Company Quick10K Filing
Giggles N' Hugs
Price0.02 EPS-0
Shares169 P/E-10
MCap3 P/FCF-40
Net Debt-0 EBIT-0
TEV3 TEV/EBIT-10
TTM 2019-09-29, in MM, except price, ratios
10-Q 2019-09-29 Filed 2019-11-18
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-20
10-K 2018-12-30 Filed 2019-04-15
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-07-01 Filed 2018-08-15
10-Q 2018-04-01 Filed 2018-05-23
10-K 2017-12-31 Filed 2018-04-16
10-Q 2017-10-01 Filed 2017-11-15
10-Q 2017-07-02 Filed 2017-08-21
10-Q 2017-04-02 Filed 2017-05-22
10-K 2017-01-01 Filed 2017-04-14
10-Q 2016-09-25 Filed 2016-12-08
10-Q 2016-06-26 Filed 2016-08-15
10-Q 2016-03-27 Filed 2016-05-13
10-K 2015-12-27 Filed 2016-04-12
10-Q 2015-09-27 Filed 2015-11-17
10-Q 2015-06-28 Filed 2015-08-17
10-Q 2015-03-29 Filed 2015-05-13
10-K 2014-12-28 Filed 2015-04-14
10-Q 2014-09-28 Filed 2014-11-12
10-Q 2014-06-29 Filed 2014-08-18
10-Q 2014-03-30 Filed 2014-05-19
10-K 2013-12-29 Filed 2014-04-14
10-Q 2013-09-29 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-19
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-04-16
10-Q 2012-09-30 Filed 2012-11-19
10-Q 2012-06-30 Filed 2012-08-20
10-Q 2012-03-31 Filed 2012-05-21
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-17
10-Q 2011-03-31 Filed 2011-05-24
10-K 2010-12-31 Filed 2011-04-15
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-16
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-04-01
8-K 2020-03-30 Other Events
8-K 2020-02-26 Other Events, Exhibits
8-K 2020-01-15 Other Events
8-K 2019-11-20 Officers
8-K 2019-11-13 Officers, Other Events, Exhibits
8-K 2018-09-20
8-K 2018-04-19 Other Events
8-K 2018-03-06 Officers

GIGL 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Note 1 - History and Organization
Note 2 - Basis of Presentation
Note 3 - Summary of Significant Accounting Policies
Note 4 - Property and Equipment
Note 5 - Note Payable From Lessor - in Default
Note 6 - Convertible Note Payable
Note 7 - Common Stock
Note 9 - Leases
Note 10 - Commitments and Contingencies
Note 11 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part Ii&Mdash;Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex31-1.htm
EX-32.1 ex32-1.htm

Giggles N' Hugs Earnings 2019-09-29

Balance SheetIncome StatementCash Flow
3.01.90.9-0.2-1.2-2.32012201420172020
Assets, Equity
1.10.70.3-0.1-0.5-0.92012201420172020
Rev, G Profit, Net Income
0.60.30.1-0.2-0.4-0.72012201420172020
Ops, Inv, Fin

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 29, 2019

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission files number 000-53948

 

GIGGLES N HUGS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   20-1681362

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

3222 Galleria Way, Glendale, CA   91210
(Address of principal executive offices)   (Zip Code)

 

(818) 956-4847

(Registrant’s telephone number, including area code)

 

Copies of Communications to:

BEVILACQUA PLLC

1050 Connecticut Avenue, NW, Suite 500

Washington, DC 20036

 

Indicate by check mark whether the issuer (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 [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
   
Non-accelerated filer [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes [  ] No [X]

 

The number of shares of Common Stock, $0.001 par value, outstanding on November 18, 2019 was 170,574,080 shares.

 

 

 

   
 

 

GIGGLES N’ HUGS, INC.

THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2019

 

Index to Report on Form 10-Q

 

    Page No.
  PART I - FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements F-1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
     
Item 4. Controls and Procedures 11
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 12
     
Item 1A. Risk Factors 12
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 12
     
Item 3. Defaults Upon Senior Securities 12
     
Item 4. Mine Safety Disclosure 12
     
Item 5. Other Information 12
     
Item 6. Exhibits 13
     
  Signature 14

 

 2 
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 29, 2019   December 30, 2018 
   (Unaudited)     
Assets          
           
Current assets:          
Cash and equivalents  $3,881   $57,642 
Inventory   23,132    23,860 
Prepaid expenses, other   21,114    22,458 
Total current assets   48,127    103,960 
           
Property and Equipment, net of accumulated depreciation and amortization of $1,847,645 and $1,708,865   359,906    507,844 
           
Other assets   2,620    2,620 
Right of use asset, net   774,703    - 
Total assets  $1,185,356   $614,424 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities:          
Accounts payable  $763,826   $621,454 
Incentive from lessor – current portion   -    117,460 
Note Payable - lessor, in default   420,881    420,881 
Accrued expenses   175,370    157,368 
Accrued officers salary   510,962    466,541 
Current portion of lease liability   340,290    - 
Deferred revenue   14,345    16,964 
Convertible note payable   50,000    50,000 
Total current liabilities   2,275,674    1,850,668 
           
Long-term liabilities:          
Incentive from lessor – long-term   -    433,379 
Deferred gain   280,890    332,478 
Lease liability   898,125    - 
Total long-term liabilities   1,179,015    765,857 
           
Total liabilities   3,454,689    2,616,525 
           
Commitments and contingencies          
           
Stockholders’ deficit:          
Common stock, $0.001 par value, 1,125,000,000 shares authorized, 169,074,080 and 168,424,080 shares issued and outstanding as of September 29, 2019 and December 30, 2018, respectively   169,074    168,424 
Common stock issuable (1,397,619 shares as of September 29, 2019 and December 30, 2018, respectively)   293,535    293,535 
Additional paid-in capital   10,639,494    10,458,959 
Accumulated deficit   (13,371,436)   (12,923,019)
Total stockholders’ deficit   (2,269,333)   (2,002,101)
           
