First Foods Group, Inc. - Annual Report: 2019 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2019

For the transition period from ___________ to _____________

Commission file number: 333-206260

Registrant’s telephone number, including area code: (201) 471-0988

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐     No ☒

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐     No ☒

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

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

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by checkmark 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 Act). Yes ☐    No ☒

Securities registered pursuant to section 12(b) of the Act:

The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $2,395,591 as of June 30, 2019 (computed by reference to the last sale price of a share of the registrant’s common stock on that date as reported).

There were 20,962,771 shares of the registrant’s common stock outstanding as of March 23, 2020.

TABLE OF CONTENTS

PART I

Item 1. Business.

First Foods Group, Inc. (the “Company” or “First Foods”) is a smaller reporting company focused on developing its specialty chocolate product line and participating in merchant cash advances through its 1^st 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 and sell it to manufacturing and wholesaling companies. On October 10, 2019, the Company signed a master distribution agreement with CBD Unlimited, Inc, which is a public company and a master distributor, to distribute the Company’s hemp-based chocolate products. 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 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 May 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 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.

OUR PRINCIPAL PRODUCTS AND SERVICES

We are primarily focused on developing our specialty chocolate product line and related IP through our Holy Cacao subsidiary. We have developed twenty-three (23) proprietary recipes for our specialty chocolate product line that we have tested in a fully staffed and fully equipped state of the art manufacturing facility. We actively market our specialty chocolate product line on a full-time basis through our master distribution agreement with CBD Unlimited, Inc., as well as through multiple industry specific trade shows, through our on-line website presence, and through our ongoing collaboration with a diverse team of leading industry consultants who specialize in media relations, public relations, and investor relations. These efforts have culminated in Holy Cacao agreements, including a Consulting Agreement with a consultant to assist in the manufacturing, packaging and distribution of the Company’s specialty chocolate product line and a Facility Access and Wholesale Production Purchase and Sale Agreement that allows us to commercially produce our specialty chocolate product line and allows commercial buyers to purchase our products.

We are secondarily involved in merchant cash advance participations. 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 standard commission is 15% of the merchant cash advance principal but is reduced depending upon the credit worthiness of the merchant. The average commission paid by the Company has been approximately 7%. If a merchant cash advance contract is signed in one period, but not paid until a subsequent period, a corresponding liability is established in the current period.

At the time the 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.

For each merchant cash advance entered into by the Company prior to January 1, 2019, the Company recorded 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. For each merchant cash advance entered into by the Company on January 1, 2019 or later, TIER receives a daily residual commission payment of 2% as payments are made on the advance, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of TIER’s 2% residual commission.

TARGET MARKET AND OUR NICHE WITHIN

Our highest priority target market consists of chocolate wholesalers who have a desire to distribute our specialty chocolate products infused with a hemp-based ingredient to select retailers throughout the United States.

Our secondary target market consists of merchant cash advance participations. We are aware of an increasing demand for lending services and products for small businesses, and we believe the merchant cash advance market is in a growth mode that presents us with significant opportunity. Furthermore, we believe the small business lending market is underserved and the ability of small businesses to obtain credit with traditional banking institutions is difficult. Our niche approach is to participate with other syndicated participants in a broad range of merchant cash advances, as well as selectively issue merchant cash advances directly to merchants we know well.

COMPETITION, OUR COMPETITIVE STRATEGY AND METHODS OF COMPETITION

Our competition consists of companies that operate in the specialty hemp-based chocolate industry. Our competitive strategy is to target the consumers of specialty, high-end chocolate products infused with a hemp-based ingredient.

MARKETING, MARKETING OBJECTIVES AND STRATEGIES

The Company markets its specialty chocolate products, which are infused with a hemp-based ingredient, to existing and emerging food service companies, focusing specifically on brand development.

Our Marketing Objectives are as follows:

To promote and market our products, we have invoked the following strategies:

Currently, the Company’s officers and directors promote our specialty hemp-based chocolate products, through various channels, including networking at local industry events and Internet sources. The Company does not actively market its merchant cash advance participation because all marketing activities are performed by TIER. We anticipate that, as the Company grows over the next twelve months, pools of expertise will be acquired by recruiting within the food service industry and by using technical and marketing consultants, which will allow qualified individuals to join our management team and Board of Directors.

RESEARCH AND DEVELOPMENT

The Company has engaged market and branding consultants to research and develop specialty hemp-based chocolate products targeted to particular states within the US.

EMPLOYEES

The Company currently has one full time employee, Mark J. Keeley, who is a director and our Chief Financial Officer. Harold Kestenbaum is a director consultant serving in the role of interim Chief Executive Officer. Abraham Rosenblum is a director serving in the role of Secretary. These individuals, along with director Hershel Weiss, are responsible for operations, product development, sales and marketing, fund raising, implementation of our general strategy and execution of our business plan. Additionally, the Company retained the services of a prospective employee through R and W Financial who intends to become a permanent employee of the Company when he obtains his United States visa and the Company may legally hire him. Since February 5, 2019 this individual has worked as a consultant in the facility we have contracted and has run the day-to-day manufacturing, packaging and distribution of the Company’s specialty hemp-based chocolate product line.

Our future business and operating results depend significantly on the continued contributions and active participation of the aforementioned individuals. These individuals would be difficult or impossible to replace. The loss of these key contributors, or their failure to perform, could materially and adversely affect our Company’s operations. While we may obtain Key Man insurance, such insurance may not be sufficient to cover the loss incurred in the event these individuals are lost.

Our officers and directors receive compensation for their services during the development stage of our business operations. Our officers and directors are reimbursed for any out-of-pocket expenses they may incur on our behalf. We anticipate adding a permanent Chief Operations Officer over the next twelve (12) months. We do not currently have any benefits, such as health or life insurance, available to our employee or directors.

Item 1A. Risk Factors.

Our current and prospective investors should carefully consider the following risks and all other information contained in this report, including our audited consolidated financial statements and the related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Cautionary Note Regarding Forward-Looking Statements,” before making investment decisions regarding our securities. The risks and uncertainties described below are not the only ones we face, but include the most significant factors currently known by us. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize, our business, financial condition and results of operations could be materially harmed. In that case, the trading price of our securities could decline, and you may lose some or all of your investment.

Risks Related to Our Business:

We have limited operating history, our financial position is not robust, and we lack profitable operations to date.

The Company has incurred net losses since inception and will likely continue to incur net losses while it builds its business and as such it may not achieve or maintain profitability. The Company’s limited operating history makes it difficult to evaluate its business and prospects, and there is no assurance that the business of the Company will grow or that it will become profitable. As of December 31, 2019, the Company’s accounts receivable had a concentration of 97% from one customer. The concentration of the Company’s accounts receivable creates a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of outstanding accounts receivable balances. Also, for the year ended December 31, 2019, the Company had purchase concentrations of 34%, 26%, 15% and 12% from four vendors. The concentration of the Company’s purchases creates a potential risk to future supply in the event that the Company is not able to obtain supplies from other vendors.

We have limited cash on hand which creates substantial doubt about our ability to continue as a going concern.

In their reports for the years ended December 31, 2019 and 2018, our auditors have expressed that substantial doubt exists about our ability to continue as a going concern. We have incurred operating losses since our formation and expect to incur losses and negative operating cash flows for the foreseeable future. We also expect to continue to incur significant operating and capital expenditures for the foreseeable future and anticipate that our expenses will increase substantially in the foreseeable future. As a result, we will need to generate significant revenues in order to achieve and maintain profitability. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.

We will need additional financing.

