

Starting in October 2017, the Company entered into a contract with TIER to participate in TIER’s purchase of merchant cash advances, which are short-term cash advances made to businesses in return for an agreed-upon amount of future sales, paid by the business in small, regular daily payments. During the three months ended March 31, 2019, the Division participated in 221 merchant cash advances from TIER.

 

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 March 31, 2019, the Company reserved an amount equal to 12% of the outstanding merchant cash advance balance at period end determined by the risk of default as disclosed by TIER along with management’s assessment, as well as an additional reserve for discounts to merchants who settle their advance balance prior to the scheduled due date. In addition, the Company wrote off ten (10) merchant advances for a total of $66,270 for the three months ended March 31, 2019. These expenses, unless they were included in previous reserves, are included in provision for merchant cash advances expenses on the accompanying condensed consolidated statements of operations.

 

 
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Concentration Risks

 

As of and during the three months ended March 31, 2019, the Company’s merchant cash advance income (“MCA income”) and advances from merchant cash advances were mainly derived from one merchant cash advance provider. 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 the merchant cash advance participation across 221 different merchants during the quarter ended March 31, 2019.

 

As of March 31, 2019, the Company’s receivables from merchant cash advances included $218,261 from two merchants ($150,073 and $68,188), representing 56% of the Company’s merchant cash advances. The Company earned $62,623 of MCA income from four merchants ($20,987, $17,239, $12,322 and $12,075), representing 55% of the Company’s MCA income for the three months ended March 31, 2019. The Company earned $18,375 of MCA income from one merchant, representing 30% of the Company’s MCA income for the three months ended March 31, 2018.

 

As of December 31, 2018, the Company’s receivables from merchant cash advances included $232,484 from two merchants ($141,539 and $90,945), representing 41% of the Company’s merchant cash advances.

 

Revenue Recognition

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which creates Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” and supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition” and most industry-specific guidance throughout the ASC. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. We completed our assessment of the impact of the 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 MCA income.

 

The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company completed its assessment of the guidance and determined its merchant cash advances are excluded from the scope of ASU 2014-09. As a result of this scope exception, the adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

 

During the three months ended March 31, 2019, the Company recognized its MCA income as follows:

 

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. 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 merchant cash advance is purchased, 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.

 

The Company records a reserve liability equal to 2% of the merchant cash advance amount released, which is a residual commission owed to TIER. This reserve is recognized over the term of the merchant cash advance and eliminated when the merchant cash advance is completely satisfied and payment is remitted by the Company to TIER.

 

 
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Research and Development

 

The Company’s policy is to engage market and branding consultants to research and develop specialty chocolate products and packaging targeted to particular states within the US. The research and development costs for the three months ended March 31, 2019 and 2018, were approximately $70,000 and $15,000, respectively. These expenses are included in general and administrative expenses on the accompanying condensed consolidated statements of operations.

 

Deferred Financing Costs

 

The Company records origination and other expenses related to its debt obligations as deferred financing costs. These expenses are deferred and amortized over the life of the related debt instrument. In accordance with ASU No. 2015-03, deferred finance costs, net of accumulated amortization have been included as a contra to the corresponding loans in the accompanying condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018, 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 March 31, 2019 and December 31, 2018, the Company had a full valuation allowance against deferred tax assets. With the historical change in ownership, the Company is subject to certain NOL limitations under Section 382 of the Internal Revenue Code.

 

The Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017, among other things, permanently lowered the statutory federal corporate tax rate from 35% to 21%, effective for tax years including or beginning January 1, 2018. Under the guidance of ASC 740, “Income Taxes”, the Company revalued its net deferred tax assets on the date of enactment based on the reduction in the overall future tax benefit expected to be realized at the lower tax rate implemented by the new legislation. Although in the normal course of business the Company is required to make estimates and assumptions for certain tax items which cannot be fully determined at period end, the Company did not identify items for which the income tax effects of the Tax Act have not been completed as of March 31, 2019, and therefore, considers its accounting for the tax effects of the Tax Act on its deferred tax assets and liabilities to be complete as of March 31, 2019.

 

 
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Per Share Data

 

In accordance with "ASC-260 - Earnings per Share", the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive shares outstanding as of March 31, 2019 and December 31, 2018 because their effect would be antidilutive.

