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