Since our formation, we have raised substantial equity and debt financing to support the growth of our business. Because we intend to continue to make investments to support the growth of our business, we require additional capital to pursue our business objectives and growth strategy and respond to business opportunities, challenges or unforeseen circumstances, including participating in merchant cash advances. Accordingly, on a regular basis we need, or we may need, to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, in amounts we need, on terms that are acceptable to us or at all. Volatility in the credit markets in general or in the market for small business or merchant cash advances in particular may also have an adverse effect on our ability to obtain debt financing. Furthermore, the cost of our borrowing may increase due to market volatility, changes in the risk premiums required by lenders or if traditional sources of debt capital are unavailable. Volatility or depressed valuations or trading prices in the equity markets may similarly adversely affect our ability to obtain equity financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. In particular, we may require additional access to capital to support our merchant cash advance participation. In order to participate in merchant cash advances, we have used, and expect to continue to use, our available cash on hand. If we are unable to adequately maintain our cash resources, we may delay non-essential capital expenditures; implement cost cutting procedures; delay or reduce future hiring; or reduce our rate of future participation compared to the current level. There can be no assurance that we can obtain sufficient sources of external capital to support the growth of our business. Delays in doing so or failure to do so may require us to reduce merchant cash advance participation or reduce our operations, which would harm our ability to pursue our business objectives as well as harm our business, operating results and financial condition.

We may not be successful in our potential business combinations.

The Company may, in the future, pursue acquisitions of other complementary businesses. The Company may also pursue strategic alliances and joint ventures that leverage its core industry experience to expand its product offerings and geographic presence. The Company has limited experience with respect to acquiring other companies and limited experience with respect to forming collaborations, strategic alliances and joint ventures. If the Company were to make any acquisitions, it may not be able to integrate these acquisitions successfully into its existing business and could assume unknown or contingent liabilities. Any future acquisitions the Company makes could also result in large and immediate write-offs or the incurrence of debt and contingent liabilities, any of which could harm the Company’s operating results. Integrating an acquired company also may require management resources that otherwise would be available for ongoing development of the Company’s existing business.

If we fail to attract and retain key personnel, our business and operating results may be harmed.

Our future success depends to a significant degree on the skills, experience and efforts of key personnel in our senior management, whose vision for our company, knowledge of our business and expertise would be difficult to replace. If any one of our key employees leaves, is unable to work, or fails to perform and we are unable to find a qualified replacement, we may be unable to execute our business strategy.

The specialty food industry is very competitive, which may result in limited revenue for us, as well as increased expenses associated with marketing our products.

The specialty food business is highly competitive. We have retained a master distributor and customized shelf displays designed to capture inherently competitive shelf space in order to penetrate the retail market. We plan to compete against other providers of quality foods, some of which sell their services globally, and some of these providers have considerably greater resources than we have. These competitors may have greater marketing and sales capacity, established distribution networks, significant goodwill and global name recognition.

We may license our Holy Cacao name, brand, and recipes, and sell the Company’s Holy Cacao packaging material in those states where such activity is legal.

New legislation or regulation, or the application of existing laws and regulations to the medical and consumer hemp industries could add additional costs and risks to doing business. We and our licensees, if any, will be subject to regulations applicable to businesses generally and laws or regulations directly applicable to communications over the Internet and access to e-commerce. It is reasonable to assume that as hemp use becomes more mainstream that the FDA and or other federal, state and local governmental agencies will impose regulations covering the purity, privacy, quality control, security and many other aspects of the industry, all of which will likely raise the cost of compliance thereby reducing profits or even making it more difficult to continue operations, either of which scenarios, if they occur, could have a negative impact on our business and operations.

The market may not readily accept our products.

Demand and market acceptance for our licensed brand and packaging for our new hemp infused products are subject to a high level of uncertainty. The successful introduction of any new product requires a focused, efficient strategy to create awareness of and desire for the products. For example, in order to achieve market acceptance for our buyer’s hemp products, market acceptance will need to be achieved. Our marketing strategy may be unsuccessful and is subject to change as a result of a number of factors, including changes in market conditions (including the emergence of new market segments which in our judgment can be readily exploited through the use of our technology), the nature of possible license and distribution arrangements and strategic alliances which may become available to us in the future and general economic, regulatory and competitive factors. There can be no assurance that our strategy will result in successful product commercialization or that our efforts will result in initial or continued market acceptance for our buyer’s proposed products. We currently have only limited resources to enhance our technology or to develop new products.

If we are unable to protect our intellectual property rights, competitors may be able to use our technology or trademarks, which could weaken our competitive position.

We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also intend to enter into confidentiality or license agreements with our employees, consultants and customers, and control access to and distribution of our packaging and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products.

We have entered into the Merchant Cash Advance (“MCA”) business which carries separate risk from the food industry.

Reliance on proprietary merchant cash advance credit models, which involve the use of qualitative factors that are inherently judgmental, could result in merchant defaults which would affect our profitability.

The MCA participations and MCA’s that we own will be relatively illiquid, and we may not be able to liquidate those investments in a timely manner.

Any MCA participations and MCA’s that we make or otherwise acquire will likely be relatively illiquid with no established market for their purchase and sale, and there can be no assurance that we will be able to liquidate those investments in a timely manner. Although these investments will likely generate income, the return of capital and the realization of gains, if any, from such investments generally will occur only upon the partial or complete disposition of such MCA participation or advance, or its repayment or collection.

Our MCA participations and advances may become uncollectible, and large amounts of uncollectible participations and advances may materially affect our performance.

Our MCA participations and advances will be relatively illiquid and substantial risks are involved. Most, and possibly all, of the merchants who receive cash advances from the MCA providers we use are required to sign a confession of judgement, which legally requires the merchant to pay back the advance, as long as the merchant continues as a going concern. Although we use background checks and other forms of due-diligence information to mitigate the risk of uncollectible debt resulting from bankruptcy, no assurance can be made that we will be able to do so. If our MCA portfolio contains a large portion of uncollectible debt, our performance will likely be negatively affected. In addition, if any business defaults on an MCA transaction, we may be required to expend monies in connection with foreclosure proceedings and other remedial actions, which expenditures could materially and adversely affect our financial performance. Although our MCA’s, both direct and syndicated, will be structured so as not to be characterized as loans, MCA’s present many of the same risks. For example, we may be unable to collect the full amount of the merchant cash advance receivable we acquire through an advance. In any such case, here again we may be required to expend monies in connection with remedial actions, which expenditures could materially and adversely affect our financial performance.

We will have the right to obtain credit lines as part of our investment strategy, even though we presently do not intend to do so. Any leverage we incur in building and growing our business may substantially increase our risk of loss.

Although we do not presently have intentions to obtain credit lines, we will not be restricted from doing so and we may in the future determine that this is an effective way to capitalize the Company. In such a case, the use of leverage (debt) will increase both net returns as well as risk since we may not be able to pay interest obligations associated with our own borrowing.

Our MCA participations may be concentrated, which could lead to increased risk.

Our MCA participations may be concentrated in a limited number of investments or investments to one business or affiliated businesses. Thus, our stockholders may have limited diversification. In addition, if we make an investment in a single transaction with the intent of refinancing or selling a portion of the investment, there is a risk that we will be unable to successfully complete such a refinancing or sale. This could lead to increased risk as a result of having an unintended long-term investment and reduced diversification.

If third parties default or file for bankruptcy, we could suffer losses.

We could suffer losses if our MCA recipients were to default. Any such default or bankruptcy could have a material and adverse impact on our results of operation, our financial condition and our business prospects.

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our results of operations and our ability to attract and retain qualified executives and board members.

As a public company we incur significant legal, accounting, and other expenses and these expenses will increase after we cease to be a “smaller reporting company.” In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the Securities and Exchange Commission (“SEC”), Nasdaq and the New York Stock Exchange (“NYSE”), impose various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations and future regulations will continue to increase our legal, accounting and financial compliance costs and will make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers. In addition, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or “Section 404.” As long as we remain a “smaller reporting company” we may elect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be a “smaller reporting company” and, when our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. We expect to have in place accounting, internal audit and other management systems and resources that will allow us to maintain compliance with the requirements of the Sarbanes-Oxley Act at the end of any phase-in periods permitted by Nasdaq, the NYSE, the SEC and the JOBS Act. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal control from our independent registered public accounting firm.

Our business is subject to regulation, and changes in laws and regulations governing our business, or changes in the interpretation of such laws and regulations, could negatively affect our business.