 

The Company had 403,750 and 100,000 warrants to purchase common stock outstanding at March 31, 2019 and 2018, respectively. The Company had 3,370,000 and 690,000 warrants to purchase Series B preferred stock outstanding at March 31, 2019 and 2018, respectively. Additionally, the Company has 1,133,333 and 660,001 preferred shares outstanding that are convertible into 3,026,665 and 660,005 shares of common stock at March 31, 2019 and 2018, 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 condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018, were $10,692 and $20,739, 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. The Company’s periodic reporting now includes the results of operations of Holy Cacao, with the ten-percent ownership reported as noncontrolling interests. The operating expense for Holy Cacao for the three months ended March 31, 2019 was $70,470. There was no revenue for Holy Cacao for the three months ended March 31, 2019.

 

The Company conducts business as two operating segments, First Foods and Holy Cacao. The Company does not distinguish between the two segments and has only one reportable segment based on quantitative thresholds. The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker. As of March 31, 2019, the Holy Cacao segment had not generated any revenues.

 

 
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Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which affects any entity that enters into a lease (as that term is defined in ASU 2016-02), with some specified scope exceptions. The main difference between the guidance in ASU 2016-02 and prior GAAP is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP. Under ASU 2016-02, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients. The Company adopted this provision on January 1, 2019 which did not have a material impact on the Company’s condensed consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in ASC 605-Revenue Recognition and most industry-specific guidance throughout the ASC. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date for annual reporting periods beginning after December 15, 2016 (including interim reporting periods within those periods). The Company completed its assessment of the guidance and determined its merchant cash advances are excluded from the scope of ASU 2014-09. As a result of this scope exception, the adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.

 

In May 2017, the FASB, issued ASU 2017-09, Compensation—Stock Compensation (Topic 718). The amendments in the update provide guidance on types of changes to the terms or conditions of share-based payment awards that would be required to apply modification accounting under ASC 718. The new guidance becomes effective for the Company for the year ending December 31, 2018, including interim periods. The Company adopted this provision on January 1, 2018 which did not have a material impact on the Company’s condensed consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The standard will be effective in the first quarter of 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The Company elected early adoption of this pronouncement for the year ended December 31, 2018 and it is reflected in these condensed consolidated financial statements, which did not have a material impact on the Company’s condensed consolidated financial statements.

 

NOTE 2 – RELATED PARTY TRANSACTIONS

 

Employment Agreement

 

On March 1, 2017, Mark J. Keeley assumed the role of Chief Financial Officer (“CFO”). Pursuant to his Employment Agreement, the CFO shall receive (i) 750,000 shares of common stock of the Company, and (ii) $20,833 per month, which shall be deferred until the Company raises at least $1,500,000 in financing. The 750,000 shares of common stock are fully vested and valued at $1,687,500, representing a fair market value of $2.25 per share based on the closing price on the day of entry into the agreement. On December 26, 2017, the CFO amended his employment agreement and agreed to reduce the annual salary from $250,000 to $150,000 for the period from February 1, 2017 through January 31, 2019, and then revert back to the original amount of $250,000 annually starting February 1, 2019 through the remainder of his employment. The CFO’s salary was deferred until the Company raised at least $1,000,000 in financing. This raise has been achieved and the CFO’s salary is now being accrued. This agreement has since been amended, where Mr. Keeley earns an additional $40,000 per year for his role as a Director of the Board. Mr. Keeley was awarded 85,000 and 33,333 shares of Series B Preferred Stock on October 25, 2018 and December 17, 2018, respectively, for a total of 118,333 shares in lieu of $40,000 Director compensation accrued for the period January 1, 2018 through December 31, 2018 (see Note 4). As of March 31, 2019 and December 31, 2018, the Company has accrued $141,667 and $87,500, respectively, in relation to the employment agreement and $14,235 and $13,449, respectively, in relation to the payroll tax liability.

 

On January 30, 2019, the Company entered into a consulting agreement with R and W Financial, an entity owned by a Company director, to assist with the growth of the Company. R and W Financial will receive $5,000 per month for an indefinite period of time, subject to cancellation by the Company or R and W Financial with 30 days written notice to the other.

 

 
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Consulting Agreement

 

On February 27, 2017, Harold Kestenbaum assumed the role of Chairman of the Board of Directors and Interim Chief Executive Officer (“Interim CEO”). Pursuant to his consulting agreement, the Interim CEO shall receive (i) 750,000 shares of common stock of the Company for his appointment as Chairman of the Board, (ii) $10,000 per month for his role as Interim CEO, which shall be deferred until the Company raises at least $1,500,000 in financing, (iii) $10,000 for every new franchising client he obtains, and (iv) $2,000 per month for legal services upon acquisition of a franchising client. The shares were valued at $1,500,000, representing a market value of $2.00 per share based on the closing price on the day of entry into the agreement. On December 26, 2017, Mr. Kestenbaum agreed to a reduction in his 2017 annual salary from $120,000 to $40,000. This agreement has since been amended, where Mr. Kestenbaum now earns $40,000 per year for his role as Chairman of the Board. Mr. Kestenbaum was awarded 85,000 and 33,333 shares of Series B Preferred Stock on October 24, 2018 and December 17, 2018, respectively, for a total of 118,333 shares in lieu of $40,000 compensation accrued for the period January 1, 2018 through December 31, 2018 (see Note 4). As of March 31, 2019 and December 31, 2018, the Company has accrued a total of $40,000 in relation to the consulting agreement.