Total liabilities and stockholders’ deficit  $1,185,356   $614,424 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

 F-1 
 

 

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Thirteen Weeks Ended   Thirteen Weeks Ended   Thirty -Nine Weeks Ended   Thirty -Nine Weeks Ended 
   September 29, 2019   September 30, 2018   September 29, 2019   September 30, 2018 
Revenue                    
Net sales  $554,225   $677,838   $1,807,513   $1,871,138 
                     
Costs and operating expenses                    
Cost of operations   440,532    476,888    1,344,822    1,443,351 
General and administrative expenses   232,697    178,340    735,199    760,081 
Depreciation and amortization   36,782    56,211    138,781    176,361 
Total operating expenses   710,011    711,439    2,218,802    2,379,793 
                     
Loss from Operations   (155,786)   (33,601)   (411,289)   (508,655)
Other expenses:                    
Loss on settlement   -    (400)   -    (1,400)
Finance and interest expense   (12,701)   (10,850)   (34,728)   (36,986)
Loss before provision for income taxes   (168,487)   (44,851)   (446,017)   (547,041)
                     
Provision for income taxes   -    -    (2,400)   - 
                     
Net loss  $(168,487)  $(44,851)  $(448,417)  $(547,041)
                     
Net loss per share – basic and diluted  $(0.00)  $(0.00)  $(0.00)  $(0.00)
                     
Weighted average number of common shares outstanding – basic and diluted   168,724,080    165,867,413    168,924,080    160,599,026 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

 F-2 
 

 

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

 

For the thirty-nine weeks ended September 29, 2019 and September 30, 2018.

 

      Additional   Common       Total 
   Common Stock   Paid in   Stock   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Issuable   Deficit   Deficit 
Balance December 30, 2018   168,424,080   $168,424   $10,458,959   $293,535   $(12,923,019)  $        (2,002,101)
Shares issued for employees compensation   50,000    50    300              350 
Shares issued for professional services   600,000    600    5,250              5,850 
Fair value of warrants issued to officers             174,985              174,985 
Net loss                       (448,417)   (448,417)
Balance September 29, 2019   169,074,080   $169,074   $10,639,494   $293,535   $(13,371,436)  $(2,269,333)

 

      Additional   Common       Total 
   Common Stock  Paid in   Stock   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Issuable   Deficit   Deficit 
Balance December 31, 2017   145,602,251   $145,602   $9,874,936   $293,535   $(12,231,650)  $       (1,917,577)
Shares issued for cash   19,791,829    19,792    573,963              593,755 
Shares issued for employees compensation   200,000    200    4,400              4,600 
Shares issued to settle accouns payable   1,500,000    1,500    39,150              40,650 
Shares issued for professional services   1,030,000    1,030    15,745              16,775 
Net loss                       (547,041)   (547,041)
Balance September 30, 2018   168,124,080   $168,124   $10,508,194   $293,535   $(12,778,691)  $(1,808,838)

 

For the thirteen weeks end September 29, 2019 and September 30, 2018.

 

      Additional   Common       Total 
   Common Stock   Paid in   Stock   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Issuable   Deficit   Deficit 
Balance June 30, 2019   168,924,080   $168,924   $10,582,449   $293,535   $(13,202,949)  $       (2,158,041)
Shares issued for professional services   150,000    150    1,050              1,200 
Fair value of warrants issued to officers             55,995              55,995 
Net loss                       (168,487)   (168,487)
Balance September 29, 2019   169,074,080   $169,074   $10,639,494   $293,535   $(13,371,436)  $(2,269,333)

 

   Common Stock  

Additional

Paid in

  

Common

Stock

   Accumulated  

Total

Stockholders’

 
   Shares   Amount   Capital   Issuable   Deficit   Deficit 
Balance July 1, 2018   167,184,080   $167,184   $10,499,839   $293,535   $(12,733,842)  $        (1,773,284)
Shares issued to settle accouns payable   500,000    500    4,150              4,650 
Shares issued for professional services   440,000    440    4,207              4,647 
Net loss                       (44,851)   (44,851)
Balance September 30, 2018   168,124,080   $168,124   $10,508,196   $293,535   $(12,778,693)  $(1,808,838)

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

 F-3 
 

 

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For Thirty-Nine Weeks Ended   For Thirty-Nine Weeks Ended 
   September 29, 2019   September 30, 2018 
         
Cash flows from operating activities          
Net loss  $(448,417)  $(547,041)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation and amortization   138,781    176,361 
Stock-based compensation   350    4,600 
Loss on stock issuance for payable settlement   -    1,400 
Interest and fees included in note payable   -    3,520 
Shares issued for services   5,850    16,775 
Amortization of deferred gain   (51,588)   (51,588)
Fair value of warrants issued to officers   174,985    - 
Changes in operating assets and liabilities:          
Decrease (increase) in prepaid expenses and deposits   1,344    (3,587)
Decrease in inventory   728    1,103 
Amortization of right of use asset   137,293    - 
Increase (decrease) in accounts payable   142,372    (69,819)
Decrease in lease incentive liability   -    (75,631)
Decrease (increase) in accrued expenses   62,423    (87,692)
(Decrease) increase in deferred revenue   (2,619)   14,775 
Decrease in lease liability   (224,420)   - 
Net cash provided by (used in) operating activities   (62,918)   (616,824)
           
Cash flows from investing activities          
Adjustment of fixed assets   9,157    - 
Net cash used in investing activities   9,157    - 
           
Cash flows from financing activities          
Payments on promissory note payable   -    (5,000)
Proceeds from sale of common shares   -    593,755 
Net cash provided by financing activities   -    588,755 
           