Over the last few years, federal and state regulatory and other policymaking entities have taken an increased interest in marketplace and online lending, including online small business lending. For example, in July 2015, the U.S. Department of the Treasury issued a public request for information regarding expanding access to credit through online marketplace lending. Activity in various states has also increased, including in the states of California and New York. In December 2015, the California Department of Business Oversight announced an inquiry into the marketplace lending industry and requested information from fourteen marketplace and online lenders. The New York Department of Financial Services opened a formal investigation of marketplace and online lending in March 2019. These initiatives were presented as information gathering projects to assist federal and state officials in better understanding, among other things, the methods, role and impact of online and marketplace lending on credit markets. These initiatives either have resulted, or are expected to result, in policy recommendations that could impact merchant cash advance business practices and operations, if the recommendations result in new laws or regulations. For example, if New York were to enact legislation requiring licensure by commercial lenders or imposing certain applicable rate caps or other provisions inconsistent with current merchant cash advance business practices and alternative solutions were not available, we could be required to reevaluate our participation in merchant cash advances. We expect these and other types of legislative and regulatory activities to continue in the future as marketplace and online lending grow and become the subject of greater public interest. For example, with the prospect of easing regulatory burdens at the federal level under the current administration, some states have indicated their intention to take more aggressive regulatory action. We cannot predict the outcome of these or other comparable future activities, when or whether they will lead to new laws, regulations or other actions or what they might be. However, the impact and cost of any possible future changes to laws or regulations could be substantial and could also require us to change our business practices and operations in a manner that adversely impacts our business. Changes in laws or regulations, including recent changes under the Tax Cuts and Jobs Act of 2017 (and any related Treasury regulations, rules or interpretations, if and when issued), or the regulatory application or judicial interpretation of the laws and regulations applicable to us could adversely affect our ability to operate in the manner in which we currently conduct business or make it more difficult or costly for us to participate in merchant cash advances. A material failure to comply with any such laws or regulations could result in regulatory actions, lawsuits and damage to the merchant cash advance industry, which could have a material adverse effect on our business and financial condition. A proceeding relating to one or more allegations or findings of our merchant cash advance provider’s violation of such laws could impair the ability to collect payments on advances or to participate in additional advances.

Public perception of merchant cash advance businesses as predatory or abusive could adversely affect our business.

In recent years, much of the media reporting on the merchant cash advance industry has focused on the cost to a small business for this type of financing arrangement, which is higher than the interest typically charged by traditional banking institutions in situations where they are willing to engage in traditional credit transactions. On occasion, media reports have characterized merchant cash advance businesses as predatory or abusive toward small business clients. If this negative characterization of our business becomes widely accepted, demand for our services could significantly decrease, which could adversely affect our results of operations primarily by decreasing our revenues. Negative perception of our business activities could also result in our industry being subject to more restrictive laws and regulations and greater exposure to litigation.

General economic conditions will likely affect our charge-offs and demand for our services, and accordingly, our results of operations could be adversely affected by a general economic slowdown or other negative economic conditions.

Provision for MCA participation losses and MCA losses, net of recoveries, may comprise one of our largest operating expenses. Any changes in economic factors that adversely affect MCA customers, such as an economic downturn or high unemployment, could result in higher loss experiences than anticipated, which could in turn adversely affect our charge-offs. Moreover, a sustained deterioration in the economy would likely cause a decrease in demand for merchant cash advance services. Any general economic conditions negatively affecting our charge-offs or demand for our services could materially and adversely affect our operating results.

When we make MCA’s either by ourselves or as part of a syndicated group, we will be subject to the risk of fraud by small business clients seeking the advance.

We will be subject to fraud risk whenever we make an MCA by ourselves or as part of a syndicated group. Small business recipients of the advance may, for example, present information that is false. In any such case, we will likely be unable to collect our receivable relating to an MCA. Widespread fraud of this type could adversely affect our operating results and the prospects for our business. This could also be a concern with respect to our MCA participations.

Coronavirus (COVID-19) creates significant uncertainty regarding potential business disruptions that could have a material adverse impact on the Company’s financial position.

In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in 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 and, as such, the Company is unable to determine if it will have a material impact to its operations. The Company’s operations may be affected 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 customers and revenue, labor workforce, unavailability of products and supplies used in operations, and the decline in value of assets held by the Company, including, inventories and merchant cash advance receivables.

Risks Related to the Securities Markets and Ownership of Our Common and Preferred Stock

Our Common Stock is Subject to the “Penny Stock” Rules of the SEC and the Trading Market in our Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price, for warrants or options or conversion price for convertible notes, of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Shares eligible for future sale under Rule 144 and/or Rule 905 may adversely affect the market for our securities.

From time to time, certain of our stockholders who hold restricted securities may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to and reliant upon Rule 144 and/or Rule 905, promulgated under the Securities Act, subject to certain limitations. Although current stockholders may have no current intention or ability to sell their shares, any substantial sales by holders of our common stock in the future pursuant to Rule 144 and/or Rule 905 may have a material adverse effect on the market price of our securities.

The price of our common stock is subjected to volatility.

The market for the Company’s common stock may be highly volatile. The trading price of the Company’s common stock is subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to their markets or relating to the Company could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of the Company’s stock prices may cause investment losses for their shareholders. If securities class action litigation is brought against the Company, such litigation could result in substantial costs while diverting management’s attention and resources.

Our Board of Directors has sole discretion to create new classes of preferred stock.

Our Certificate of Incorporation authorizes the issuance of preferred stock with such rights and preferences as our Board of Directors may determine from time to time in its sole discretion. Accordingly, under the Certificate of Incorporation, the Board may designate and issue preferred stock with dividend, liquidation, conversion, voting, redemption or other rights that could impact the rights of the holders of our common shares, although the Certificate of Designation for our existing preferred shares limits the power of the Board of Directors to designate and issue classes of preferred stock that are senior in right of liquidation or dividends to the preferred shares. Specifically, the holders of a majority of the preferred shares must approve or consent any designation and issuance of a class of preferred stock ranking senior to the preferred shares.

Disruptions in global financial markets and deteriorating global economic conditions could cause lower returns to investors.

Disruptions in global financial markets and deteriorating global economic conditions could adversely affect the value of the Company’s common stock. The current state of the economy and the implications of future potential weakening may negatively impact market fundamentals, resulting in lower revenues and values for the Company’s business opportunities and investments.

If we fail to remain current on our reporting requirements, we could be removed from quotation by the OTCQB, which would limit the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.

Companies quoted on the OTCQB must be reporting issuers under Section 12 of the Exchange Act, and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTCQB. If we fail to remain current on our reporting requirements, we could be removed from the OTCQB. As a result, the market liquidity for our securities could be adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of shareholders to sell their securities in the secondary market.

We have not voluntarily implemented various corporate governance measures.

Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or Nasdaq, on which their securities are listed. As directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), the SEC has adopted rules requiring public companies to include a report of management on the Company’s internal control over financial reporting in its annual reports. While we expect to expend significant resources in developing the necessary documentation and testing procedures required by SOX 404, the Company as of this filing does not have effective controls. At present, there is no precedent available with which to measure compliance adequately. In the event we identify significant deficiencies or material weaknesses in our internal control over financial reporting that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements and our ability to obtain equity or debt financing could suffer. Also, among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight and the adoption of a Code of Ethics. The Company has not adopted exchange-mandated corporate governance measures and, since our securities are not listed on a national securities exchange, we are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

We have a large number of authorized but unissued shares of our common and preferred stock.

We have a large number of authorized but unissued shares of common and preferred stock, which our management may issue without further stockholder approval, thereby causing dilution of your holdings of our common stock. Our management will continue to have broad discretion to issue shares of our common and preferred stock in a range of transactions, including capital-raising transactions, mergers, acquisitions and other transactions, without obtaining stockholder approval, unless stockholder approval is required. If our management determines to issue shares of our common or preferred stock with conversion rights or special voting rights from the large pool of authorized but unissued shares for any purpose in the future, your ownership position would be diluted without your further ability to vote on that transaction. Under the Company’s Certificate of Incorporation, the Board of Directors may designate and issue preferred stock with dividend, liquidation, conversion, voting, redemption or other rights that are senior in right to common stock. For example, the Company’s Class A Preferred Stock provides 50% voting rights to the Company’s two founding Directors.

Shares of our common stock may continue to be subject to illiquidity because our shares may continue to be thinly traded and may never become eligible for trading on a national securities exchange.