 

Related Party Loans

 

On October 17, 2017, Obvia LLC, of which the Company’s Chief Financial Officer, who is also a director and a shareholder of the Company, is a 50% owner, provided a loan to the Company’s Funding Division in the amount of $100,000 bearing an interest rate of the US Prime Federal Funds Rate +1% or 6.50% at March 31, 2019, to be compounded monthly. The note is secured by the full value of the borrower and matures on October 31, 2019. During the three months ended March 31, 2019 and 2018, the Company recorded $1,724 and $1,290, respectively, as interest expense related to this loan. As of March 31, 2019 and December 31, 2018, the principal balance of this loan was $100,000 and the accrued interest was $8,735 and $7,011, respectively. 

 

On November 2, 2017, Kennedy Business Center LLC, an entity owned by an immediate family member of a Company director, provided a loan in the amount of $90,000 bearing an interest rate of 10% which matured on November 30, 2018, but was paid back early on October 25, 2018. As part of the agreement, the Company issued 50,000 shares of common stock on November 3, 2017. The Company recorded a debt discount of $17,500 for the fair market value of the shares issued. During the three months ended March 31, 2018, the Company recorded $8,749 of interest expense related to the amortization of debt discount related to this loan and $2,219 of regular interest. As of March 31, 2019 and December 31, 2018, the principal balance of this loan was $0 and the accrued interest was $0 and $4,366, respectively.

 

On April 26, 2018, R and W Financial, an entity owned by a Company director, provided an unsecured, non-interest bearing loan in the amount of $179,813 which matures on April 25, 2020 and which was used to pay the balance of the non-interest bearing short-term loans due to the Company Secretary, who is also a Director and shareholder of the Company. As of March 31, 2019 and December 31, 2018, the principal balance of this loan was $179,813.

 

On June 14, 2018, the Company issued a promissory note of $100,000 to Mayer Weiss, an immediate family member of a Company director. The note carries a 12% interest rate per annum, and non-compounding interest is to be paid every six months. Additionally, 100,000 shares of common stock were issued with the note and are being amortized over the life of the loan which is due December 13, 2019. The Company recorded a debt discount of $11,000 for the fair market value of the shares issued. During the three months ended March 31, 2019, the Company recorded $1,810 of interest expense related to the amortization of debt discount related to this loan and $2,959 of regular interest. As of March 31, 2019 and December 31, 2018, the principal balance of this loan was $100,000 and the accrued interest was $2,962 and $6,575, respectively.

 

 
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All of the above transactions were approved by disinterested directors.

 

 

 

March 31,
2019

 

 

December 31,

2018

 

Obvia LLC

 

$100,000

 

 

$100,000

 

R & W Financial

 

 

179,813

 

 

 

179,813

 

Mayer Weiss

 

 

100,000

 

 

 

100,000

 

Unamortized debt discount

 

 

(5,168)

 

 

(6,978)

Total

 

$374,645

 

 

$372,835

 

 

Director Agreements

 

On December 26, 2017, the Company entered into binding term sheets 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. Each Director’s cash-based compensation for the period January 1, 2018 through December 31, 2018, will be $10,000 per quarter paid on a date determined by the majority vote of the Board of Directors. The Directors’ share-based compensation for the period January 1, 2018 through December 31, 2018 will be a one-time award of the ability to purchase a particular amount of warrants, ranging from 40,000 to 200,000 (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 (the “Preferred Stock B”) of the Corporation, which shall have voting rights equal to five (5) votes per share. Each share of Preferred stock B is convertible into five (5) shares of the Corporation’s common stock, including liquidation preference over common stock.

 

·

Duration – The Warrants entitle each Director to purchase the Preferred Stock B from the Corporation, after January 1, 2018 and before December 31, 2024.

 

·

Purchase Price - The purchase price is $0.51 per share of Preferred Stock B.

 

 

 

 

·

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 – 125,000 Warrants awarded to the CFO were fully vested at the time of issuance. The remaining 565,000 Warrants are subject to a 12-month period whereby the Warrants vest in equal monthly increments from January 1, 2018 through December 31, 2018.

