Cautionary Statements
This Form 10-Q contains "forward-looking statements," as that term is used in
federal securities laws, about First Foods Group, Inc.'s financial condition,
results of operations and business.
These statements include, among others:
· statements concerning the potential benefits that First Foods Group, Inc.
("First Foods", "we", "our", "us", the "Company", or "management") may
experience from its business activities and certain transactions it
contemplates or has completed; and
· statements of First Foods' expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical facts.
These statements may be made expressly in this Form 10-Q. You can find many of
these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates," "opines," "plans," 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; due to among other things, war,
terrorism, weather conditions, environmental factors, pandemic, economic
crises, legislation, etc.;
(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.
In December 2019, a novel strain of coronavirus surfaced. The spread of COVID-19
around the world in the first quarter of 2020 has caused significant volatility
in U.S. and international markets. There is significant uncertainty around the
breadth and duration of business disruptions related to COVID-19, as well as its
impact on the U.S. and international economies. The Company's financial
position, operations, and cash flows as of June 30, 2020 have been adversely
affected, and may be further affected in the future, by the recent and ongoing
outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020, was
declared a pandemic by the World Health Organization. The ultimate disruption
which may be caused by the outbreak is uncertain; however, it may result in a
material adverse impact on the Company's financial position, operations and cash
flows. Possible areas that may be affected include, but are not limited to,
disruption to the Company's labor workforce, unavailability of products and
supplies used in operations, and the decline in value of assets held by the
Company. As of June 30, 2020 and through the filing date of the financial
statements, the Company has continued to collect its receivables from its cash
advances but has experienced an increase in payment delinquencies and has had
two customers renegotiate the terms of their cash advance due to COVID-19.
23
Table of Contents
There is no assurance that First Foods will be profitable, due to, among other
potential reasons, that 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.
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 more than $100,000,000 and had a public float of more 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 product 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 85 shares owned by the Company and 15
shares owned by non-controlling interests. Holy Cacao is dedicated to producing,
packaging, distributing and selling specialty chocolate products, including
specialty chocolate products infused with a hemp-based ingredient in accordance
with the Company's understanding of the Agricultural Act of 2014 (the "2014 Farm
Bill") and/or the Agriculture Improvement Act of 2018 (the "2018 Farm Bill," and
together with the 2014 Farm Bill, collectively, the "Farm Bill"), which renders
the production of hemp in compliance with the provisions of the Farm Bill
federally lawful. The Company has not been, is not, and has no current plans to
be involved in producing, packaging, distributing or selling any product that is
infused with a marijuana-based ingredient, although it intends to revisit the
matter as regulations change in jurisdictions in which it operates. The Company
is also dedicated to licensing its intellectual property ("IP"), including its
name, brand, and packaging, to third parties. The Company may license its IP to
third parties that may produce, package, and distribute hemp-based products
pursuant with the Company's understanding of the Farm Bill. The Company may
license its IP to third parties that may produce, package, and distribute
marijuana-based products, but only as such licensing is legal. On February 27,
2019, the United States Patent and Trademark Office (the "USPTO") approved Holy
Cacao's trademark brand, "The Edibles' Cult." On November 26, 2019, the USPTO
approved Holy Cacao's trademark brand, "Purely Irresistible." The Company has
submitted multiple applications to the USPTO for additional brand names,
including "Mystere" and "Southeast Edibles" 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 produce its specialty
chocolate product line and sell it to manufacturing and wholesaling companies.
On March 1, 2020, the Company's Board of Directors made a strategic decision to
broaden the appeal of its hemp-based chocolate products to a wider base of
customers, who are particularly discerning about the cleanliness of the
Company's manufacturing facility and quality of its hemp-based chocolate
products, by successfully obtaining worldwide Kosher certification from the
Union of Orthodox Jewish Congregations of America, Kashruth Division (the "OU"),
which is the largest and most recognized certification of its kind in the world.
On March 9, 2020, the Company retained Tartikov Beth Din ("BD") to allow BD to
supervise the hemp-based chocolate products produced by the Company in
accordance with OU certification standards. On July 13, 2020, Michael Kaplan was
appointed to the Board of Directors and, as of August 1, 2020, accepted the role
of Chief Marketing Officer with authority to oversee the Company's sales and
marketing operations, and responsibility for developing oversight processes and
procedures. On August 4, 2020 the Company retained Moises Davidovits as its
full-time chocolatier. Mr. Davidovits is a third-generation chocolatier who is
responsible for the manufacturing, packaging and distribution of the Company's
chocolate product line, as well as the formulation of all of the Company's
proprietary chocolate recipes.
24
Table of Contents
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. On November 8, 2018 the Company also began providing
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.
Results of Operations for the Three Months Ended June 30, 2020 compared to the
Three Months Ended June 30, 2019
We had $24,711 of revenue for the three months ended June 30, 2020 compared to
$73,461 in revenue for the three months ended June 30, 2019. Our decrease in
revenue was the result of a decrease in product sales and participation in
merchant cash advances. For the three months ended June 30, 2020, our operating
expenses were $457,628 which consisted of cost of product sales of $4,703,
professional fees of $17,896, general and administrative expenses of $358,176,
and provision for potential merchant cash advance of $76,853. Our net loss was
$602,621. For the three months ended June 30, 2019, our operating expenses were
$431,839 which consisted cost of product sales of $20,983, professional fees of
$25,615, general and administrative expenses of $391,340 and a gain of $6,099 of
provision for potential merchant cash advances. Our net loss was $386,292. This
increase in our net loss was primarily due to increased costs associated with
bad debt provision and interest expense.