While we may at some point be able to meet the requirements necessary for our common stock to be listed on a national securities exchange, we cannot assure you that we will ever achieve a listing of our common stock on a national securities exchange. Our shares are currently only eligible for quotation on the OTCQB, which is not an exchange. Initial listing on a national securities exchange is subject to a variety of requirements, including minimum trading price and minimum public “float” requirements, and could also be affected by the general skepticism of such markets concerning companies that are the result of mergers with inactive publicly-held companies. There are also continuing eligibility requirements for companies listed on public trading markets. If we are unable to satisfy the initial or continuing eligibility requirements of any such market, then our stock may not be listed or could be delisted. This could result in a lower trading price for our common stock and may limit your ability to sell your shares, any of which could result in you losing some or all of your investments.

The market valuation of our business may fluctuate due to factors beyond our control and the value of your investment may fluctuate correspondingly.

The market valuation of smaller reporting companies, such as us, frequently fluctuate due to factors unrelated to the past or present operating performance of such companies. Our market valuation may fluctuate significantly in response to a number of factors, many of which are beyond our control, including:

As a result, the value of your investment in us may fluctuate.

We have never paid dividends on our common stock.

We have never paid cash dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future. Investors should not look to dividends as a source of income. In the interest of reinvesting initial profits back into our business, we do not intend to pay cash dividends in the foreseeable future. Consequently, any economic return will initially be derived, if at all, from appreciation in the fair market value of our stock, and not as a result of dividend payments.

Insiders have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.

Two of our directors have perpetual voting rights with respect to all company matters. They may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of voting power may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

Item 1B. Unresolved Staff Comments.

The Company has no SEC staff comments.

Item 2. Properties.

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

Item 3. Legal Proceedings.

As of March 23, 2020, 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 4. Mine Safety Disclosures.

Not applicable

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issue Purchases of Equity Securities.

Market Information

Our common stock is quoted on the OTC Markets (“OTCQB”) under the symbol “FIFG.”

The closing sales price of the Company’s common stock on March 23, 2020 was $0.15 per share.

Holders

As of the date of this report there were approximately 47 holders of record of Company common stock. This does not include an indeterminate number of persons who hold our common stock in brokerage accounts and otherwise in “street name.”

Dividends

Holders of common stock are entitled to receive such dividends as may be declared by the Company’s Board of Directors. The Company did not declare or pay dividends on our common stock during the year ended December 31, 2019.

Transfer Agent and Registrar

The transfer agent and registrar for First Foods’ common stock is Manhattan Transfer Registrar Co., 38B Sheep Pasture Rd. Port Jefferson, NY 11777, telephone 631-928-7655.

Authorization of Our Securities

On October 25, 2017, and as amended on November 2, 2018, the Board of Directors of the Company designated 100,000,000 authorized common shares and 20,000,000 authorized preferred shares to have preferences and terms as shall be determined by the Board of Directors from time to time. The preferred shares were authorized into three series: Series A Convertible Preferred Shares was designated with one share, which share is issued and outstanding; Series B Convertible Preferred Shares was designated with 4,999,999 shares, of which 473,332 shares are outstanding; and Series C Convertible Preferred Shares was designated with 3,000,000 shares, of which 660,000 shares are outstanding.

The Series A Convertible Preferred Share has voting rights equal to fifty percent (50%) of the voting rights of all outstanding classes of capital stock of the Company and the share is convertible into five (5) shares of the Company’s common stock, including liquidation preference over common stock.

Series B Convertible Preferred Shares have voting rights equal to five (5) votes per share and each share is convertible into five (5) shares of the Company’s common stock, including liquidation preference over common stock.

Series C Convertible Preferred Shares have voting rights equal to one (1) vote per share and each share is convertible into one (1) share of the Company’s common stock, including liquidation preference over common stock.

Repurchases of Our Securities

None of the shares of our common stock were repurchased by the Company during the year ended December 31, 2019.

Unregistered Sales of Common Shares

The Company issued warrants to purchase up to 1,060,000 shares of the Company’s common stock during the year ended December 31, 2019.

Unregistered Sales of Series A, B and C Preferred Shares

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 Shares 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 years ending December 31, 2019 and 2018, the Company recorded $11,550 and $18,150 of dividend expense related to the subscription agreement, respectively.

On October 24, 2018, the four directors of the Company were each awarded 85,000 Series B Preferred Shares for a total 340,000 shares in lieu of $120,000 director fees accrued for the period January 1, 2018 through September 30, 2018.

On December 17, 2018, the four directors of the Company were each awarded 33,333 Series B Preferred Shares for a total 133,332 shares in lieu of $40,000 director fees accrued for the period October 1, 2018 through December 31, 2018.

The Company issued warrants to purchase up to 600,000 shares of the Company’s preferred series B stock during the year ended December 31, 2019.

The unregistered sales of the Series A, B and C Preferred Shares (the “Preferred Shares”) were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Act”). No underwriters were retained to serve as placement agents for the sales. The Preferred Shares were sold directly through our management. No commission or other consideration was paid in connection with the sales of the Preferred Shares. There was no advertisement or general solicitation made in connection with the offer and sales of the Preferred Shares.

Item 6. Selected Financial Data.

First Foods is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statements.

This annual report contains “forward-looking statements,” as that term is used in federal securities laws, about First Foods Group, Inc.’s financial condition, results of operations and business.

These statements include, among others:

In addition, there is no assurance that (i) First Foods will be profitable, (ii) First Foods will be able to successfully develop, manage or market its products and services, (iii) First Foods will be able to attract or retain qualified executives and personnel, (iv) First Foods will be able to obtain customers for its products or services, (v) additional dilution in outstanding stock ownership will not be incurred due to the issuance of more shares, warrants and stock options, or the exercise of outstanding warrants and stock options, and (vi) there are no other risks inherent in First Foods’ business.

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

General

First Foods is currently a “smaller reporting company” under the JOBS Act. A company loses its “smaller reporting company” status on (i) the day its public float becomes greater than or equal to $250,000,000 or (ii) had annual revenues of less than $100,000,000 and either: (A) had no public float or (B) had a public float of less than $700,000,000. As a “smaller reporting company,” First Foods is exempt from certain obligations of the Exchange Act, including those found in Section 14A(a) and (b) related to shareholder approval of executive compensation and golden parachute compensation and Section 404(b) of the Sarbanes-Oxley Act of 2002 related to the requirement that management assess the effectiveness of the Company’s internal control for financial reporting. Furthermore, Section 103 of the JOBS Act provides that as a “smaller reporting company”, First Foods is not required to comply with the requirement to provide an auditor’s attestation of ICFR under Section 404(b) of the Sarbanes-Oxley Act for as long as First Foods qualifies as a “smaller reporting company.” 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 1^st 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 October 10, 2019, the Company signed a master distribution agreement with CBD Unlimited, Inc, which is a public company and a master distributor, to distribute the Company’s hemp-based chocolate products. 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 May 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 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, 2019, our cash balance was $24,353 with current liabilities of $1,730,731.

Results of Operations

Results of Operations for the Year Ended December 31, 2019 compared to the Year Ended December 31, 2018

We had $326,285 of revenue for the year ended December 31, 2019 compared to $251,083 in revenue for the year ended December 31, 2018, an increase of $75,202 or 30%. Our increase in revenue was the result of an increase in participation in merchant cash advances and our first product sales. For the year ended December 31, 2019, our operating expenses were $2,823,701 which consisted of cost of product sales of $21,003 vs $0 for the prior period as there were no product sales, professional fees of $72,860, general and administrative expenses of $2,642,684 (consisting primarily of non-cash expenses incurred through the issuance of securities as compensation) and a provision for potential merchant cash advance defaults of $87,154. Our net loss was $2,725,691. For the year ended December 31, 2018, our operating expenses were $2,184,296 which consisted of professional fees of $74,390, general and administrative expenses of $2,001,812 (consisting primarily of non-cash expenses incurred through the issuance of securities as compensation) and a provision for potential merchant cash advance defaults of $108,094. Our net loss was $1,973,478. 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, cost of product sales and interest expense.