 

The Company issued warrants with respect to 565,000 Series B Preferred Stock, in the aggregate, in relation to the binding term sheets. The Company expensed the fair value of these warrants in the amount of $72,010 ratably during the three months ended March 31, 2018.

 

 
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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 three months ended March 31, 2019, the Company recorded $71,553 as compensation expense related to the warrants.

 

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 will be $10,000 per quarter per Director to be paid on a date determined by the Board of Directors. In addition, the Director’s may receive a one-time award of the ability to purchase a particular amount of warrants, as determined by the Board of Directors. The Company issued 0 warrants in relation to the agreements for the three months ended March 31, 2019. 

 

NOTE 3 – LONG TERM LOANS

 

On July 23, 2018, the Company issued promissory notes of $100,000 and $18,000, respectively. The notes carry a 12% interest rate per annum, and non-compounding interest is to be paid every six months. Additionally, 100,000 and 18,000 shares of common stock were issued with the respective notes and will be amortized over the life of the loans which are due January 22, 2020 with a balloon payment. The Company recorded a debt discount of $5,500 and $990 for the fair market value of the shares issued, respectively. During the three months ended March 31, 2019, the Company recorded $903 and $163 of interest expense related to the amortization of debt discount related to these notes and $2,959 and $533 of regular interest, respectively. As of March 31, 2019, the principal balance of these notes was $100,000 and $18,000 with unamortized debt discount of $2,981 and $536, respectively, and the accrued interest was $252 and $225, respectively. As of December 31, 2018, the principal balance of these notes was $100,000 and $18,000 and the accrued interest was $293 and $233, respectively.

 

On October 11, 2018, the Company issued a promissory note of $250,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 250,000 shares of common stock were issued with the note valued at $0.10 per share, which is the market value on the date of the agreement and will be amortized over the life of the loan which is due April 10, 2020 with a balloon payment. The Company recorded a debt discount of $25,000 for the fair market value of the shares issued. During the three months ended March 31, 2019, the Company recorded $4,113 of interest expense related to the amortization of debt discount related to the note and $7,397 of regular interest. As of March 31, 2019 and December 31, 2018, the principal balance of the note was $250,000 with unamortized debt discount of $17,185 at March 31, 2019 and the accrued interest was $1,555 and $6,658, respectively.

 

 
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On January 9, 2019, the Company issued a promissory note of $50,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 50,000 shares of common stock were issued with the note valued at $0.1425 per share, which is the market value on the date of the agreement and will be amortized over the life of the note which is due July 8, 2020 with a balloon payment. The Company recorded a debt discount of $7,125 for the fair market value of the shares issued. During the three months ended March 31, 2019, the Company recorded $1,057 of interest expense related to the amortization of debt discount related to the note and $1,332 of regular interest. As of March 31, 2019, the principal balance of the note was $50,000, the unamortized debt discount was $6,068 and the accrued interest was $332.

 

 

 

March 31,
2019

 

 

December 31,
2018

 

Loan issued July 23, 2018

 

$18,000

 

 

$18,000

 

Loan issued July 23, 2018

 

 

100,000

 

 

 

100,000

 

Loan issued October 11, 2018

 

 

250,000

 

 

 

250,000

 

Loan issued January 09, 2019

 

 

50,000

 

 

 

-

 

Unamortized debt discount

 

 

(26,770)

 

 

(25,881)

Total

 

 

391,230

 

 

 

342,119

 

Less: current portion, net

 

 

114,483

 

 

 

-

 

Total long term portion, net

 

$276,747

 

 

$342,119

 

 

NOTE 4 – DEFICIT

 

On May 11, 2017, the Company entered into a consulting agreement to place up to $1.5 million worth of common stock within six months to provide funds to complete an acquisition. The Company may incur fees up to $135,000 in relation to this agreement with a $10,000 retainer payable immediately in common stock valued on the date of signing. The remaining $125,000 is to be placed into escrow and released on the date of closing valued at the closing asking price. Of the $10,000 retainer, $5,000 is non-refundable. As of March 31, 2019 and through the date of these financial statements, the Company has recorded $5,000 as prepaid expense and accrued liabilities, no shares have been issued related to this agreement, and the original agreement is in the process of being renegotiated among and between the Company and the consultant.

 

On January 11, 2018, the Company entered into a consulting agreement for matters involving business development, public relations, marketing services and media placement. The agreement may be terminated upon 30 days prior written notice by either party. The Company paid the consultant $25,000 for the first 30 days of services, and $2,500 for any services requested by the Company on a bi-weekly basis thereafter. The fee will cover all cash cost for production, editing and airing up to three Fox Business production shots. If the Company pursued an interview with Fox News, which the Company is currently not contemplating, it would have to issue 200,000 shares of its common stock to the consultant.

