Cautionary Statements
This Form 10-Q contains "forward-looking statements," as that term is used in
federal securities laws, about First Foods Group, Inc.'s financial condition,
results of operations and business.
These statements include, among others:
· statements concerning the potential benefits that First Foods Group, Inc.
("First Foods", "we", "our", "us", the "Company", or "management") may
experience from its business activities and certain transactions it
contemplates or has completed; and
· statements of First Foods' expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not
historical facts. These statements may be made expressly in this Form 10-Q.
You can find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates," "opines," or similar
expressions used in this Form 10-Q. These forward-looking statements are
subject to numerous assumptions, risks and uncertainties that may cause First
Foods' actual results to be materially different from any future results
expressed or implied by First Foods in those statements. The most important
facts that could prevent First Foods from achieving its stated goals include,
but are not limited to, the following:
(a) volatility or decline of First Foods' stock price;
(b) potential fluctuation of quarterly results;
(c) failure of First Foods to earn significant revenues or profits;
(d) inadequate capital to continue or expand its business, and inability to
raise additional capital or financing to implement its business plans;
(e) decline in demand for First Foods' products and services;
rapid adverse changes in markets due to, among other things, war,
(f) terrorism, weather conditions, environmental factors, pandemic, economic
crisis, legislation, etc.;
litigation with or legal claims and allegations by outside parties against
(g) First Foods, including but not limited to challenges to First Foods'
intellectual property rights;
reliance on proprietary merchant advance credit models, which involve the
(h) use of qualitative factors that are inherently judgmental and which could
result in merchant defaults; and
(i) new regulations impacting the business.
There is no assurance that First Foods will be profitable, due to, among other
potential reasons, that First Foods may not be able to successfully develop,
manage or market its products and services, First Foods may not be able to
attract or retain qualified executives and personnel, First Foods may not be
able to obtain customers for its products or services, additional dilution in
outstanding stock ownership may be incurred due to the issuance of more shares,
warrants and stock options, or the exercise of outstanding warrants and stock
options, and other risks inherent in First Foods' business.
Because the forward-looking statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by the
forward-looking statements. First Foods cautions you not to place undue reliance
on the statements, which speak only of management's plans and expectations as of
the date of this Form 10-Q. The cautionary statements contained or referred to
in this section should be considered in connection with any subsequent written
or oral forward-looking statements that First Foods or persons acting on its
behalf may issue. First Foods does not undertake any obligation to review or
confirm analysts' expectations or estimates or to release publicly any revisions
to any forward-looking statements to reflect events or circumstances after the
date of this Form 10-Q, or to reflect the occurrence of unanticipated events.
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General
First Foods is currently a "smaller reporting company" under the JOBS Act. A
company loses its "smaller reporting company" status on (i) the day its public
float becomes greater than or equal to $250,000,000 or (ii) had annual revenues
of less than $100,000,000 and either: (A) had no public float or (B) had a
public float of less than $700,000,000. As a "smaller reporting company," First
Foods is exempt from certain obligations of the Exchange Act, including those
found in Section 14A(a) and (b) related to shareholder approval of executive
compensation and golden parachute compensation and Section 404(b) of the
Sarbanes-Oxley Act of 2002 related to the requirement that management assess the
effectiveness of the Company's internal control for financial reporting.
Furthermore, Section 103 of the JOBS Act provides that as a "smaller reporting
company", First Foods is not required to comply with the requirement to provide
an auditor's attestation of ICFR under Section 404(b) of the Sarbanes-Oxley Act
for as long as First Foods qualifies as a "smaller reporting company." However,
a "smaller reporting company" is not exempt from the requirement to perform
management's assessment of internal control over financial reporting.
First Foods is primarily focused on developing its specialty chocolate product
line through its core business subsidiary, Holy Cacao, and secondarily
participating in MCAs through its 1st Foods Funding Division. First Foods
continues to pursue new brands and concepts, including the wholesaling of
various health-related products.
Holy Cacao is a majority owned subsidiary that is dedicated to producing,
packaging, distributing and selling specialty chocolate products, including
specialty chocolate products infused with a hemp-based ingredient in accordance
with the Company's understanding of the Agricultural Act of 2014 (the "2014 Farm
Bill") and/or the Agriculture Improvement Act of 2018 (the "2018 Farm Bill," and
together with the 2014 Farm Bill, collectively, the "Farm Bill"), which renders
the production of hemp in compliance with the provisions of the Farm Bill
federally lawful. The Company has not been, is not, and has no current plans to
be involved in producing, packaging, distributing or selling any product that is
infused with a marijuana-based ingredient, although it intends to revisit the
matter as regulations change in jurisdictions in which it operates.
The Company is also dedicated to licensing its intellectual property ("IP"),
including its name, brand, and packaging, to third parties. The Company may
license its IP to third parties that may produce, package, and distribute
hemp-based products pursuant with the Company's understanding of the Farm Bill.
The Company may license its IP to third parties that may produce, package, and
distribute marijuana-based products, but only as such licensing is legal. Holy
Cacao holds four trademarks for the brands, "The Edibles' Cult", "Purely
Irresistible", "Mystere" and "Southeast Edibles".
The Company also has a contract with TIER Merchant Advances LLC ("TIER") to
participate in the purchase of future receivables from qualified TIER merchants
for the purpose of generating near-term and long-term revenue for the Company.
The Company also provides cash advances directly to merchants.
The Company is quoted on the OTCQB under "FIFG."
The Company's principal executive offices are located at First Foods Group, Inc.
c/o Incorp Services, Inc., 3773 Howard Hughes Parkway, Suite 500S, Las Vegas, NV
89169-6014. Our telephone number is (201) 471-0988.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
are based upon our unaudited condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these unaudited condensed
consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. We monitor our
estimates on an on-going basis for changes in facts and circumstances, and
material changes in these estimates could occur in the future. Changes in
estimates are recorded in the period in which they become known. We base our
estimates on historical experience and other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ from our
estimates, if past experience or other assumptions do not turn out to be
substantially accurate.
Certain of our accounting policies are particularly important to the portrayal
and understanding of our financial position and results of operations and
require us to apply significant judgment in their application. As a result,
these policies are subject to an inherent degree of uncertainty. In applying
these policies, we use our judgment in making certain assumptions and estimates.
Our critical accounting policies are outlined in Note 1 in the Notes to the
Unaudited Condensed Consolidated Financial Statements.
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Results of Operations for the Three Months Ended June 30, 2021 compared to the
Three Months Ended June 30, 2020
We had $247,541 of revenue for the three months ended June 30, 2021 compared to
$24,711 in revenue for the three months ended June 30, 2020. The increase in
revenue was driven by an increase in our product sales, partially offset by a
decrease of participation in merchant cash advances due to COVID-19.
Cost of product sales for the three months ended June 30, 2021 was $162,343
compared to $4,703 for the three months ended June 30, 2020. The increase in
cost of product sales was due to an increase in product sales.
Professional fees for the three months ended June 30, 2021 was $2,097 compared
to $17,896 for the three months ended June 30, 2020. The decrease in
professional fees was due to lower legal fees incurred because of fewer
contractual arrangements.
General and administrative expenses for the three months ended June 30, 2021 was
$446,423 compared to $358,176 for the three months ended June 30, 2020. The
increase in general and administrative expenses was primarily due to increased
costs associated with compensation, commissions, advertising and promotion,
depreciation, travel, offset by lower fees and commissions for our cash advances
and reduced cost for research and development.
Provision for merchant cash advances for the three months ended June 30, 2021
was $(6,840) compared to $76,853 for the three months ended June 30, 2020. The
decrease in provision for merchant cash advances was due to lowering the reserve
allowance for our merchant cash advances.
Results of Operations for the Six Months Ended June 30, 2021 compared to the Six
Months Ended June 30, 2020
We had $289,879 of revenue for the six months ended June 30, 2021 compared to
$121,685 in revenue for the six months ended June 30, 2020. The increase in
revenue was driven by an increase in our product sales, partially offset by a
decrease of participation in merchant cash advances due to COVID-19.
Cost of product sales for the six months ended June 30, 2021 was $166,084
compared to $5,451 for the six months ended June 30, 2020. The increase in cost
of product sales was due to an increase in product sales.
Professional fees for the six months ended June 30, 2021 was $3,096 compared to
$30,327 for the six months ended June 30, 2020. The decrease in professional
fees was due to lower legal fees incurred because of fewer contractual
arrangements.
General and administrative expenses for the six months ended June 30, 2021 was
$933,810 compared to $968,062 for the six months ended June 30, 2020. The
decrease in general and administrative expenses was primarily due to decreased
costs associated with stock-based compensation, consulting and accounting fees,
lower fees and commissions for our cash advances and travel.
Provision for merchant cash advances for the six months ended June 30, 2021 was
$(144,338) compared to $479,885 for the six months ended June 30, 2020. The
decrease in provision for merchant cash advances was due to lowering the reserve
allowance for our merchant cash advances.
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Cash Flows
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2021
amounted to $64,498 and net cash used in operating activities for the six months
ended June 30, 2020 amounted to $440. This includes a net loss from continuing
operations of approximately $(1,328,500), offset by non-cash expenses of
approximately $699,400 related to stock-based compensation, loss on
extinguishment of loan payable, depreciation and amortization expense, non-cash
lease expense and reserves for merchant cash advances, and cash provided by the
change in net working capital items of approximately $564,500 principally
related to the increase in prepaid expenses and other assets, accounts payable
and accrued liabilities, and merchant cash advances. This resulted in a working
capital deficiency of $(3,039,622) at June 30, 2021 and $(2,560,983) at December
31, 2020.
Investing Activities
Net cash used in investing activities amounted to $877 for the six months ended
June 30, 2021 and $156,605 for the six months ended June 30, 2020. This was due
to more equipment purchased during the six months ended 2020 vs. the six months
ended 2021.
Financing Activities
Net cash provided by financing activities amounted to $207,261 for the six
months ended June 30, 2021 and $331,200 for the six months ended June 30, 2020.
This was due to a decrease in proceeds from loans and an increase in repayment
of loans in 2021 vs 2020, partially offset by the sale of shares of common
stock.
Liquidity and Capital Resources
The Company's unaudited condensed consolidated financial statements are prepared
using generally accepted accounting principles in the United States of America
applicable to a going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business.
The Company has not yet established an ongoing source of revenues sufficient to
cover its operating costs and allow it to continue as a going concern. The
ability of the Company to continue as a going concern is dependent on the
Company obtaining adequate capital to fund operating losses until it becomes
profitable. If the Company is unable to obtain adequate capital, it could be
forced to cease operations.
In order to continue as a going concern, the Company will need, among other
things, additional capital resources. As of June 30, 2021, the Company had
$1,349,150 of third-party short-term debt that is due within the next twelve
months. Management's plan is to obtain such resources for the Company by
continuing to earn revenue, obtain capital from management and significant
shareholders sufficient to meet its operating expenses and seek equity and/or
debt financing. However, management cannot provide any assurances that the
Company will be successful in accomplishing any of its plans.
The Company does not have sufficient cash flow for the next twelve months from
the issuance of these unaudited condensed consolidated financial statements. The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and attain profitable
operations. The accompanying unaudited condensed consolidated financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
In December 2019, a novel strain of coronavirus surfaced (COVID-19). The spread
of COVID-19 around the world in 2020 caused significant volatility in U.S. and
international markets. There is significant uncertainty around the breadth and
duration of business disruptions related to COVID-19, as well as its impact on
the U.S. and international economies. The Company's financial position,
operations and cash flows as of June 30, 2021 have been adversely affected, and
may be further affected in the future, by the ongoing outbreak of COVID-19 which
in 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 further material adverse impact on the Company's financial position,
operations and cash flows. Possible areas that may be materially affected
include, but are not limited to, disruption to the Company's labor workforce,
unavailability of products and supplies used in operations, and the decline in
value of assets held by the Company. As of June 30, 2021 and through the filing
date of the financial statements, the Company has continued to collect
receivables from its cash advances but has experienced payment delinquencies.
The Company has taken a reserve allowance on its MCA's. As of June 30, 2021, the
Company's Holy Cacao operations have experienced no disruption in customers and
revenue, labor workforce, availability of products and supplies used in
operations, and the value of assets held by the Company, including inventories.
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Concentration Risks
The Company recognizes the concentration of its merchant cash advances, which
could inherently create a potential risk to future working capital in the event
that the Company is not able to collect all, or a majority, of the outstanding
merchant cash advances. The Company actively mitigates its portfolio
concentration risk by monitoring its merchant cash advance provider's ability to
participate in merchant cash advances from alternative providers and spreading
merchant cash advance participation across various merchants.
As of June 30, 2021, the Company's receivables from merchant cash advances
included $31,296 from one merchant, representing 60% of the Company's merchant
cash advances. The Company earned $1,834 of MCA income from the same merchant,
representing 26% of the Company's MCA income for the three months ended June 30,
2021. The Company earned $14,949 and $4,287 of MCA income from two merchants,
representing 45% and 13%, respectively, of the Company's MCA income for the six
months ended June 30, 2021.
As of June 30, 2021, the Company's accounts receivables included $23,040 from
one customer, representing 97% of the Company's accounts receivable. As of
December 31, 2020, there was no accounts receivable concentration.
As of December 31, 2020, the Company's receivables from merchant cash advances
included $59,719 from two merchants ($25,929 and $33,790), representing 49% of
the Company's merchant cash advances. The Company earned $7,228 of MCA income
from the same two merchants ($5,116 and $2,112), representing 45% of the
Company's MCA income for the three months ended June 30, 2020. The Company
earned $82,447 of MCA income from the same two merchants ($57,181 and $25,266),
representing 75% of the Company's MCA income for the six months ended June 30,
2020.
As of June 30, 2021, there was no accounts payable concentration other than
amounts owed to related parties which makes up 71% of the balance. As of
December 31, 2020, there was no accounts payable concentration other than
amounts owed to related parties which makes up 74% of the balance.
For the three months ended June 30, 2021, the Company had purchase
concentrations of 88% from two vendors. For the six months ended June 30, 2021,
the Company had purchase concentrations of 88% from two vendors. For the three
months ended June 30, 2020, the Company had purchase concentrations of 90% from
one vendor. For the six months ended June 30, 2020, the Company had purchase
concentrations of 73% and 14% from two vendors.
Off-Balance Sheet Arrangements
No off-balance sheet arrangements exist.
Contractual Obligations
None.
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FIRST FOODS GROUP, INC. 