Liquidity and Capital Resources

Net cash used in operating activities amounted to $(1,013,873) for the year ended December 31, 2019 and $(650,199) for the year ended December 31, 2018. This resulted in a working capital deficit of $(732,653) at December 31, 2019 and $(186,127) at December 31, 2018. This decrease in working capital was due primarily to loans coming due within the year, an increase in accounts payable and accrued expenses and an increase in financing.

Net cash provided by financing activities amounted to $1,007,800 for the year ended December 31, 2019 and $544,437 for the year ended December 31, 2018. In 2019, this was due to the proceeds of $1,037,500 from loans which was offset by the payment of $29,700 of dividends. In 2018, this was due to the proceeds of $647,813 from long term and related party loans, proceeds from the sale of $165,000 Series C convertible preferred stock, and proceeds of $2,437 from the exercise of warrants, which was offset by the repayment of $270,813 of shareholder and related party loans.

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.

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, 2019, the Company’s receivables from merchant cash advances included $713,124 from two merchants ($179,853 and $533,271), representing 90.94% of the Company’s merchant cash advances. The Company earned $130,243 of MCA income from one merchant, representing 44.2% of the Company’s MCA income for the twelve months ended December 31, 2019.

As of December 31, 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.

The Company did not earn revenues from any one merchant that were greater than or equal to 10% of the total revenues for the year ended December 31, 2018.

As of December 31, 2019, the Company’s accounts receivable had a concentration of 97% from one customer. The concentration of the Company’s accounts receivable creates a potential risk to future working capital in the event that the Company is not able to collect all, or a majority, of outstanding accounts receivable balances.

For the year ended December 31, 2019, there was no accounts payable concentration other than amounts owed to related parties which makes up 61% of the balance as of December 31, 2019. For the year ended December 31, 2018, the Company’s accounts payable had a concentration of 32%, 15%, 10% and 10% from four vendors.

For the year ended December 31, 2019, the Company had purchase concentrations of 34%, 26%, 15% and 12% from four vendors. There was no purchase concentration for the year ended December 31, 2018.

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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

First Foods is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

Item 8. Financial Statements and Supplementary Data.

FIRST FOODS GROUP, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of First Foods Group, Inc. and Subsidiary

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of First Foods Group, Inc. and Subsidiary (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, changes in deficit, and cash flows for each of the years in the two year period ended December 31, 2019, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has recurring losses from operations which raises substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

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

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

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

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

NOTE 1 – BUSINESS SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND LIQUIDITY

Nature of Business

First Foods Group, Inc. (the “Company” or “First Foods”) is a smaller reporting company focused on developing its specialty chocolate product line and participating in merchant cash advances through its 1^st 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 October 10, 2019, the Company signed a master distribution agreement with CBD Unlimited, Inc, which is a public company and a master distributor, to distribute the Company’s hemp-based chocolate products. 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 May 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 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 audited consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the Company will need, among other things, additional capital resources. As of December 31, 2019, the Company had approximately $165,000 in 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, 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 date of this report. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying audited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Presentation

The Company’s consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

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

Principles of Consolidation

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

Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of twelve months or less to be cash equivalents. At December 31, 2019 and 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.

The Company participates in the merchant cash advance industry by directly advancing sums to a merchant or a merchant advance provider, TIER, who in turn advances sums to merchants or other merchant cash advance providers. Each reporting period, the Company reviews the carrying value of these advances and determines whether an impairment reserve is necessary. At December 31, 2019, the Company reserved an amount equal to 10% of the outstanding merchant cash advance balance at period end based on management’s assessment of actual historic performance. In addition, throughout the year the Company wrote off thirty (30) merchant advances for a total of $72,013 for the year ended December 31, 2019. These expenses are included in provision for merchant cash advances expenses on the accompanying consolidated statements of operations.

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 ASC 606, “Revenue from Contracts with Customers,” and supersedes the revenue recognition requirements in Accounting Standards Codification (“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 merchant cash advance (“MCA”) income. Commencing in Q2 2019, we also have product sales from our Holy Cacao division that follow ASC 606.

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 consolidated financial statements.

During the year ended December 31, 2019, the Company recognized its product sales as follows:

Product sales are measured based on consideration specified in a contract with a customer that we expect to receive in exchange for goods, net of any variable considerations (e.g. rights to return product, sales incentives, etc.). The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customers carrier. The Company applied the practical expedient available under ASC 606 to disregard determining significant financing components, if the good is transferred and payment is received within one year.

During the year ended December 31, 2019, the Company recognized its merchant cash advance 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. The average commission paid by the Company has been approximately 7%. If a merchant cash advance contract is signed in one period, but not paid until a subsequent period, a corresponding liability is established in the current period.

At the time the Company participates in a merchant cash advance, the Company records a deferred revenue liability, which is the total future receivable due to the Company less the principal amount of the merchant cash advance. Revenue is recognized and the deferred liability is reduced over the term of the merchant cash advance.

TIER maintains a bank account on behalf of the Company. Each day, TIER receives payment, reflected in the bank account, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of platform fees. Platform fees are a daily charge associated with the ACH service and the financial and reporting management software platform provided by TIER. The platform fees are also negotiated between the Company and TIER for each contract but are typically 4% of the daily merchant cash advance principal amount.

For each merchant cash advance entered into by the Company prior to January 1, 2019, the Company recorded 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. For each merchant cash advance entered into by the Company on January 1, 2019 or later, TIER receives a daily payment as payments are made on the advance, for each merchant cash advance TIER has purchased on behalf of the Company from various merchant cash advance providers. The Company reduces its merchant cash advance balance by the cash received, which is net of TIER’s 2% residual commission.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and sets up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off when all attempts to collect have been exhausted. The Company considers an invoice past due once the term of the invoice has passed and payment has not been received. No interest is charged on past due invoices. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2019, the Company had no allowance for doubtful accounts.

Inventory

Inventory, consisting of raw materials, work in process and products available for sale, are primarily accounted for using the first-in, first-out method (“FIFO”), and are valued at the lower of cost or net realizable value. This valuation requires management to make judgements based on currently available information, about the likely method of disposition, such as through sales to individual customers and returns. As of December 31, 2019, the Company had inventory of $10,556, which consisted of $2,854 of raw materials, $5,410 of work in process and $2,292 of finished goods. The Company has no allowance for inventory reserves.

Research and Development

The Company’s policy is to engage market and branding consultants to research and develop specialty chocolate products, including chocolate products infused with a hemp-based ingredient, and packaging targeted to particular states within the US. The research and development costs for the years ended December 31, 2019 and 2018, were approximately $85,000 and $117,000, respectively. These expenses are included in general and administrative expenses on the accompanying consolidated statements of operations.

Deferred Financing Costs

The Company records origination and other expenses related to its debt obligations as deferred financing costs. These expenses are deferred and amortized over the life of the related debt instrument. In accordance with Accounting Standards Update (“ASU”) No. 2015-03, deferred finance costs, net of accumulated amortization have been included as a contra to the corresponding loans in the accompanying consolidated balance sheets as of December 31, 2019 and 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 December 31, 2019 and 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.

Per Share Data

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

The Company had 1,403,750 and 343,750 warrants to purchase common stock outstanding at December 31, 2019 and 2018, respectively. The Company had 3,970,000 and 3,370,000 warrants to purchase Series B preferred stock outstanding at December 31, 2019 and 2018, respectively. The Company has outstanding one (1) Series A preferred share that is convertible into five (5) shares of the Company’s common stock. Additionally, the Company has 473,332 Series B preferred shares, and 660,000 Series C preferred shares outstanding that are convertible into 2,366,660 and 660,000 shares of common stock at December 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 consolidated statements of operations for the years ended December 31, 2019 and 2018, were $115,150 and $27,933, respectively.