 

On February 2, 2018, the Company entered into a subscription agreement for the sale of 660,000 shares of the Company’s Series C Preferred Stock for $0.25 per share or $165,000. The terms of the agreement require a monthly dividend payment equal to 1% of the amount invested for 18 months from the date of issuance. For the three months ended March 31, 2019 and 2018, the Company recorded $4,950 and $3,300 of dividend expense related to the subscription agreement, respectively.

 

On January 9, 2019, the Company issued a promissory note of $50,000 to an unrelated party that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 50,000 shares of common stock were issued with the note valued at $0.1425 per share, which is the market value on the date of the agreement and will be amortized over the life of the note which is due July 8, 2020 with a balloon payment.

 

 
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On March 26, 2019, the Company signed a Facility Access and Wholesale Production Purchase and Sale Agreement for a term of twelve (12) months with an unrelated party to use the party’s leased commercial chocolate manufacturing facility in exchange for paying the following:

 

 

(a)

the full amount of the party’s lease obligations of $6,433 per month plus taxes and common area maintenance fees through May 31, 2019 and $6,626 per month plus taxes and common area maintenance fees for 12 months through March 31, 2020;

 

(b)

66.6% of the party’s expenses related to payroll for employees that make the Company’s product; and

 

(c)

66.6% of the party’s operating expenses specifically related to the Company’s product including utilities, equipment, maintenance and insurance expenses.

  

The Company also issued 100,000 shares of the Company’s common stock at the closing market price of $0.30 on February 5, 2019 as a charitable contribution to a non-profit entity in support of the entity’s environmental regeneration efforts.

 

Warrant Activity

 

Common Stock Warrants

 

On July 16, 2018, the Company entered into a consulting agreement with a service provider that contains the following terms:

 

 

·

375,000 warrants were awarded as of the date of the agreement and will vest ratably over the next 12 months from the date of the agreement. The Company valued these warrants using the Black-Scholes option pricing model with the following inputs: exercise price of $0.078; fair market value of underlying stock of $0.08; expected term of 3 years; risk free rate of 2.67%; volatility of 417.39%; and dividend yield of 0%. The total fair value of these warrants is $30,000 and will be expensed ratably over a period of 12 months. For the three months ended March 31, 2019, the Company recorded an expense of $7,397 in relation to these warrants. As of March 31, 2019, a total of 265,625 warrants had vested and 31,250 were exercised.

 

·

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.

 

·

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 February 5, 2019, the Company signed a Consulting Agreement for a six (6) month term with a consultant to assist in the 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 the 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 February 5, 2019, the Company signed an Employment Agreement for a term of three years beginning when the prospective employee obtains his permanent United States visa. The employee will assist with the manufacturing, packaging and distribution of the Company’s chocolate product line. The Employment Agreement has a $7,000 monthly salary. In addition, the Company will issue a warrant to the prospective employee to purchase 300,000 shares of the Company’s common stock with a term of three (3) years. 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. If the employee fails to obtain his visa, all granted warrants must be given back to the Company. 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. As of March 31, 2019, no warrants have been expensed because the employment period has not commenced.

 

 
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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, 2017

 

 

100,000

 

 

$1.45

 

Granted

 

 

375,000

 

 

 

0.08

 

Exercised

 

 

(31,250)

 

 

0.08

 

Forfeited or cancelled

 

 

(100,000)

 

 

-

 

Outstanding, December 31, 2018

 

 

343,750

 

 

 

0.08

 

Granted

 

 

60,000

 

 

 

0.30

 

Exercised

 

 

-

 

 

 

-

 

Forfeited or cancelled

 

 

-

 

 

 

-

 

Outstanding, March 31, 2019

 

 

403,750

 

 

$0.11

 

 

As of March 31, 2019, 325,625 warrants for common stock were exercisable and the intrinsic value of these warrants was $35,063. As of March 31, 2019, the weighted average remaining contractual life was 2.40 years for warrants outstanding and the remaining expense is approximately $8,795 over the remaining amortization period which is 4 months.

 

As of March 31, 2018, 100,000 warrants for common stock were exercisable and the intrinsic value of these warrants was $0. As of March 31, 2018, the weighted average remaining contractual life was 9 months for warrants outstanding and the remaining expense is approximately $0.

 

Preferred Stock Warrants

 

On December 26, 2017, the Company amended its employment agreement with the CFO and Director (see Note 2) and issued warrants to purchase 125,000 shares of Series B Preferred Stock as compensation expense for each of the years ended December 31, 2017 and 2018. The warrants have an exercise price of $0.51 per share. The warrants associated with compensation in 2017 were fully vested as of December 31, 2017. The warrants associated with compensation in 2018 vested monthly from January 1, 2018 through December 31, 2018. The warrants are exercisable from January 1, 2018 through December 31, 2024. The Company expensed the fair value of these warrants in the amount of $15,931 during the three months ended March 31, 2018.