NET DECREASE IN CASH   (53,761)   (28,069)
CASH AT BEGINNING OF PERIOD   57,642    131,336 
           
CASH AT END OF PERIOD  $3,881   $103,267 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Shares issued to settle accounts payable  $-   $39,250 
Increase in right of use assent and lease liability upon adoption of ASC 842  $1,462,835   $- 
Adjustment of leasee incentive and right of use asset upon adoption of ASC 842  $550,839   $- 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

 F-4 
 

 

GIGGLES N’ HUGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirty-Nine Weeks ended September 29, 2019 and September 30, 2018

(Unaudited)

 

NOTE 1 – HISTORY AND ORGANIZATION

 

Giggles N’ Hugs, Inc. (“GIGL Inc.” or the “Company”) was originally organized on September 17, 2004 under the laws of the State of Nevada, as Teacher’s Pet, Inc. GIGL Inc. was organized to sell teaching supplies and learning tools. On August 20, 2010, GIGL Inc. filed an amendment to its articles of incorporation to change its name to Giggles N’ Hugs, Inc.

 

On December 30, 2011, GIGL Inc. completed the acquisition of all the issued and outstanding shares of GNH, Inc. (“GNH”), a Nevada corporation, pursuant to a Stock Exchange Agreement. For accounting purposes, the acquisition of GNH by GIGL Inc. has been recorded as a reverse merger. Giggles N Hugs restaurant concept brings together high-end, organic food with the play elements and entertainment for children. Giggles N Hugs offers an upscale, family-friendly atmosphere with a play area dedicated to children ages 10 and younger with nightly entertainment, such as magic shows, concerts, puppet shows, as well as activities and games which include face painting, dance parties, karaoke, and arts and crafts,

 

The Company adopted a 52/53 week fiscal year ending on the Sunday closest to December 31st for financial reporting purposes. Fiscal year 2019 and 2018 consists of a year ending December 29, 2019 and December 30, 2018.

 

NOTE 2 – BASIS OF PRESENTATION

 

The interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US Dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with US generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

 

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 30, 2018 and notes thereto included in the Company’s annual report on Form 10-K. The Company follows the same accounting policies in the preparation of interim reports. The condensed consolidated balance sheet as of December 30, 2018 included herein was derived from the audited consolidated financial statements as of that date, but does not included all disclosures, including notes, required by GAAP.

 

Results of operations for the interim periods may not be indicative of annual results.

 

 F-5 
 

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Going concern

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, during the thirty-nine weeks ended September 29, 2019, the Company incurred a net loss of $448,417, used cash in operations of $62,918, and had a stockholders’ deficit of $2,269,333 as of that date. In addition, the note payable to the Company’s landlord was in default. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. In addition, the Company’s independent registered public accounting firm in its report on the December 30, 2018 financial statements has raised substantial doubt about the Company’s ability to continue as a going concern within one year from the date that the financial statements are issued. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

The Company had cash on hand in the amount of $3,881 as of September 29, 2019. Management estimates that the current funds on hand will be sufficient to continue operations through December 29, 2019. Management is currently seeking additional funds, primarily through the issuance of debt and equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company can obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.

 

Principles of consolidation

 

The condensed consolidated financial statements include the accounts of Giggles N Hugs, Inc., GNH, Inc., GNH CC, Inc. for restaurant operations in Westfield Mall in Century City, California (which was closed June 30, 2016 due to a complete remodel of the Mall), GNH Topanga, Inc. for restaurant operations in Westfield Topanga Shopping Center in Woodland Hills, California, and Glendale Giggles N Hugs, Inc. for restaurant operations in Glendale Galleria in Glendale, California. Intercompany balances and transactions have been eliminated. Giggles N Hugs, Inc., GNH, Inc., GNH CC, Inc., GNH Topanga, Inc., and Glendale Giggles N Hugs, Inc. will be collectively referred herein to as the “Company”.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions used by management including assumptions made in impairment analysis of fixed assets, accruals of potential liabilities, valuation of derivative liabilities and equity securities issued for services and realization of deferred tax assets. Actual results could differ from those estimates.

 

 F-6 
 

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Revenue

 

The Company recognized revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (ASC 606). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

 

Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products or services to our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer.

 

Leases

 

Prior to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases. Effective January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on January 1, 2019 resulted in the recognition of operating lease right-of-use assets of $911,966 and, liabilities for operating leases of $1,462,835. As part of the entry to record the lease liability, the Company removed approximate $133,833 of deferred rent and $417,000 of landlord lease incentives that existed as of December 31, 2018. There was no cumulative-effect adjustment to accumulated deficit necessary. See Note 9 for further information regarding the adoption of ASC 842.

 

Loss per common share

 

Net loss per share is provided in accordance with ASC Subtopic 260-10. We present basic loss per share (“EPS”) and diluted EPS on the face of statements of operations. Basic EPS is computed by dividing reported losses by the weighted average shares outstanding. Except where the result would be anti-dilutive to income from continuing operations, diluted earnings per share has been computed assuming the conversion of the convertible long-term debt and the elimination of the related interest expense, and the exercise of stock options and warrants. Loss per common share has been computed using the weighted average number of common shares outstanding during the year. For the period ended September 29, 2019, the assumed conversion of convertible notes payable and the exercise of 52,964,917 stock warrants, and 115,000 options to acquire shares of common stock are anti-dilutive due to the Company’s net losses and are excluded in determining diluted loss per share.

 

 F-7 
 

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Stock-based compensation

 

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board (FASB) whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested, and the total stock-based compensation charge is recorded in the period of the measurement date.

 

The fair value of the Company’s stock option and warrant grants is estimated using the Black-Scholes Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in future periods.