Non-Controlling Interests in Consolidated Financial Statements

In June 2011, the FASB issued ASC 810-10-65-1, to clarify that a non-controlling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. During the year ended December 31, 2017, the Company entered into two subscription agreements for the sale of 800,000 shares of its common stock and a ten-percent equity interest in its wholly owned subsidiary, Holy Cacao, for $200,000 in cash proceeds, in the aggregate. The Company recorded ten-percent of the cash proceeds or $20,000 as noncontrolling interests for the year ended December 31, 2017. On July 16, 2018, the Company entered into a consulting agreement with a service provider that contained the following terms: 5% equity ownership in the Company’s Holy Cacao subsidiary will be awarded immediately upon the successful launch of the Holy Cacao product line and the sale of the first production run of Holy Cacao product. During the year ended December 31, 2019, this part of the agreement was completed, and 5% equity was issued. The Company’s periodic reporting now includes the results of operations of Holy Cacao, with the fifteen-percent ownership reported as noncontrolling interests. The cost of goods sold and operating expense for Holy Cacao for the year ended December 31, 2019 was $21,003 and $522,967, respectively. There was $32,183 of revenue for Holy Cacao for the year ended December 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.

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 current 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 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 adopted this provision on January 1, 2018 which did not have a material impact on the Company’s 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 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 on January 1, 2018, which did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, ”Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, ”Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is an SRC, implementation is not needed until January 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company’s consolidated financial statements.

NOTE 2 – RELATED PARTY TRANSACTIONS

Employment Agreement

On March 1, 2017, Mark J. Keeley assumed the role of Chief Financial Officer (“CFO”). Pursuant to his Employment Agreement, the CFO shall receive (i) 750,000 shares of common stock of the Company, and (ii) $20,833 per month, which shall be deferred but accrued 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. The CFO and Director 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 5). As of December 31, 2019 and 2018, the Company has accrued $329,167 and $87,500, respectively, in relation to the employment agreements and $16,953 and $13,449, respectively, in relation to the payroll tax liability.

Consulting Agreements

On February 27, 2017, Harold Kestenbaum assumed the role of Chairman of the Board of Directors and Interim Chief Executive Officer (“Interim CEO”). Mr. Kestenbaum earns $40,000 per year for his role as Chairman of the Board. The Chairman of the Board and Interim CEO 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 5). As of December 31, 2019, the Company has accrued a total of $40,000 in relation to 2017 compensation earned under the consulting agreement.

On May 10, 2018, Mr. Shimon Weiss, who is related to a Company Director, was retained as a consultant to provide investment advice to the Company for a 90-day period. The consultant was awarded 75,000 shares of common stock at a fair market value of $0.12 per share for $9,000.

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. On November 21, 2019, the Company entered into an additional consulting agreement with R and W Financial to assist with the growth of the Company. R and W Financial will receive $7,000 per month for an indefinite period of time, subject to cancellation by the Company or R and W Financial with 10 days written notice to the other. The outstanding balance as of December 31, 2019, was $25,300.

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 5.75% at December 31, 2019, to be compounded monthly. The note is not secured and matures on October 31, 2019. This loan has been amended and matures on April 30, 2020. During the years ended December 31, 2019 and 2018, the Company recorded $7,024 and $6,001, respectively, as interest expense related to this loan. As of December 31, 2019 and 2018, the principal balance of this loan was $100,000 and the accrued interest was $14,034 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 year ended December 31, 2018, the Company recorded $11,667 of interest expense related to the amortization of debt discount related to this loan and $7,366 of regular interest. As of December 31, 2019 and 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 December 31, 2019 and 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. This loan has been amended and is due on March 13, 2020. An additional 25,000 shares were issued with the amendment of the note and are being amortized over the life of the loan. The Company recorded a total debt discount of $16,250 for the fair market value of the shares issued. During the year ended December 31, 2019 and 2018, the Company recorded $7,654 and $4,022 of interest expense related to the amortization of debt discount related to this loan, respectively and $12,000 and $6,575 of regular interest, respectively. As of December 31, 2019 and 2018, the principal balance of this loan was $100,000 and the accrued interest was $6,049 and $6,575, 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. $150,000 was deployed to the Company’s participation in merchant cash advances and $100,000 was advanced directly to a merchant. 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 year ended December 31, 2019 and 2018, the Company recorded $16,682 and $3,702 of interest expense related to the amortization of debt discount related to the note, respectively. During the year ended December 31, 2019 and 2018, the Company recorded $30,000 and $6,658 of regular interest expense, respectively. As of December 31, 2019 and 2018, the principal balance of the note was $250,000 and the accrued interest was $1,658 and $6,658, respectively.

All of the above transactions were approved by disinterested directors.

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:

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 $288,037 ratably during the year ended December 31, 2018.

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:

The Company issued warrants with respect to 1,280,000 Series B Preferred Stock, in the aggregate. The Company will expense the fair value of these warrants in the amount of $768,000 ratably during the years ended December 31, 2018, 2019 and 2020. For the year ended December 31, 2019 and 2018, the Company recorded $290,186 and $186,832 as compensation expense related to the warrants, respectively.

Each director 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 473,332 shares in lieu of $160,000 compensation accrued for the period January 1, 2018 through December 31, 2018.

On December 26, 2018, the Company issued the CFO and Director of the Company warrants to purchase 400,000 shares of Series B Preferred Stock in lieu of $200,000 of deferred salary with the following terms:

The Company issued warrants with respect to 400,000 Series B Preferred Stock. The fair value of these warrants was $210,000 and the additional $10,000 over the deferred salary amount was recorded as compensation expense during the year ended December 31, 2018.

On December 30, 2018, three of the Directors of the Company were awarded share-based compensation for additional services performed during the service period of January 1, 2018 through December 31, 2018, as a one-time award to purchase a particular amount of warrants, ranging from 200,000 to 400,000 (collectively the “Warrants”) with the following terms:

The Company issued warrants with respect to 1,000,000 Series B Preferred Stock, in the aggregate. The Company expensed the fair value of these warrants in the amount of $600,000 for the year ended December 31, 2018.

On February 26, 2019, the Company entered into director agreements with each of the Directors of the Company. Pursuant to the agreements, each Director may be compensated with share-based and/or cash-based compensation. The Directors’ compensation for the period January 1, 2019 through December 31, 2019 was $10,000 per quarter per Director to be paid on a date determined by the Board of Directors. In addition, the Directors were able to receive a one-time award of the ability to purchase a particular amount of warrants, as determined by the Board of Directors.

On January 1, 2020, the director agreements were renewed with the same terms. As of December 31, 2019 the Company has accrued $160,000 in relation to the director agreements.

On December 31, 2019, three of the Directors of the Company were awarded share-based compensation for services performed during the service period of January 1, 2019 through December 31, 2019, as a one-time award to each purchase 200,000 warrants (collectively the “Warrants”) with the following terms:

The Company issued warrants with respect to 600,000 Series B Preferred Stock, in the aggregate. The Company expensed the fair value of these warrants in the amount of $720,000 for the year ended December 31, 2019.

NOTE 3 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following as of December 31, 2019 and 2018:

NOTE 4 – LOANS AND 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 year ended December 31, 2019, the Company recorded $3,673 and $659 of interest expense related to the amortization of debt discount related to these notes and $12,000 and $2,160 of regular interest, respectively. During the year ended December 31, 2018, the Company recorded $1,616 and $290 of interest expense related to the amortization of debt discount related to these notes and $5,293 and $953 of regular interest, respectively. As of December 31, 2019, the principal balance of these notes was $100,000 and $18,000, the unamortized debt discount was $211 and $40 and accrued interest was $293 and $233, respectively. See note 8 for subsequent amendment.

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 year ended December 31, 2019, the Company recorded $4,646 of interest expense related to the amortization of debt discount related to the note and $5,852 of regular interest. As of December 31, 2019, the principal balance of the note was $50,000, the unamortized debt discount was $2,479 and the accrued interest was $352.

On June 12, 2019, the Company issued a promissory note of $25,000 that carries a 12% interest rate per annum, and non-compounding interest is to be paid every month. Additionally, 12,500 shares of common stock were issued with the note valued at $0.295 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 June 11, 2021 with a balloon payment. The Company recorded a debt discount of $3,688 for the fair market value of the shares issued. During the year ended December 31, 2019, the Company recorded $1,020 of interest expense related to the amortization of debt discount related to the note and $1,660 of regular interest. As of December 31, 2019, the principal balance of the note was $25,000, the unamortized debt discount was $2,667 and the accrued interest was $160.