 

On December 26, 2017, the Company issued warrants to purchase 565,000 shares of Series B Preferred Stock, in the aggregate, to its Board of Directors as compensation expense for the year ended December 31, 2018. The warrants have an exercise price of $0.51 per share, vests monthly from January 1, 2018 through December 31, 2018, and are exercisable from January 1, 2018 through December 31, 2024. The Company expensed the fair value of these warrants in the amount of $56,078 during the three months ended March 31, 2018.

 

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, 2018, there were 320,000 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 three months ended March 31, 2019, the Company recorded $71,553 as compensation expense related to the warrants.

 

 
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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, 2017

 

 

690,000

 

 

$0.51

 

Granted

 

 

2,680,000

 

 

 

0.58

 

Outstanding, December 31, 2018

 

 

3,370,000

 

 

 

0.57

 

Granted

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

Forfeited or cancelled

 

 

-

 

 

 

-

 

Outstanding, March 31, 2019

 

 

3,370,000

 

 

$0.57

 

 

As of March 31, 2019, 2,530,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $1,230,600. As of March 31, 2019, the weighted average remaining contractual life was 8.49 years for warrants outstanding and the remaining expense is $509,615 over the remaining amortization period which is 1.75 years.

 

As of March 31, 2018, the weighted average remaining contractual life was 6 years for warrants outstanding. As of March 31, 2018, 366,250 warrants were exercisable and the intrinsic value of warrants exercisable was $0. As of March 31, 2018, the remaining expense is approximately $216,000 over the remaining amortization period which is .75 years.

 

NOTE 5 - COMMITMENTS

 

On June 18, 2018, the Company entered into an agreement for media relation services for a term of 12 months from the date of the agreement. The Company will incur $10,000 for the publication of a syndicated news feature. For the three months ended March 31, 2019, the Company did not incur any costs with respect to this agreement.

 

On February 11, 2019, the Company entered into a consulting agreement for social media and public relation services whereby the Company is required to pay $6,300 in cash and $7,000 in shares of the Company’s common stock for the full months starting March 1, 2019 through May 31, 2019, as well as $1,500 for time incurred from February 11, 2019 through February 28, 2019.

 

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 will be $10,000 per quarter per Director to be paid on a date determined by the Board of Directors. In addition, the Director’s may receive a one-time award of the ability to purchase a particular amount of warrants, as determined by the Board of Directors.

 

NOTE 6 – SUBSEQUENT EVENTS

 

On May 6, 2019 the Company received and accepted a purchase order in accordance with its March 26, 2019 Facility Access and Wholesale Production Purchase and Sale Agreement to manufacture and sell three of its specialty chocolate products in the amount of $31,545.

 

On May 8, 2019 the Company entered into an agreement (the “Agreement”) with a strategic advisory consultant (the “Consultant”). The Consultant was awarded 100,000 shares of the Company’s common stock (the “Shares”) at a fair market value of $0.24 per share for $24,000. Also, in accordance with the Agreement, the Company shall at its sole discretion grant a bonus to the Consultant of up to 1,000,000 Shares.

 

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

 

Cautionary Statements

 

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

 

These statements include, among others:

 

o

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

 

o

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

 

 

(a)

volatility or decline of First Foods’ stock price;

 

(b)

potential fluctuation of quarterly results;

 

(c)

failure of First Foods to earn significant revenues or profits;

 

(d)

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

 

(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; and

 

(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.

 

There is no assurance that First Foods will be profitable, First Foods may not be able to successfully develop, manage or market its products and services, First Foods may not be able to attract or retain qualified executives and personnel, First Foods may not be able to obtain customers for its products or services, additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of outstanding warrants and stock options, and other risks inherent in First Foods’ business.

 

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

 

 
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General

 

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

 

First Foods is focused on developing its specialty chocolate line and participating in merchant cash advances through its 1st Foods Funding Division. First Foods continues to pursue new foodservice brands and menu concepts.