Results of Operations for the Six Months Ended June 30, 2020 compared to the Six
Months Ended June 30, 2019
We had $121,685 of revenue for the six months ended June 30, 2020 compared to
$188,298 in revenue for the six months ended June 30, 2019. Our decrease in
revenue was the result of a decrease in product sales and participation in
merchant cash advances. For the six months ended June 30, 2020, our operating
expenses were $1,483,725 which consisted of cost of product sales of $5,451,
professional fees of $30,327, general and administrative expenses of $968,062,
and provision for potential merchant cash advance of $479,885. Our net loss was
$1,685,117. For the six months ended June 30, 2019, our operating expenses were
$888,317 which consisted of cost of product sales of $20,983, professional fees
of $54,847, general and administrative expenses of $790,248 and a provision for
potential merchant cash advance defaults of $22,239. Our net loss was $752,883.
This increase in our net loss was primarily due to increased costs associated
with expanding the business, producing products, consulting and accounting fees,
advertising and promotion, provision for potential merchant cash advance
defaults and interest expense.
25
Table of Contents
Cash Flows
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2020
amounted to $440 and was $54,763 for the six months ended June 30, 2019. This
includes a net loss of approximately $1,685,000, offset by non-cash expenses of
approximately $1,560,000 related to stock-based compensation, depreciation and
amortization expense and reserves for merchant cash advances, and approximately
$120,000 related to the change in net working capital items which includes the
increase in accounts payable and accrued liabilities, deferred revenue,
inventory, prepaid expenses and other current assets and a decrease in accounts
receivable and deferred merchant cash commissions. This resulted in a working
capital deficiency of $(1,471,412) at June 30, 2020 and $(732,653) at December
31, 2019.
Investing Activities
Net cash used in investing activities amounted to $156,605 for the six months
ended June 30, 2020 and was $0 for the six months ended June 30, 2019. This was
due to the purchase of equipment in 2020.
Financing Activities
Net cash provided by financing activities amounted to $331,200 for the six
months ended June 30, 2020 and $56,850 for the six months ended June 30, 2019.
This was due to an increase of proceeds from loans in 2020 vs 2019, partially
offset by repayment of loans.
Liquidity and Capital Resources
The Company's unaudited condensed consolidated financial statements are prepared
using generally accepted accounting principles in the United States of America
applicable to a going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business.
The Company has not yet established an ongoing source of revenues sufficient to
cover its operating costs and allow it to continue as a going concern. The
ability of the Company to continue as a going concern is dependent on the
Company obtaining adequate capital to fund operating losses until it becomes
profitable. If the Company is unable to obtain adequate capital, it could be
forced to cease operations.
In order to continue as a going concern, the Company will need, among other
things, additional capital resources. As of June 30, 2020, the Company had
approximately $257,000 of third-party short-term debt that is due within the
next twelve months. 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.
In December 2019, a novel strain of coronavirus ("COVID-19") surfaced. The
spread of COVID-19 around the world in the first quarter of 2020 has caused
significant volatility in U.S. and international markets. There is significant
uncertainty around the breadth and duration of business disruptions related to
COVID-19, as well as its impact on the U.S. and international economies. The
Company's financial position, operations, and cash flows as of June 30, 2020
have been adversely affected, and may be further affected in the future, by the
recent and ongoing outbreak of COVID-19 which in March 2020, was declared a
pandemic by the World Health Organization. The ultimate disruption which may be
caused by the outbreak is uncertain; however, it may result in a material
adverse impact on the Company's financial position, operations and cash flows.
Possible areas that may be affected include, but are not limited to, the decline
in value of assets held by the Company. As of June 30, 2020 and through the
filing date of the financial statements, the Company has continued to collect
its receivables from its cash advances but has experienced an increase in
payment delinquencies and has had two customers renegotiate the terms of their
cash advance due to COVID-19.
26
Table of Contents
Concentration Risks
The Company recognizes the concentration of its merchant cash advances, which
could inherently create a potential risk to future working capital in the event
that the Company is not able to collect all, or a majority, of the outstanding
merchant cash advances. The Company actively mitigates its portfolio
concentration risk by monitoring its merchant cash advance provider's ability to
participate in merchant cash advances from alternative providers and spreading
merchant cash advance participation across various merchants.
As of June 30, 2020, the Company's receivables from merchant cash advances
included $108,208 from two merchants ($34,964 and $73,244), representing 68% of
the Company's merchant cash advances. The Company earned $7,228 of MCA income
from the same two merchants ($5,116 and $2,112), representing 45% of the
Company's MCA income for the three months ended June 30, 2020. The Company
earned $82,447 of MCA income from the same two merchants ($57,181 and $25,266),
representing 75% of the Company's MCA income for the six months ended June 30,
2020.
As of December 31, 2019, the Company's receivables from merchant cash advances
included $713,124 from two merchants ($179,853 and $533,271), representing 91%
of the Company's merchant cash advances. The Company earned $13,350 of MCA
income from one merchant, representing 32% of the Company's MCA income for the
three months ended June 30, 2019. The Company earned $46,839 of MCA income from
two merchants ($25,852 and $20,987), representing 30% of the Company's MCA
income for the six months ended June 30, 2019.
As of June 30, 2020, there was no accounts payable concentration other than
amounts owed to related parties which makes up 65% of the balance. As of
December 31, 2019, there was no accounts payable concentration other than
amounts owed to related parties which makes up 61% of the balance.
For the three months ended June 30, 2020, the Company had purchase
concentrations of 90% from one vendor. For the six months ended June 30, 2020,
the Company had purchase concentrations of 73% and 14% from two vendors. For the
three and six months ended June 30, 2019, the Company had purchase
concentrations of 100% from one vendor.
Off-Balance Sheet Arrangements
No off-balance sheet arrangements exist.
Contractual Obligations
None.
© Edgar Online, source Glimpses
FIRST FOODS GROUP, INC. 