On July 22, 2019, the Company issued a promissory note of $250,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. $100,000 of the note will be used by the Company exclusively for the purpose of investing in merchant cash advances. The remaining $150,000 of the note will be used by the Company for its operational activities. Additionally, 250,000 shares of common stock were issued with a fair value of $100,000, recorded as a debt discount, and will be amortized over the life of the note, which is due in monthly payments between eighteen (18) months and twenty-three (23) months from July 22, 2019 based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from July 22, 2019. In addition, the Company issued a warrant to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.25 per share. The warrant was valued at $99,925 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested as of the issue date with an exercise term of three (3) years. At the sole discretion of the lender, an additional $250,000 note may be issued to the Company anytime within nine months after the issue date. The additional note will be subject to the same terms and conditions as the initial note, with 250,000 shares of common stock issued at a 30% discount from the last market closing price per share as of the issue date of the additional note. If an additional $250,000 note is issued, the Company will issue a warrant to purchase an additional 250,000 shares of the Company’s common stock that will be fully vested as of the issue date of the additional note and have an exercise price that is the lesser of $0.25 per share or the market closing price per share on the issue date of the additional note. The exercise term will be three (3) years. During the year ended December 31, 2019, the Company recorded $44,367 of interest expense related to the amortization of debt discount related to the note and $13,315 of regular interest. As of December 31, 2019, the principal balance of the note was $250,000, the unamortized debt discount was $155,558 and the accrued interest was $815.

On October 2, 2019, the Company issued a promissory note for $410,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $389,500 and the lender retained $20,500 as an original issue discount. $155,800 of the note will be used by the Company exclusively for the purpose of investing in merchant cash advances. The remaining $233,700 of the note will be used by the Company for its operational activities. Additionally, 410,000 shares of the Company’s common stock were issued with a fair value of $106,600, recorded as a debt discount, and will be amortized over the life of the notes, which are due in monthly payments between eighteen (18) months and twenty-three (23) months from the date of the note based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the date of the note. In addition, the Company issued warrants to purchase 205,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrants are valued at $52,501 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the date on the note with an exercise term of three (3) years. During the year ended December 31, 2019, the Company recorded $22,199 of interest expense related to the amortization of debt discount related to the note and $12,132 of regular interest. As of December 31, 2019, the principal balance of the note was $410,000, the unamortized debt discount was $157,402 and the accrued interest was $530.

On October 16, 2019, the Company issued a promissory note for $140,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $133,000 and the lender retained $7,000 as an original issue discount. $53,200 of the note will be used by the Company exclusively for the purpose of investing in merchant cash advances. The remaining $79,800 of the note will be used by the Company for its operational activities. Additionally, 140,000 shares of the Company’s common stock were issued with a fair value of $34,300, recorded as a debt discount, and will be amortized over the life of the notes, which are due in monthly payments between eighteen (18) months and twenty-three (23) months from the issue date based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the issue date. In addition, the Company issued warrants to purchase 205,000 and 140,000 shares of the Company’s common stock with an exercise price of $0.30 and $0.50 per share, respectively. The warrants are valued at $83,060 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years. During the year ended December 31, 2019, the Company recorded $12,947 of interest expense related to the amortization of debt discount related to the note and $3,498 of regular interest. As of December 31, 2019, the principal balance of the note was $140,000, the unamortized debt discount was $111,413 and the accrued interest was $0.

On October 31, 2019, the Company issued a promissory note of $200,000. The interest rate for the note is 12% per annum with non-compounding interest to be paid every month. The Company received $190,000 and the lender retained $10,000 as an original debt discount. $76,000 of the note will be used by the Company exclusively for the purpose of investing in merchant cash advances. The remaining $114,000 of the note will be used by the Company for its operational activities. Additionally, 200,000 shares of the Company’s common stock were issued with a fair value of $58,000, recorded as a debt discount, and will be amortized over the life of the note, which is due in monthly payments between eighteen (18) months and twenty-three (23) months from the issue date based upon the sum of funds available in the Company’s First Foods Funding Division. The balance will be paid twenty-four (24) months from the issue date. In addition, the Company issued warrants to purchase 200,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrants are valued at $57,180 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue dates with an exercise term of three (3) years. During the year ended December 31, 2019, the Company recorded $10,460 of interest expense related to the amortization of debt discount related to the note and $4,000 of regular interest. As of December 31, 2019, the principal balance of the note was $200,000, the unamortized debt discount was $114,720 and the accrued interest was $0.

NOTE 5 – STOCKHOLDERS’ DEFICIT

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. The Company stopped accruing the dividend payments during the quarter ending September 30, 2019 per the terms of the agreement. For the year ended December 31, 2019 and 2018, the Company recorded $11,550 and $18,150 of dividend expense related to the subscription agreement, respectively.

On May 10, 2018, an individual who is related to a Company Director was retained as a consultant to provide investment advice to the Company for a 90-day period. The consultant was awarded 75,000 shares of common stock at a fair market value of $0.12 per share for $9,000.

On June 14, 2018, the Company issued 100,000 shares of common stock to a related party in connection with a $100,000 promissory note (See Note 2).

On July 23, 2018, the Company issued 118,000 shares of common stock in connection with two promissory notes for a total $118,000 (See Note 4).

On October 11, 2018 the Company issued 250,000 shares of common stock in connection with a $250,000 promissory note (See Note 4).

On October 22, 2018, the Company amended the July 16, 2018 consulting agreement with a service provider to expand the service provider’s services in exchange for $12,500 and 125,000 shares of common stock valued at $0.10 per share, which was the market value on the date of the agreement.

On October 24, 2018, the four directors of the Company were each awarded 85,000 Series B Preferred Shares for a total of 340,000 shares in lieu of an aggregate of $120,000 director fees accrued for the period January 1, 2018 through September 30, 2018.

On October 25, 2017, and as amended on November 2, 2018, the Company amended its Articles of Incorporation to provide for 100,000,000 authorized common shares and 20,000,000 authorized preferred shares. The preferred shares were authorized into three series. Series A Convertible Preferred Shares was designated with one share. Series B Convertible Preferred Shares was designated with 4,999,999 shares. Series C Convertible Preferred Shares was designated with 3,000,000 shares.

On January 9, 2019, the Company issued 50,000 shares of common stock in connection with a $50,000 promissory note (See Note 4).

On February 11, 2019, the Company entered into an agreement with a strategic marketing consultant (the “Marketing Consultant”). On May 31, 2019, in accordance with the agreement, the Marketing Consultant was awarded 26,415 shares of the Company’s common stock at a fair market value of $0.265 per share. On June 5, 2019, the Company entered into a new agreement with the Marketing Consultant. On September 4, 2019, in accordance with the agreement, the Marketing Consultant was awarded 17,500 shares of the Company’s common stock at a fair market value of $0.40 per share. On September 11, 2019, the Company entered into a new agreement with the Marketing Consultant. On December 23, 2019, in accordance with the agreement, the Marketing Consultant was awarded 23,333 shares of the Company’s common stock at a fair market value of $0.30 per share.

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 product manufacturing facility in exchange for paying the following:

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.

On May 8, 2019, the Company entered into an agreement with a strategic investment consultant (the “Investment Consultant”). The Investment Consultant was awarded 100,000 shares of the Company’s common stock at a fair market value of $0.20 per share, for $20,000. Also, in accordance with the agreement, the Company shall at its sole discretion grant a bonus to the Investment Consultant of up to 1,000,000 shares. On October 2, 2019, the Company entered into a new agreement with the Investment Consultant. In accordance with the agreement, the Investment Consultant was awarded a 500,000 shares of the Company’s common stock at a fair market value of $0.26 per share on October 2, 2019. Also, in accordance with the agreement, the Company shall at its sole discretion grant a bonus to the Investment Consultant of up to 500,000 shares. On October 31, 2019, the Investment Consultant was awarded bonus of 250,000 shares of the Company’s common stock at a fair market value of $0.29 per share.

On May 31, 2019, the Company entered into an agreement with a strategic small-cap exposure consultant (the “Exposure Consultant”). The Exposure Consultant was awarded 50,000 shares of the Company’s common stock at a fair market value of $0.265 per share, for $13,250. In addition, the company may extend this agreement for an additional twelve months at the sole discretion of management. Fees for the additional twelve months shall be 200,000 shares of common stock issued in increments of 50,000 shares per quarter.