 

On August 31, 2017, the Company formed Holy Cacao, Inc., a Nevada corporation (“Holy Cacao”). Holy Cacao has 100 shares of no par value common stock authorized, issued and outstanding with 90 shares owned by the Company and 10 shares owned by non-controlling interests. Holy Cacao is dedicated to producing, packaging, distributing and selling specialty chocolate, as well as licensing its intellectual property (“IP”), including its name, brand, and packaging, to third parties. 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 hemp-based or marijuana-based ingredient, although it intends to revisit the matter as laws change in jurisdictions in which it operates. The Company is in the business of licensing its IP to third parties that may produce, package, distribute or sell hemp-based or marijuana-based products, but only in those states where such activities are legal. Through the end of the first quarter 2019, the Company had not sold any product and had not earned any revenue from its Holy Cacao business. On February 27, 2019 the United States Patent and Trademark Office (the “USPTO”) approved Holy Cacao’s trademark brand, “The Edibles’ Cult”. Holy Cacao has submitted multiple applications to the USPTO for additional brand names, including “Mystere” among others. On February 5, 2019, the Company signed a Consulting Agreement with a consultant to assist in the manufacturing, packaging and distribution of the Company’s chocolate product line. On March 26, 2019 the Company signed a Facility Access and Wholesale Production Purchase and Sale Agreement that allows it to use a fully staffed and fully equipped state of the art manufacturing facility to begin producing its specialty chocolate product and selling it to manufacturing and wholesaling companies. On May 6, 2019 the Company received and accepted a purchase order to manufacture and sell three of its specialty chocolate products.

 

On October 25, 2017, the Company entered into 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 may also provide cash advances directly to merchants.

 

The Company is quoted on the OTCQB under “FIFG.”

 

The Company’s principal executive offices are located at First Foods Group, Inc. c/o Incorp Services, Inc., 3773 Howard Hughes Parkway, Suite 500S, Las Vegas, NV 89169-6014. Our telephone number is (201) 471-0988.

 

Critical Accounting Policies

 

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

 

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

 

 
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Results of Operations for the Three Months Ended March 31, 2019 compared to the Three Months ended March 31, 2018

 

We had $114,837 of revenue for the three months ended March 31, 2019 compared to $60,295 in revenue for the three months ended March 31, 2018. Our increase in revenue was the result of an increase in participation in merchant cash advances. For the three months ended March 31, 2019, our operating expenses were $456,478 which consisted of professional fees of $29,232, general and administrative expenses of $398,908 and $28,338 of provision for merchant cash advances. Our net loss was $366,591. For the three months ended March 31, 2018, our operating expenses were $484,596 which consisted of professional fees of $22,069, general and administrative expenses of $439,743 and $22,784 of provision for merchant cash advances. As a result, our net loss was $440,539. This decrease in our net loss was primarily due to decrease in executive and director compensation and advertising and promotion expense.

 

Liquidity and Capital Resources

 

Net cash used in operating activities amounted to $25,197 for the three months ended March 31, 2019 and $269,182 for the three months ended March 31, 2018. This was primary due to having a lower net loss of $366,591 in 2019 vs having a net loss of $440,539 in 2018. This resulted in a working capital deficiency of $(487,477) at March 31, 2019 and $(186,127) at December 31, 2018. This was due primarily to loans coming due within the year.

 

Net cash provided by financing activities amounted to $50,000 for the three months ended March 31, 2019 and $165,000 for the three months ended March 31, 2018. This was due to a lower amount of proceeds from loans in 2019 vs funding through preferred stock in 2018.

 

Going Concern

 

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

 

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

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. 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, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

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

 

 
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Concentration Risks

 

As of and during the three months ended March 31, 2019, the Company’s merchant cash advance income (“MCA income”) and advances from merchant cash advances were mainly derived from one merchant cash advance provider. 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 the merchant cash advance participation across 221 different merchants during the quarter ended March 31, 2019.

 

As of March 31, 2019, the Company’s receivables from merchant cash advances included $218,261 from two merchants ($150,073 and $68,188), representing 56% of the Company’s merchant cash advances. The Company earned $62,623 of MCA income from four merchants ($20,987, $17,239, $12,322 and $12,075), representing 55% of the Company’s MCA income for the three months ended March 31, 2019. The Company earned $18,375 of MCA income from one merchant, representing 30% of the Company’s MCA income for the three months ended March 31, 2018.

 

As of December 31, 2018, the Company’s receivables from merchant cash advances included $232,484 from two merchants ($141,539 and $90,945), representing 41% of the Company’s merchant cash advances. 

 

Off-Balance Sheet Arrangements

 

No off-balance sheet arrangements exist.

 

Contractual Obligations

 

None.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

 
23
 
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Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of March 31, 2019. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were ineffective due to a lack of sufficient resources to hire a support staff in order to separate duties between different individuals. The Company lacks the appropriate personnel to handle all the varying recording and reporting tasks on a timely basis. The Company plans to address these material weaknesses as resources become available by hiring additional professional staff, as funding becomes available, outsourcing certain aspects of the recording and reporting functions, and separating responsibilities.

 

In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2019 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II OTHER INFORMATION

 

Item 1. Legal Proceedings

 

As of March 31, 2019, we were not a party to any legal proceedings that could have a material adverse effect on the Company’s business, financial condition or operating results. Further, to the Company’s knowledge, no such proceedings have been threatened against the Company.

 

Item 1A. Risk Factors

 

We are not obligated to disclose our risk factors in this report; however, information regarding our risk factors appears in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes from the risk factors previously disclosed in such Annual Report on Form 10-K.

 

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

 

No sales of unregistered equity securities occurred during the quarter ended March 31, 2019.

 

Item 3. Defaults Upon Senior Securities

.

There have been no defaults upon senior securities.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not Applicable

 

 
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Item 6. Exhibits

 

(a) Exhibits

 

Item 6. Exhibits, Financial Statement Schedules

 

EXHIBIT NO.

 

DESCRIPTION

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

 

Form of Compensatory Arrangements of Directors (2)

10.1

 

Facility Access and Wholesale Production Purchase and Sale Agreement (3)

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 herewith.

(3)

Filed as an Exhibit to Form 10-K, filed by First Foods Group, Inc. on March 29, 2019, and incorporated herein by reference.

 

 
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SIGNATURES

 

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

 

By:

/s/ Harold Kestenbaum

 

Dated: May 13, 2019

 

Harold Kestenbaum,

 

Chairman of the Board and

 

Chief Executive Officer

 

By:

/s/ Mark J. Keeley

 

Dated: May 13, 2019

 

Mark J. Keeley,

 

Chief Financial Officer

 

 

 
27

 

EX-3.3 2 fifg_ex33.htm FORM OF COMPENSATORY ARRANGEMENTS OF DIRECTORS fifg_ex33.htm

EXHIBIT 3.3

 

Form of Compensatory Arrangements of Directors

 

Effective February 26, 2019 (the “Effective Date”) the Director and First Foods Group, Inc. (the “Corporation”), represented by the Board of Directors of the Corporation (collectively the “Parties”), enter into this Director Agreement (the “Agreement”) as follows:

 

Responsibilities and Consideration:

 

- The Director will continue to serve on the Board of Directors of the Corporation and be responsible for day to day duties for the benefit of the Corporation.

 

 

- The Director’s compensation may consist of cash-based and/or share-based compensation.

 

 

- The Director’s cash-based and/or share-based compensation for the period January 1, 2019 through December 31, 2019 will be $10,000 per quarter paid on a date determined by the vote of the Board of Directors.

 

 

- In addition, the Director’s may receive a one-time award of the ability to purchase a particular amount of warrants, as determined by the Board of Directors.

 

IN WITNESS WHEREOF, the parties have executed this Term Sheet as of the Effective Date.

 

                     

FIRST FOOD GROUP, INC.                                           

 

                 

 

                 

 

By: /s/ Director

By:

/s/ Director

 

 

By:

/s/ Director

 

 

By:

/s/ Director

 

 

EX-31.1 3 fifg_ex311.htm CERTIFICATION fifg_ex311.htm

EXHIBIT 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

 

I, Harold Kestenbaum, certify that:

 

1.

I have reviewed this report on Form 10-Q of First Foods Group, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions):

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Dated: May 13, 2019

 

/s/ Harold Kestenbaum

 

Harold Kestenbaum,

Chief Executive Officer

 

(Principal Executive Officer)

 

EX-31.2 4 fifg_ex312.htm CERTIFICATION fifg_ex311.htm

EXHIBIT 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

 

I, Mark J. Keeley, certify that:

 

1.

I have reviewed this report on Form 10-Q of First Foods Group, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions):

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Dated: May 13, 2019

 

/s/ Mark J. Keeley

 

Mark J. Keeley,

Chief Financial Officer

 

(Principal Financial/Accounting Officer)

 

EX-32.1 5 fifg_ex321.htm CERTIFICATION fifg_ex311.htm

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

418 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of First Foods Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2019 (the “Report”) I, Harold Kestenbaum, Chief Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

 

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d)of the Securities Exchange Act of 1934; and

 

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ Harold Kestenbaum

 

Dated: May 13, 2019

Harold Kestenbaum,

Chief Executive Officer

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2 6 fifg_ex322.htm CERTIFICATION fifg_ex311.htm

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

418 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of First Foods Group, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2019 (the “Report”) I, Mark J. Keeley, Chief Financial Officer (Principal Financial/Accounting Officer) of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

 

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d)of the Securities Exchange Act of 1934; and

 

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ Mark J. Keeley

 

Dated: May 13, 2019

Mark J. Keeley,

Chief Financial Officer

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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