STOCKHOLDERS DEFICIT

9 Months Ended

Sep. 30, 2022

NOTE 6 – STOCKHOLDERS’ DEFICIT

Warrant Activity

Common Stock Warrants

On July 7, 2020, our Board of Directors appointed Michael Kaplan to the Board of Directors. In connection with the agreement one million (1,000,000) warrants were issued. The warrants are valued at $177,200 based on the Black Scholes Model. For the nine months ended September 30, 2022 and 2021, the Company recorded $0 and $87,872 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2022 and 2021, the Company recorded $0 and $3,398 as compensation expense related to the warrants, respectively.

Prior to Mr. Kaplan’s appointment to the Board of Directors, on July 7, 2020 the Company entered into a Consulting Agreement with Mr. Kaplan to award him, as full compensation for two (2) years of service, warrants to purchase two million (2,000,000) shares of common stock, if certain milestones are reached, at an exercise price of $0.18 per share, which was the closing price of our common stock on such date. The warrants are valued at $354,400 based on the Black Scholes Model. When the warrants were issued management had assessed the probability of certain milestones being met as probable and therefore the warrants were being straight-lined over the term of services and accelerated whenever a milestone is met. During the quarter ending June 30, 2022, management, upon further review, has determined that these milestones will probably not be met and has recorded an accumulative catch up adjustment of $291,482. For the nine months ended September 30, 2022 and 2021, the Company recorded $41,508 and $125,909 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2022 and 2021, the Company recorded $0 and $42,431 as compensation expense related to the warrants, respectively. In July 2022, the term of the consulting agreement ended with no further milestones being completed. No further compensation will be recorded in association to these warrants.

On August 4, 2020, the Company signed an Employment Agreement for a term of three years with an annual base salary of eighty-four thousand dollars ($84,000). As part of the agreement the Company will issue a warrant to the employee to purchase 300,000 shares a year, for a total of 900,000 shares of the Company’s common stock. The warrants have a term of three (3) years from date of issue and an exercise price equal to the closing market price of the Company’s common stock on August 4, of the corresponding year. The warrants issued on August 4, 2020, 2021 and 2022, are valued at $97,470, $46,050 and $22,740, respectively, based on the Black Scholes Model. 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. 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. In the event the employee’s employment is terminated by the Company without cause, the employee shall be entitled to receive severance in an amount equal to the lesser of three month’s salary or the amount of salary otherwise payable until the termination date. The employee additionally shall be entitled to retain all warrants scheduled to vest within the following nine months. For the nine months ended September 30, 2022 and 2021, the Company recorded $49,602 and $57,681 as compensation expense related to the warrants, respectively. For the three months ended September 30, 2022 and 2021, the Company recorded $7,968 and $9,346 as compensation expense related to the warrants, respectively.

On March 21, 2022, the Company extended the maturity date on one of its promissory notes (see Note 5). In association with this extension the company granted warrants for the right to purchase 125,000 shares of common stock at an exercise price of $0.24 a share. The warrants are valued at $28,088 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. The Company recorded a debt discount and will amortize it over the life of the loan.

On August 1, 2022, the Company extended the maturity date on one of its promissory notes (see Note 5). In association with this extension the company granted warrants for the right to purchase 60,000 shares of common stock at an exercise price of $0.14 a share. The warrants are valued at $7,788 based on the Black Scholes Model, are fully vested as of the issue date and have an exercise term of three (3) years. The Company recorded a debt discount and will amortize it over the life of the loan.

The Company utilized the Black-Scholes option-pricing model to estimate fair value, utilizing the following assumptions for the respective period:

	2022			2021
Risk-free interest rate		0.22-3.16	%	0.03-0.08		%
Expected term of options, in years		3			3
Expected annual volatility		211.0-235.0	%	228.0-247.7		%
Expected dividend yield	-		%	-		%
Determined grant date fair value per option	$	0.08 – 0.22		$	0.14 – 0.22

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

	Number of Warrants (in common shares)			Weighted Average Exercise Price
Outstanding, December 31, 2020		4,899,750		$	0.21
Granted		1,148,775			0.19
Exercised		-			-
Forfeited or cancelled		(343,750	)		0.08
Outstanding, December 31, 2021		5,704,775		$	0.22
Granted		785,000			0.14
Exercised		-			-
Forfeited or cancelled		(310,000	)		0.25
Outstanding, September 30, 2022		6,179,775		$	0.21

As of September 30, 2022, 4,029,775 warrants for common stock were exercisable and the intrinsic value of these warrants was $300 the weighted average remaining contractual life for warrants outstanding was 1.45 years and the remaining expense is $25,697 over the remaining amortization period which is 10 months.

As of September 30, 2021, 3,948,525 warrants for common stock were exercisable and the intrinsic value of these warrants was $34,346, the weighted average remaining contractual life for warrants outstanding was 2.17 years and the remaining expense is $129,138 over the remaining amortization period which is 1.89 years.

Preferred Stock Warrants

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

	Number of Warrants (in Series B Preferred Stock)		Weighted Average Exercise Price
Outstanding, December 31, 2020		4,470,000	$	0.68
Granted		-		-
Exercised		-		-
Forfeited or cancelled		-		-
Outstanding, December 31, 2021		4,470,000	$	0.68
Granted		-		-
Exercised		-		-
Forfeited or cancelled		-		-
Outstanding, September 30, 2022		4,470,000	$	0.68

As of September 30, 2022, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $0, the weighted average remaining contractual life for warrants outstanding was 5.62 years.

As of September 30, 2021, 4,470,000 warrants for Series B preferred stock were exercisable and the intrinsic value of these warrants was $918,810, the weighted average remaining contractual life for warrants outstanding was 6.62 years.

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

+ References

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+ Details

First Foods Group, Inc. 10-Q