 

The Company also issues restricted shares of its common stock for share-based compensation programs to employees and non-employees. The Company measures the compensation cost with respect to restricted shares to employees based upon the estimated fair value at the date of the grant, and is recognized as expense over the period, which an employee is required to provide services in exchange for the award. For non-employees, the Company measures the compensation cost with respect to restricted shares based upon the estimated fair value at the measurement date which is either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.

 

Recent Accounting Standards

 

Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

 F-8 
 

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following at:

 

   September 29, 2019   December 30, 2018 
Leasehold improvements  $1,889,027   $1,889,027 
Fixtures and equipment   60,310    60,310 
Computer software and equipment   258,214    267,372 
Property and equipment, total   2,207,551    2,216,709 
Less: accumulated depreciation   (1,847,645)   (1,708,865)
Property and equipment, net  $359,906   $507,844 

 

Depreciation and amortization expense for the thirteen weeks and thirty-nine weeks ended September 29, 2019 were $36,782 and $138,781, respectively, and for the thirteen weeks and thirty-nine weeks ended September 30, 2018 were $56,211 and $176,361, respectively. Repair and maintenance expense for the thirteen weeks and thirty-nine weeks ended September 29, 2019 were $16,464 and $41,909, respectively, and for thirteen weeks and thirty-nine weeks ended September 30, 2018 were $15,528 and $46,046, respectively.

 

Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. For the periods ended September 29, 2019 and December 30, 2018, there were no indications of further impairment based on management’s assessment of these assets.

 

 F-9 
 

 

NOTE 5 – NOTE PAYABLE FROM LESSOR – In Default

 

On February 12, 2013, the Company entered into a $700,000 Promissory Note Payable Agreement with GGP Limited Partnership (“Lender”) to be used by the Company for a portion of the construction work to be performed by the Company under the lease by and between the Company and Glendale II Mall Associates. On March 1, 2015, the Company and the lender renegotiated the terms of the Promissory Note and agreed to a new note with a principal balance due of $683,316. As part of the new agreement, the Lender waived principal and interest payments for two years beginning March 1, 2015.

 

On August 12, 2016 the Company entered into a third amendment on its lease at The Glendale Galleria. The amendment covered several areas, including adjustment to percentage rent payable, reduced the minimum rent payable, along with the payment and principal of Promissory Note. The Promissory Note was adjusted to a balance due of $763,261 from $683,316, with no interest, payable in equal monthly instalments of $5,300 through maturity of Note on May 31, 2028. The Company imputed interest using a discount rate of 10% to determine a fair value of the note of $443,521. As of September 29, 2019, and December 30, 2018 the balance of note payable net of unamortized note discount was $420,881 and $420,881 respectively.

 

The lender under the Note is GGP Limited Partnership (GGP). GGP is an affiliate of Glendale II Mall Associates, the lessor of the Company’s Glendale Mall restaurant location. In accordance with the note agreement, an event of default would occur if the Borrower defaults under the lease between the Company and Glendale II Mall Associates. Upon the occurrence of an event of default, the entire balance of the Note payable and accrued interest would become due and payable, and the balance due becomes subject to a default interest rate (which is 5% higher than the defined interest rate). As of September 29, 2019, the Company was delinquent in its payments to GGP under the note, and as such, the Note has been reflected as currently due and disclosed as in default.

 

 F-10 
 

 

NOTE 6 – CONVERTIBLE NOTE PAYABLE

 

On August 24, 2015, the Company entered into an unsecured Note Payable Agreement with an investor for which the Company issued a $50,000 Convertible Note Payable, which accrues interest at a rate of 5% per annum and matured on August 31, 2016. The Lender may also convert all or a portion of the Note Payable at any time into shares of common stock at a price of $0.10 per share. By oral agreement with the lender, the maturity date was extended, and the note is now considered to be due on demand.

 

NOTE 7 – COMMON STOCK

 

Issuance of Common Stock

 

During the thirty-nine weeks ended September 29, 2019, the Company granted and issued 600,000 shares of restricted common stock with a fair value of $5,850 for services.

 

During the thirty-nine weeks ended September 29, 2019, the Company issued 50,000 shares of common stock at fair value of $350 for an employee.

 

Employee Stock Options

 

The following table summarizes the changes in the options outstanding at September 29, 2019, and the related prices for the shares of the Company’s common stock issued to employees of the Company under a non-qualified employee stock option plan.

 

   Stock   Weighted Average 
   Options   Exercise Price 
Outstanding, December 30, 2018   115,000   $4.50 
Granted   -    - 
Exercised   -    - 
Outstanding, September 29, 2019   115,000   $4.50 
Exercisable, September 29, 2019   115,000   $4.50 

 

As of September 29, 2019, the stock options had no intrinsic value.

 

There were no options granted during the fiscal quarter ended September 29, 2019, and there was no stock-based compensation expense in connection with options granted to employees.

 

 F-11 
 

 

NOTE 8 – COMMON STOCK (CONTINUED)

 

Warrants

 

On January 1, 2019, the Company entered into employee agreements with three individuals. In accordance with the agreements, the employees are to receive warrants of 32,997,000 at an exercise price of $0.0001. The Company calculated the fair value of the warrants to be $230,979 based on the stock price at the date of grant. During the period ended September 29, 2019, the Company amortized $174,984 of this amount as an expense which is included in general and administrative costs on the accompanying statement of operations. As of September 29, 2019 the remaining unamortized balance was $55,995 which will be amortized over the remainder of the year.

 

The following table summarizes the changes in the warrants outstanding at September 29, 2019, and the related prices.

 

A summary of the Company’s warrants as of September 29, 2019 is presented below:

 

       Weighted 
       Average 
       Exercise 
   Warrants   Price 
Outstanding, December 30, 2018   19,967,917   $0.07 
Granted   32,997,000    0.007 
Exercised   -    - 
Outstanding, September 29, 2019   52,964,917   $0.03 
Exercise, September 29, 2019   52,964,917   $0.03 

 

           Weighted         
       Weighted   Average       Weighted 
Range of      Average   Remaining       Average 
Exercise  Number   Exercise   Contractual   Number   Exercise 
Prices  Outstanding   Price   Life   Exercisable   Price 
$0.01 ~ $0.37   19,967,917   $0.03    1.89    19,967,917   $0.07 
    32,997,000    0.0001    9.25    32,997,000    0.0001 
    52,964,917         11.58    52,964,917      

 

The intrinsic value of the warrants outstanding as of September 29, 2019 was $167,000.

 

 F-12 
 

 

NOTE 9 – LEASES

 

Deferred Gain

 

On August 12, 2016, the Company entered into a third amendment on its lease at The Glendale Galleria. The amendment covered several areas, including adjustment to percentage rent payable, reduced the minimum rent payable and payment and principal of the Promissory Note payable to GGP. The Promissory Note was adjusted to a balance due of $763,262 from $683,316, with zero percent interest, payable in equal monthly instalments of $5,300 through maturity of Note on May 31, 2028, creating a gain on extinguishment of the old note of $220,686 (see Note 5). The change in the payment terms of the lease caused a change in the previously calculated deferred rent of $69,614. For reporting purposes, the Company determined that since the GGP Promissory Note and the related revision of the lease were agreed to at the same time, that the change in the lease payment terms and the reduced rent, and the issuance of the new note are directly related. In addition, past due rent of $164,987 was forgiven. As such the gain on the termination of the note of $220,686, the adjustment to the deferred rent in the aggregate amount of $69,614, and the forgiveness of past due rent of $164,987, resulting in an aggregate gain of $455,287 had been deferred, and is being amortized on the straight-line basis over the remaining life of the lease as an adjustment to rent expense. The balance of the deferred gain was $280,890 as of September 29, 2019.

 

During the period ended September 29, 2019, $51,591 of deferred gain was amortized and offset to rent expense, resulting in a remaining deferred gain balance of $280,890 as of September 29, 2019 which will be amortized as an offset to rent expense over the remainder of the lease.

 

 F-13 
 

 

NOTE 9 – LEASES (CONTINUED)

 

Lease Obligations

 

Prior to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases. Effective January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on January 1, 2019 resulted in the recognition of operating lease right-of-use assets of $911,997 and lease liability of $1,462,835.As part of the entry to record the lease liability, the Company removed $133,833 of deferred rent and $417,000 of landlord lease incentives that existed as of December 31, 2018. There was no cumulative-effect adjustment to accumulated deficit necessary.

 

The Company has operating lease agreements for Topanga and Glendale and with remaining lease terms of 2.7 years and 4.1 years, respectively. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and lease incentives were removed. The balance of the right of use asset at September 29, 2019 was $774,703, net of accumulated amortization of $77,390.

 

The following is related to leases for the period:

 

   At
September 29, 2019
 
Operating Leases     
Long-term right-of-use assets, net  $774,703 
      
Short-term operating lease liabilities  $340,290 
Long-term operating lease liabilities   898,125 
Total operating lease liabilities  $1,238,415 

 

The Company’s total lease payment is as follows:

 

2019   110,301 
2020   452,956 
2021   469,398 
2022   279,077 
2023   151,172 
Total lease payments   1,462,903 
Less: note discount   (224,488)
Present value of lease liabilities  $1,238,415 

 

 F-14 
 

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Employment Agreements

 

Sean Richards: On January 1, 2019, we entered into an employment agreement with Sean Richards, pursuant to which Mr. Richards agreed to devote all of his working time to our business as our Chief Operating Officer and we agreed to pay Mr. Richards an annual base salary of $101,500, plus a onetime bonus of warrants exercisable for 1,000,000 shares of our common stock issued for a ten-year period with an exercise price of $0.0001 per share. In addition, we also agreed to pay the monthly premiums for health care coverage for Mr. Richards and the other members of his immediate family up to a maximum of $15,000 per year. Mr. Richards will receive an annual bonus in cash of up to $10,000, in our sole discretion and based on mutually agreed upon financial performance goals. Mr. Richards resigned from the Company on October 1, 2019.

 

Joey Parsi: On January 1, 2019, we entered into an employment agreement with Joey Parsi, pursuant to which Mr. Parsi agreed to devote a majority of his working time to our business as our Co-Chief Executive Officer and we agreed to pay Mr. Parsi an annual base salary of $225,000, plus a onetime bonus of warrants exercisable for 25,997,000 shares of our common stock issued for a ten-year period with an exercise price of $0.0001 per share. In addition, we also agreed to pay the monthly premiums for health care coverage for Mr. Parsi and the other members of his immediate family. Mr. Parsi will receive an annual bonus in cash of up to $175,000, in our sole discretion and based on mutually agreed upon financial performance goals. Mr. Parsi will also be entitled to reimbursement for all ordinary and reasonable expenses incurred in the performance of his duties for the Company, including for a company car, lap top computer and cell phone. Mr. Parsi will also be entitled to six weeks of vacation annually.

 

The employment agreement may be terminated by either party for any reason at any time. If Mr. Parsi’s employment is terminated by the Company with or without cause, Mr. Parsi will be entitled to receive a severance payment in the amount of 12 months of his base salary plus all unvested options, warrants and shares.

 

Philip Gay: On January 1, 2019, we entered into an employment agreement with Philip Gay effective as of April 1, 2018, pursuant to which Mr. Gay agreed to serve as our Co-Chief Executive Officer and we agreed to pay Mr. Gay an annual base salary consisting of warrants exercisable for 6,000,000 shares of our common stock issued for a ten-year period with an exercise price of $0.0001 per share. These warrants will be paid on each anniversary date of Mr. Gay’s employment and each annually grant will vest at the rate of twenty-five percent (25%) per calendar quarter. Mr. Gay will also be entitled to reimbursement for all ordinary and reasonable expenses incurred in the performance of his duties for the Company, and he will receive an annual bonus in cash of up to $75,000, in our sole discretion and based on mutually agreed upon financial performance goals. If Mr. Gay’s employment is terminated by the Company with or without cause, all unvested equity, options and equity grants will be cancelled.

 

Litigation

 

As of September 29, 2019, there was no material outstanding litigation.

 

NOTE 11 – SUBSEQUENT EVENTS

 

On October 8, 2019, the Company issued 1,500,000 common stock for services, with a fair value of $15,000.

 

 F-15 
 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Report on Form 10-Q contains forward-looking statements and involves risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows, and business prospects. These statements include, among other things, statements regarding:

 

  our ability to diversify our operations;
     
  inability to raise additional financing for working capital;
     
  the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;
     
  our ability to attract key personnel;
     
  our ability to operate profitably;
     
  deterioration in general or regional economic conditions;
     
  adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
     
  changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate;
     
  the inability of management to effectively implement our strategies and business plan;
     
  inability to achieve future sales levels or other operating results;
     
  the unavailability of funds for capital expenditures;
     
  other risks and uncertainties detailed in this report;

 

As well as other statements regarding our future operations, financial condition and prospects, and business strategies. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the heading “Risk Factors” in Part II, Item 1A and those discussed in other documents we file with the Securities and Exchange Commission. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

References in the following discussion and throughout this quarterly report to “we”, “our”, “us”, “Giggles”, “the Company”, and similar terms refer to Giggles N’ Hugs, Inc. unless otherwise expressly stated or the context otherwise requires.

 

The Company adopted a 52/53 week fiscal year ending on the Sunday closest to December 31st for financial reporting purposes. For the years 2018 and 2019 consists of a year ending December 30, 2018 and December 29, 2019.

 

 3 
 

 

Overview

 

Giggles N Hugs is a unique restaurant concept that brings together high-end, organic food with the play elements and entertainment for children. Giggles N Hugs offers an upscale, family-friendly atmosphere with a play area dedicated to children ages 10 and younger. The restaurant has a high-quality menu made from fresh, organic foods that are enjoyed by both children and adults. With nightly entertainment, such as magic shows, concerts, puppet shows, as well as activities and games which include face painting, dance parties, karaoke, and arts and crafts, Giggles N Hugs has become a premier destination for families seeking healthy food in a casual and fun atmosphere. Parents get to eat and relax while the kids play.

 

In addition to its family-friendly vibe, Giggles N Hugs is also known for its own creation called “Mom’s Tricky Treat Sauce,” which hides pureed vegetables in kids’ favorite meals such as pizza, pastas and macaroni and cheese.

 

Originally, Giggles N’ Hugs owned and operated one restaurant in the Westfield Mall in Century City, California; a second restaurant in the Westfield Mall in Topanga, California; and a third restaurant in the Glendale Galleria in Glendale, California through June 26, 2016.

 

On May 13, 2016, Giggles N’ Hugs, Inc. entered into a Termination of Lease Agreement with Century City Mall, LLC (“landlord”), accelerating the termination date of the Lease dated January 13, 2010 for its store located in Westfield Century City, Los Angeles, California. Pursuant to the agreement, the lease terminated June 30, 2016 and the landlord agreed to a monetary reimbursement of $350,000 which was received by June 26, 2016.

 

The Company continues to operate its restaurants in Topanga and in the Glendale Galleria Mall.

 

 4 
 

 

RESULTS OF OPERATIONS

 

Results of Operations for the Thirteen Weeks Ended September 29, 2019 and September 30, 2018:

 

COSTS AND OPERATING EXPENSES

 

   For Thirteen
Weeks Ended
   For Thirteen
Weeks Ended
   Increase (Decrease) 
   September 29, 2019   September 30, 2018   $   % 
Revenue:                    
Net sales  $554,225   $677,838   $(123,613)   -18.2%
                     
Costs and operating expenses:                    
Cost of operations   440,532    476,888    (36,356)   -7.6%
General and administrative expenses   232,697    178,340    54,357    30.5%
Depreciation and amortization   36,782    56,211    (19,429)   -34.6%
Total operating expenses   710,011    711,439    (1,428)   -0.2%
                     
Loss from Operations   (155,786)   (33,601)   (122,185)   363.6%
Other expenses:                    
Loss on settlement        (400)   400    -100.0%
Finance and interest expenses   (12,701)   (10,850)   (1,851)   17.1%
Loss before provision for income taxes liability   (168,487)   (44,851)   (123,636)   275.7%
                     
Provision for income taxes   -    -    -    * 
Net Loss  $(168,487)  $(44,851)  $(123,636)   275.7%

 

Notes to Costs and Operating Expenses Table:

 

Net sales. Net sales for the thirteen weeks ended September 29, 2019 and September 30, 2018 were $554,225 and $677,838 respectively. The decrease of $123,613 (18.2%) was mostly attributable to reduced food sales, play area fees, and party sales.

 

Cost of operations. Costs of operations consist of cost of goods sold, restaurant utilities, supplies, administrative and other operating expenses, labor cost, and occupancy cost. For the thirteen weeks ended September 29, 2019 and September 30, 2018, cost of operations were $440,532 and $476,888, respectively. The decrease of $36,356 was mainly attributable to the reduced food costs and labor costs.

 

General and administrative expenses. General and administrative expenses for the thirteen weeks ended September 29, 2019 and September 30, 2018 were $232,697 and $178,340, respectively. This increase of $54,357 was mainly attributable fair value of warrants granted during the current period.

 

Depreciation and amortization. Depreciation and amortization were $36,782 and $56,211 for the thirteen weeks ended September 29, 2019 and September 30, 2018, respectively. The decrease was due to some assets that have been fully depreciated.

 

Finance and interest expense. The total finance and interest expenses of $12,701 for the thirteen weeks ended September 29, 2019 virtually has no change compared to the prior year at the quarter.

 

Net Loss. The overall net losses of $168,487 and $44,851 for the thirteen weeks ended September 29, 2019 and September 30, 2018, respectively, reflects an increase of $123,636 was mostly attributable to decreased sales during the current period.

 

 5 
 

 

Results of Operations for the Thirty-Nine Weeks Ended September 29, 2019 and September 30, 2018:

 

COSTS AND OPERATING EXPENSES

 

   For Thirty-Nine   For Thirty-Nine     
   Weeks Ended   Weeks Ended   Increase (Decrease) 
   September 29, 2019   September 30, 2018   $   % 
Revenue:                    
Net sales  $1,807,513   $1,871,138    (63,625.00)   -3.4%
                     
Costs and operating expenses:                    
Cost of operations   1,344,822    1,443,351    (98,529)   -6.8%
General and administrative expenses   735,199    760,081    (24,882)   -3.3%
Depreciation and amortization   138,781    176,361    (37,580)   -21.3%
Total operating expenses   2,218,802    2,379,793    (160,991)   -6.8%
                     
Loss from Operations   (411,289)   (508,655)   97,366    -19.1%
                     
Other income (expenses):                    
Finance and interest expenses   (34,728)   (36,986)   2,258    -6.1%
Loss on settlement   -    (1,400)   1,400    * 
Loss before provision for income taxes   (446,017)   (547,041)   101,024    -18.5%
Provision for income taxes   (2,400)   -    (2,400)   * 
                     
Net loss  $(448,417)  $(547,041)  $98,624    -18.0%

 

Notes to Costs and Operating Expenses Table:

 

The net sales for the thirty-nine weeks ended September 29, 2019 and September 30, 2018 were $1,807,513 and $1,871,138, respectively. The 3.4% decrease was mostly attributable to reduced food sales.

 

Cost of operations. Costs of operations consist of cost of goods sold, restaurant utilities, supplies, administrative and other operating expenses, labor cost, and occupancy cost. For the thirty-nine weeks ended September 29, 2019 and September 30, 2018, cost of operations were $1,344,822 and $1,443,351, respectively. The decrease of $98,529 (6.8%) was mostly attributable to reduced food costs, and labor cost,

 

General and administrative expenses. General and administrative expenses for the thirty-nine weeks ended September 29, 2019 and September 30, 2018 were $735,199 and $760,081, respectively. The reduction of $24,882 (3.3%) was mostly due to reduced legal fee, professional fee, and CEO salary, to offset increase stock-based compensation.

 

Depreciation and amortization. The depreciation and amortization were $37,580 less than the same period in the previous year. The decrease was due to some assets have been completed depreciated.

 

Finance and interest expense. The total finance and operating expenses of $34,728 and $36,986 for the thirty-nine weeks ended September 29, 2019 and September 30, 2018, respectively. The decrease of $2,258 mostly attributable to eliminated American Express loan.

 

Net Loss. The overall net losses of $448,417 and $547,041 for the thirty-nine weeks ended September 29, 2019 and September 30, 2018, respectively, reflects a decrease of $18% was mostly attributable to decreased operating expenses.

 

 6 
 

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 29, 2019, the Company has $3,881 in cash and cash equivalents, $23,132 in inventory, and $21,114 in prepaid expenses and other. The following table provides detailed information about our net cash flows for all financial statement periods presented in this report.

 

The following table sets forth a summary of our cash flows for the thirteen weeks ended September 29, 2019 and September 30, 2018:

 

   For Thirty-Nine
Weeks Ended
   For Thirty-Nine
Weeks Ended
 
   September 29, 2019   September 30, 2018 
Net cash provided by (used in) operating activities  $(62,918)  $(616,824)
Net cash used in investing activities   9,157    - 
Net cash provided by financing activities   -    588,755 
Net (decrease) increase in Cash   (53,761)   (28,069)
Cash, beginning of period   57,642    131,336 
Cash, end of period  $3,881   $103,267 

 

Operating activities

 

Net cash used in operating activities was $62,918 for the thirty-nine weeks ended September 29, 2019 compared to $616,824 provide in operating activities for the thirty-nine weeks ended September 30, 2018. This significant decrease of cash used is mostly attributable to decreased net loss, fair value of warrants issued to officers, and implementing new lease accounting policy.

 

Investing activities

 

Net cash used in investing activities was $9,157 and zero, respectively, for the thirty-nine weeks ended September 29, 2019 and September 30, 2018,

 

Financing activities

 

Net cash provided by financing activities for the thirty-nine weeks ended September 29, 2019 and September 30, 2018 was zero and $588,755, respectively.

 

The Company is not required to provide a tabular disclosure of contractual obligations, as it is a smaller reporting company as defined under Rule 12b-2 of the Exchange Act.

 

 7 
 

 

Going Concern and Liquidity

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, during the period ended September 29, 2019, the Company incurred a net loss of $448,417, and $62,918 of cash used in operations, and had a stockholders’ deficit of $2,269,333 as of that date. In addition, the note payable to the Company’s landlord was in default. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date that the financial statements are issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The Company’s independent registered public accounting firm in its report on the December 30, 2018 financial statements has raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

At September 29, 2019, the Company had cash on hand in the amount of $3,881. Management estimates that the current funds on hand would be sufficient to continue operations through December 29, 2019. Management is currently seeking additional funds through sponsorships and promotions to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.

 

Notes Payable – in default

 

On February 12, 2013, the Company entered into a $700,000 Promissory Note Payable Agreement with GGP Limited Partnership (“Lender”) to be used by the Company for a portion of the construction work to be performed by the Company under the lease by and between the Company and Glendale II Mall Associates, LLC. The Note Payable accrued interest at a rate of 10% through October 15, 2015, 12% through October 31, 2017, and 15% through October 31, 2023 and matures on October 31, 2023.

 

On March 1, 2015, the Company and the lender renegotiated the terms of the Promissory Note and agreed to a new note with a principal balance due of $683,316. As part of the new agreement, the Lender waived principal and interest payments for two years beginning March 1, 2015.

 

On August 12, 2016, the Company entered into a third amendment on its lease at The Glendale Galleria. The amendment covered several areas, including adjustment to percentage rent payable, reduced the minimum rent payable, along with the payment and principal of Promissory Note. The Promissory Note was adjusted to a balance due of $763,261.57 from $683,316, with zero percent interest, payable in equal monthly instalments of $5,300 through maturity of Note on May 31, 2028.

 

The lender under the Note is GGP Limited Partnership (GGP). GGP is an affiliate of Glendale II Mall Associates, the lessor of the Company’s Glendale Mall restaurant location. In accordance with the note agreement, an event of default would occur if the Borrower defaults under the lease between the Company and Glendale II Mall Associates. Upon the occurrence of an event of default, the entire balance of the Note payable and accrued interest would become due and payable, and the balance due becomes subject to a default interest rate (which is 5% higher than the defined interest rate). As of September 29, 2019, the Company was delinquent in its payments to GGP under the note, and as such, the Note has been reflected as currently due and disclosed as in default.

 

Convertible Notes Payable

 

On August 24, 2015, the Company entered into an unsecured Note Payable Agreement with an investor for which the Company issued a $50,000 Convertible Note Payable, which accrues interest at a rate of 5% per annum and matures on August 31, 2016. The Lender may also convert all or a portion of the Note Payable at any time into shares of common stock at a price of $0.10 per share.

 

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Recent Accounting Pronouncements

 

See Note 3 of the condensed consolidated financial statements for discussion of recent accounting pronouncements.

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 3 to the Condensed Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Estimates are used for, but not limited to, impairment analyses, accounting for contingencies and equity instruments issued for services. Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements.

 

Long-Lived Assets

 

Our management regularly reviews property, equipment and other long-lived assets, including identifiable amortizing intangibles, for possible impairment. This review occurs quarterly or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is indication of impairment of property and equipment or amortizable intangible assets, then management prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. The fair value is estimated at the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks. Quarterly, or earlier, if there is indication of impairment of identified intangible assets not subject to amortization, management compares the estimated fair value with the carrying amount of the asset. An impairment loss is recognized to write down the intangible asset to its fair value if it is less than the carrying amount. Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions.

 

Management believes that the accounting estimate related to impairment of our long lived assets, including our trademark license and trademarks, is a “critical accounting estimate” because: (1) it is highly susceptible to change from period to period because it requires management to estimate fair value, which is based on assumptions about cash flows and discount rates; and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet, as well as net income, could be material. Management’s assumptions about cash flows and discount rates require significant judgment because actual revenues and expenses have fluctuated in the past and we expect they will continue to do so.

 

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Stock-Based Compensation

 

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

 

The fair value of the Company’s common stock option grants is estimated using the Black-Scholes Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in future periods.

 

The Company also issues restricted shares of its common stock for share-based compensation programs to employees and non-employees. The Company measures the compensation cost with respect to restricted shares to employees based upon the estimated fair value at the date of the grant, and is recognized as expense over the period, which an employee is required to provide services in exchange for the award. For non-employees, the Company measures the compensation cost with respect to restricted shares based upon the estimated fair value at the measurement date which is either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.

 

During the thirty-nine weeks ended September 29, 2019, the Company granted and issued 600,000 shares of restricted common stock with a fair value of $5,850 for services. And during the thirty-nine weeks ended September 29, 2019, the Company issued 50,000 shares of common stock at fair value of $350 to an employee. These stock issuances were issued under an exemption for the registration provision of the Securities Act of 1933 pursuant to Section 4(a)(1) of the Securities Act. 

 

Off-Balance Sheet Arrangements

 

We did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Without sufficient cash flow from operations we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements for the next 12 months. We will require additional cash resources due to changed business conditions to implement of our strategy to successfully expand our operations. If our own financial resources and then-current cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities will result in dilution to our existing stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.

 

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

 

Smaller reporting companies are not required to provide the information under this item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our Principal Executive Officer and Principal Financial Officer, Joey Parsi, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on his evaluation, he concluded that our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affected, the Company’s internal control over the financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

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PART II—OTHER INFORMATION

 

ITEM 1. Legal Proceedings.

 

As of September 29, 2019, there was no material outstanding litigation.

 

ITEM 1A. Risk Factors

 

Smaller reporting companies are not required to provide the information under this item.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Issuer Purchases of Equity Securities

 

None.

 

ITEM 3. Defaults Upon Senior Securities.

 

None.

 

ITEM 4. Mine Safety Disclosures.

 

Not applicable.

 

ITEM 5. Other Information.

 

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ITEM 6. Exhibits.

 

Exhibit No.   Description
31.1*   Certification of Principal Executive Officer & Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1*   Certifications of Principal Executive Officer & Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS**   XBRL Instance Document
     
101.SCH**   XBRL Taxonomy Extension Schema
     
101.CAL**   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF**   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB**   XBRL Taxonomy Extension Label Linkbase
     
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith.
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  GIGGLES N’ HUGS, INC.
     
Date November 18, 2019 By: /s/ Joey Parsi
    Joey Parsi
    Chief Executive Officer
    (Principal Executive Officer and duly authorized signatory)
     
  By: /s/ Philip Gay
    Philip Gay
    Co- Chief Executive Officer
    (Co-Principal Executive Officer; Co-Principal Financial Officer )

 

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