On June 12, 2019, the Company issued 12,500 shares of common stock in connection with a $25,000 promissory note (See Note 4).

On July 22, 2019, the Company issued 250,000 shares of common stock in connection with a $250,000 promissory note (See Note 4).

On September 9, 2019, the Company entered into an agreement with a production operations consultant (the “Operations Consultant”). On September 17, 2019, in accordance with the agreement, the Operations Consultant was awarded 26,667 shares of the Company’s common stock at a fair market value of $0.24 per share. The contract term is for ninety days. As full compensation for the Services, the Consultant shall be paid a weekly fee of $1,500 payable by the Company to the Operations Consultant at the end of each full week of service. In addition, the Operations Consultant shall receive $6,400 worth of restricted shares of the Company’s common stock (the “Shares”) issued by the Company to the Operations Consultant on the first day of each month of service, starting on the Effective Date, at a 20% discount from the last closing market price of the Shares. On October 9, 2019, in accordance with the agreement, the Operations Consultant was awarded 30,769 shares of the Company’s common stock at a fair market value of $0.21 per share. On November 9, 2019, in accordance with the agreement, the Operations Consultant was awarded 26,677 shares of the Company’s common stock at a fair market value of $0.24 per share. On December 9, 2019, in accordance with the agreement, the Operations Consultant was awarded 33,333 shares of the Company’s common stock at a fair market value of $0.19 per share.

On September 19, 2019, the Company entered into an agreement with a related party strategic advisory consultant (the “Advisory Consultant”). On September 26, 2019, in accordance with the agreement, the Advisory Consultant was awarded 75,000 shares of the Company’s common stock at a fair market value of $0.25 per share.

On October 2, 2019, the Company issued 410,000 shares of common stock in connection with a $410,000 promissory note (See Note 4).

On October 10, 2019, the Company signed a master distribution agreement with CBD Unlimited, Inc., which is a public company and a master distributor, to distribute the Company’s hemp-based chocolate products. The term of this agreement is four years. The agreement includes the issuance of 250,000 shares of the Company’s common stock at the closing market price of $0.26 per share as of the date of the agreement. In the event that this agreement is terminated by FIFG within twelve months of signing of this agreement, a claw back provision can be invoked by FIFG whereby the Shares shall be returned to FIFG. Additionally, FIFG shall pay the distributor a commission for its services hereunder amounting to applicable percentage of the sales price of any sales or sales contract with a customer.

On October 16, 2019, the Company issued 140,000 shares of common stock in connection with a $140,000 promissory note (see note 4).

On October 31, 2019, the Company issued 200,000 shares of common stock in connection with a $200,000 promissory note (see note 4).

On December 13, 2019, the Company amended the promissory note that it had issued on June 14, 2018. In accordance with the amendment agreement, the Company issued 25,000 shares of the Company’s common stock at a fair value of $0.21 per share.

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:

On August 20, 2018, the Company issued 31,250 shares for the exercise of warrants issued to a service provider.

On February 5, 2019, the Company signed a Consulting Agreement for a six (6) month term with a consultant to run the day-to-day manufacturing, packaging and distribution of the Company’s chocolate product line. The Consulting Agreement has a $7,000 monthly fee. In addition, the Company issued a warrant to the Consultant to purchase 60,000 shares of the Company’s common stock at the closing market price of $0.30 on February 5, 2019 with a term of three (3) years. The Company valued these warrants using the Black-Scholes option pricing model with the following inputs: exercise price of $0.30; fair market value of underlying stock of $0.30; expected term of 3 years; risk free rate of 2.50%; volatility of 388.56%; and dividend yield of 0%. The total fair value of these warrants is $17,988 and was expensed at issuance. The six-month Consulting Agreement ended on August 5, 2019 and was extended on a monthly basis through December 5, 2019, after which time the consultant was retained by R and W Financial. The consultant continues to provide services to the Company through the November 21, 2019 agreement between the Company and R and W Financial.

On February 5, 2019, the Company signed an Employment Agreement for a term of three years beginning when the prospective employee, who was retained as a consultant to perform services described in the preceding paragraph, obtains his permanent United States visa. The Employment Agreement has a $7,000 monthly salary. In addition, the Company would 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 would 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 would be exercisable within a three-year period from the date of issue. If the employee fails to obtain his visa and become an employee of the Company, 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 December 31, 2019, no warrants have been expensed because the employment period has not commenced.

On July 22, 2019, the Company issued a promissory note of $250,000 (see Note 4). In connection with this note the Company issued a warrant to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.25 per share. The warrant was valued at $99,925 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested and was fully expensed as of the issue date with an exercise term of three (3) years.

On October 2, 2019, the Company issued a promissory note for $410,000 (see Note 4). In connection with this note the Company issued warrants to purchase 205,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrant was valued at $52,501 based on the Black Scholes Model and included in the debt discount. The warrant is fully vested and was fully expensed as of the issue date with an exercise term of three (3) years.

On October 16, 2019, the Company issued a promissory note for $140,000 (see Note 4). In connection with this note the Company issued warrants to purchase 205,000 and 140,000 shares of the Company’s common stock with an exercise price of $0.30 and $0.50 per share, respectively. The warrants were valued at $83,060 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years.

On October 31, 2019, the Company issued a promissory note of $200,000 (see Note 4). In connection with this note the Company issued warrants to purchase 200,000 shares of the Company’s common stock with an exercise price of $0.30 per share. The warrants are valued at $57,180 based on the Black Scholes Model and included in the debt discount. The warrants are fully vested as of the issue date with an exercise term of three (3) years.

A summary of the Company’s warrants to purchase common stock activity is as follows:

As of December 31, 2019, 1,403,750 warrants for common stock were exercisable and the intrinsic value of these warrants was $55,688. As of December 31, 2019, there is no remaining expense and the weighted average remaining contractual life was 2.41 years for warrants outstanding.

As of December 31, 2018, 171,875 warrants for common stock were exercisable and the intrinsic value of these warrants was $7,219. As of December 31, 2018, the weighted average remaining contractual life was 2.54 years for warrants outstanding and the remaining expense is approximately $16,192 over the remaining amortization period which is 6.5 months.

Preferred Stock Warrants

On December 26, 2017, the Company amended its employment agreement with its 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 $63,725 during the year ended December 31, 2017 and $63,725 during the year ended December 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 $288,037 during the year ended December 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, 2019, there were 800,000 Series B Preferred Stock warrants exercisable. The Company will expense the fair value of these warrants in the amount of $768,000 ratably during the years ended December 31, 2018, 2019 and 2020. For the year ended December 31, 2019 and 2018, the Company recorded $290,186 and $186,832, respectively, as compensation expense related to the warrants.

On December 26, 2018, the Company issued its CFO and Director warrants to purchase 400,000 shares of Series B Preferred Stock in lieu of $200,000 of deferred salary (see Note 2). The warrants have an exercise price of $0.525 per share, are fully vested at issuance, and are exercisable from December 26, 2018 through December 25, 2028. The fair value of these warrants was $210,000 and the additional $10,000 over the deferred salary amount was recorded as compensation expense during the year ended December 31, 2018.

On December 30, 2018, the Company issued warrants to purchase 1,000,000 shares of Series B Preferred Stock, in the aggregate, to three members of its Board of Directors as compensation expense for additional services performed during the year ended December 31, 2018. The warrants have an exercise price of $0.60 per share, are fully vested at issuance, and are exercisable from December 30, 2018 through December 29, 2028. The Company expensed the fair value of these warrants in the amount of $600,000 during the year ended December 31, 2018.

On December 30, 2019, the Company issued warrants to purchase 600,000 shares of Series B Preferred Stock, in the aggregate, to three members of its Board of Directors as compensation expense for additional services performed during the year ended December 31, 2019. The warrants have an exercise price of $1.20 per share, are fully vested at issuance, and are exercisable from December 31, 2019 through December 30, 2029. The Company expensed the fair value of these warrants in the amount of $720,000 during the year ended December 31, 2019.

A summary of the Company’s warrants to purchase Series B Preferred Stock activity is as follows: