NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the THIRTEEN Weeks ended April 2, 2017 and March 27, 2016
(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.
The Company adopted a 52/53 week fiscal year
ending on the Sunday closest to December 31
st
for financial reporting purposes. Fiscal year 2017 and 2016
consists of a year ending December 31, 2017 and January 1, 2017.
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 January 1, 2017 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 January 1, 2017 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.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going
concern
The
accompanying 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
consolidated financial statements, during the thirteen weeks ended April 2, 2017, the Company incurred a net loss of $756,186,
used cash in operations of $174,180, and had a stockholders’ deficit of $1,810,494 as of that date. 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 January 1, 2017 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.
The
Company had cash on hand in the amount of $8,843 as of April 2, 2017. Management estimates that the current funds on hand will
be sufficient to continue operations through May 2017. 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 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 stockholders, in case or equity financing.
Principles
of consolidation
T
he
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. Gi
ggles 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 equity securities issued for services and realization of deferred tax assets.
Actual results could differ from those estimates.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Derivative Financial Instruments
The Company evaluates its financial instruments
to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity,
is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current
or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the
balance sheet date.
The Company uses Level 2 inputs for its valuation
methodology for the warrant derivative liabilities as their fair values were determined by using a probability weighted average
Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect
fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments
to fair value of derivatives.
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 April 2, 2017 and March 27, 2016, the assumed conversion of convertible note payable and the exercise of stock warrants
are anti-dilutive due to the Company’s net losses and are excluded in determining diluted loss per share.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Recent Accounting Standards
In May 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive
revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace
it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue
based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant
judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective
for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods
beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either
retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the
impact of ASU 2014-09 on the Company’s financial statements and disclosures.
In February 2016, the FASB issued Accounting
Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease
liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual
reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach
is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating
the impact of ASU 2016-02 on the Company’s financial statements and disclosures. The Company anticipates that this will add
significant liabilities to the balance sheet.
Other 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 did not or are not believed by management to have a material impact on the Company’s present or future
consolidated financial statements.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
|
|
April 2, 2017
|
|
|
January 1, 2017
|
|
Leasehold improvements
|
|
$
|
1,889,027
|
|
|
$
|
1,889,027
|
|
Fixtures and equipment
|
|
|
60,310
|
|
|
|
60,310
|
|
Computer software and equipment
|
|
|
264,890
|
|
|
|
264,890
|
|
Property and equipment, total
|
|
|
2,214,227
|
|
|
|
2,214,227
|
|
Less: accumulated depreciation
|
|
|
(1,284,168
|
)
|
|
|
(1,220,099
|
)
|
Property and equipment, net
|
|
$
|
930,059
|
|
|
$
|
994,128
|
|
Depreciation and amortization expenses for
the thirteen weeks ended April 2, 2017 and March 27, 2016 were $64,069 and $89,141, respectively, Repair and maintenance expenses
for the thirteen weeks ended April 2, 2017 and March 27, 2016 were $15,542 and $28,992, respectively.
NOTE 5 – ADVANCE FROM OFFICER
During the period ended April 2, 2017, an officer
made an unsecured non-interest bearing advance of $25,000 to the Company with no formal terms of repayment. The $25,000 advance
remains outstanding as of April 2, 2017.
NOTE 6 – NOTE PAYABLE, LESSOR
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 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, resulting in a valuation discount of $319,740. As of April 2, 2017 and December 31, 2016, the balance of note payable
was $726,869, and unamortized note discount was $294,153, with a net balance due of $432,717.
The exchange of the notes in fiscal 2016
was treated as a debt extinguishment as the change in terms constituted more than a 10% change in the fair value of the original
note, and the difference between the fair value of the new note and the old note (including eliminating all remaining unamortized
discount) of $220,668 was treated as a gain on debt extinguishment. 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. As such the gain on the termination of the note of $220,668
was deferred, and is being amortized over the remaining life of the lease as an adjustment to rent expense.
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 April 2, 2016, the Company was delinquent in its payments to GGP under the note, but has
subsequently brought the note current.
NOTE 7 – CONVERTIBLE NOTE PAYABLE
A summary of convertible debentures payable as of April 2, 2017
and January 1, 2017 is as follows:
|
|
April 2, 2017
|
|
|
January 1, 2017
|
|
Iconic Holdings, LLC
|
|
$
|
-
|
|
|
$
|
84,191
|
|
J&N Invest LLC
|
|
|
50,000
|
|
|
|
50,000
|
|
Accrued interest
|
|
|
-
|
|
|
|
17,192
|
|
Total Convertible Notes
|
|
|
50,000
|
|
|
|
151,383
|
|
Net
Convertible Notes
|
|
$
|
50,000
|
|
|
$
|
151,383
|
|
Iconic Holdings, LLC
- On December
21, 2015, Giggle N Hugs, Inc., a Nevada corporation (the “Registrant”), issued an 8% unsecured convertible promissory
note in favor of Iconic Holdings, LLC, in the principal sum of $161,250. The note was subject to an original issue discount of
$11,250, plus another $11,250 retained by the lender for fees and costs, resulting in net proceeds to the company of $138,500.
The note carried a guaranteed 10% interest rate, matured on December 21, 2016 and was subject to pre-payment
penalties. The note may be converted, in whole or in part, at any time at the option of the holder into the Registrant’s
common stock at a price per share equal to 65% of the lowest volume weighted average price of the Company’s common stock
during the 10 consecutive trading days prior to the date on which Holder elects to convert all or part of the note. The conversion
floor price was set at $0.08.
On July 11, 2016, the company modified the
conversion feature of the Iconic note eliminating the conversion floor. The company determined that since the conversion floor
had been eliminated, that the company could no longer determine if it had enough authorized shares to fulfil the conversion obligation.
As such, the Company determined that the conversion feature created a derivative (see Note 10).
During the period ended April 2, 2017, the
Company converted the remaining balance of the principal into 38,457,435 shares of common stock at average conversion price $0.00259
per share. Upon extinguishment of note, the derivative was eliminated (see Note 10).
J&N Invest LLC
-
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.
As of the date of this report, the note matured and past due. As the market price of the stock on the date of issuance
was $0.23, the Company recognized a debt discount at the date of issuance in the amount of $50,000 related to the fair value of
the beneficial conversion feature. The discount was fully amortized as of January 1, 2017.
NOTE 8 – PROMISSORY NOTE
On December 18, 2015, the Company issued a
six-month unsecured promissory note in the principal sum of $265,000 in favor of St. George Investments, LLC, pursuant
to the terms of a securities purchase agreement of the same date. The Note went into default when the Company failed to make payment
on the due date. Consequently, on July 8, 2016, the Company entered into an Exchange Agreement with St. George Investments, LLC,
to replace the original Promissory Note with a new Convertible Promissory Note (“Note”) carrying the following terms
and conditions:
|
1.
|
The new Note will add 10% ($26,500) to the original principal as an Exchange Fee, making the new principal amount $291,500, and the Note shall carry an interest rate of 8% per annum. The amount of the exchange fee was recognized as a finance cost.
|
|
|
|
|
2.
|
The Note carries a Conversion clause that allows the Holder to have a cashless conversion into shares of Common Stock for all or part of the principal, at a price equal to the average market price for 20 days prior to the conversion.
|
|
|
|
|
3.
|
In conjunction with the conversion provision, the Company agreed to an Irrevocable Letter of Instructions to Transfer Agent, along with a Secretary’s Certificate and Board Resolution, which allows a Share Reserve equal to three times the number of shares of Common Stock divided by outstanding debt by the defined conversion price, but not less than 18,000,000 shares.
|
|
|
|
|
4.
|
In addition, the Company executed a Share Issuance Resolution Authorizing the Issuance of New Shares of Common Stock. This document, in effect, allows the Holder to provide, at their discretion, a Conversion Notice directly to the Transfer Agent to receive unrestricted shares under the terms of this Exchange Agreement.
|
|
|
|
|
5.
|
Further to this Exchange Agreement, the Company executed an Authorization to Initiate ACH Debit Entries that allowed the Holder to receive a daily payment of $312.50 ($7,500 per month). The Company can cancel such authorization with five days’ written notice.
|
The company determined that since the conversion
floor had no limit to the conversion price, that the company could no longer determine if it had enough authorized shares to fulfil
the conversion obligation. As such, the Company determined that the conversion feature created a derivative at the date of the
modification
During the
period ended April 2, 2017, the Company paid $7,517 of the principal balance. In addition, the Holder converted $48,914
of debt into 15,660,611 shares of Common Stock based on instructions the Holder sent to the transfer agent. However, the
parties disagree as to the conversion price set in the note agreement due to execution by the parties of different versions of
the document, and the Company believes that the balance converted was in excess of at least $100,000 more than that claimed by
the holder.
The amount reflected herein due the Holder as April 2, 2017 was $32,928,
but the company believes that amount is in dispute and not due. Accordingly, the company has filed a lawsuit to protect its rights,
which is described in this report.
On March 23, 2017, St. George served an
arbitration demand and summons claiming that the Company had breached its obligations under the convertible note by preventing
St. George from converting the remaining balance of the note to common stock. The parties disagree as to the conversion price
set in the note agreement due to execution by the parties of different versions of the document.
On May 3, 2017, the Company counter-sued
for full damages for breaching the contract, claiming mistakes, rescission, breach of the covenant of good faith and fair dealing
and unjust enrichment.
NOTE 9 – BUSINESS LOAN AND SECURITY
AGREEMENT
In August 2015, the Company entered into a
Business Loan and Security Agreement with American Express Bank, which allows the Company to borrow up to $174,000. The loan matures
in August 2016 and will remain in effect for successive one year periods unless terminated by either party. The loan is secured
by credit card collections from the Company’s store operations. The agreement provides that the Company will receive an advance
of up to $180,000 at the beginning of each fiscal month, and requires the Company to repay the loan from the credit card deposits
it receives from its customers. Assuming the balance has been paid off by the end of the month, the Company will receive another
advance up to the face amount of the note at the beginning of the next fiscal month.
The loan requires a loan fee of 0.5% of the
outstanding balance as of each disbursement date. At April 2, 2017 and January 1, 2017, $4,741 and $136,629 was outstanding
and is included in accrued expenses.
NOTE 10 - DERIVATIVE LIABILITY
Under authoritative guidance used by the FASB
on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments which do not
have fixed settlement provisions are deemed to be derivative instruments. The Company has issued certain convertible notes whose
conversion price is based on a future market price. However, since the number of shares to be issued is not explicitly limited,
the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option.
The result is that the conversion option is classified as a liability and bifurcated from the debt host and accounted for as a
derivative liability in accordance with ASC 815 and will be re-measured at the end of every reporting period with the change in
value reported in the statement of operations.
The derivative liabilities were valued
using a probability weighted average Black-Scholes-Merton pricing model with the following assumptions:
|
|
January 1, 2017
|
|
|
April 2, 2017
|
|
Exercise Price
|
|
$
|
0
.07.05-0.01
|
|
|
$
|
0
.07.05-0.01
|
|
Risk-free interest rate
|
|
|
0.57
|
%
|
|
|
0.57
|
|
Expected volatility
|
|
|
216
|
%
|
|
|
216
|
%
|
Expected life (in years)
|
|
|
1
|
|
|
|
1
|
%
|
Expected dividend yield
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Fair Value:
|
|
$
|
357,411
|
|
|
$
|
222,436
|
|
The risk-free interest rate was based on rates
established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future
volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the
notes, or an estimate of until such notes would be converted. The expected dividend yield was based on the fact that the Company
has not customarily paid dividends in the past and does not expect to pay dividends in the future.
During the period ended April 2, 2017, the
Company converted $172,847 of convertible notes payable resulting in a gain on the extinguishment of derivative liabilities
of $185,604. In addition, the Company recognized a cost of $50,629 during the period ended April 2, 2017 relating to the change
in the fair value of the derivative liabilities.
NOTE 11 – COMMON STOCK
Issuance of Common Stock
During the thirteen weeks ended April 2, 2017,
the Company granted and issued to officers and employees 10,170,000 shares of restricted common stock with a fair value
of $28,470, and a non-employee 500,000 shares with a fair value of $1,400 based on the fair value of the shares on the date of
grant.
During the thirteen weeks ended April 2, 2017,
the Company issued 1,500,000 shares of common stock in settlement of an accounts payment of $72,000. The fair value of the shares
issued was $180,000 based on the fair value of the shares on the date of grant resulting in an additional cost to the Company
of $108,000.
During the thirteen weeks ended
April 2, 2017, the Company received $25,000 from the sales of 277,777 shares of stock. Such shares have not yet been
issued.
During the thirteen weeks ended April 2, 2017,
the Company issued total of 54,118,046 shares of its common stock for conversion of convertible notes in the amount of $272,847.
Employee Stock Options
The following table summarizes the changes
in the options outstanding at April 2, 2017, 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.
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
Outstanding, January 1, 2017
|
|
|
115,000
|
|
|
$
|
4.50
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding, April 2, 2017
|
|
|
115,000
|
|
|
$
|
4.50
|
|
Exercisable, April 2, 2017
|
|
|
115,000
|
|
|
$
|
4.50
|
|
As of April 2, 2017, the stock options
had no intrinsic value.
There were no options granted during the
fiscal quarter ended April 2, 2017, and there was no stock-based compensation expense in connection with options granted to employees
recognized in the consolidated statement of operations for the thirteen weeks ended April 2, 2017.
NOTE 11 – COMMON STOCK (CONTINUED)
Warrants
The following table summarizes the changes
in the warrants outstanding at April 2, 2017, and the related prices.
A summary of the Company’s warrants as
of April 2, 2017 is presented below:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Outstanding, January 1, 2017
|
|
|
606,500
|
|
|
$
|
0.13
|
|
Granted
|
|
|
5,150,000
|
|
|
|
0.15
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding, April 2, 2017
|
|
|
5,756,500
|
|
|
$
|
0.15
|
|
Exercisable, April 2, 2017
|
|
|
5,756,500
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Number
|
|
|
Exercise
|
|
Prices
|
|
|
Outstanding
|
|
|
Price
|
|
|
Life
|
|
|
Exercisable
|
|
|
Price
|
|
|
$0.01 ~ $0.15
|
|
|
|
5,756,500
|
|
|
$
|
0.15
|
|
|
|
4.20
|
|
|
|
5,756,000
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,756,500
|
|
|
|
|
|
|
|
4.20
|
|
|
|
5,756,000
|
|
|
|
|
|
On May 17, 2016, GIGL entered into a Strategic
Alliance Agreement with Kiddo, Inc., a Florida corporation (“consultant”) whereby consultant will provide marketing
and branding services as well as introductions to potential strategic partners and investors.
As consideration for consultant’s services
pursuant to the Strategic Alliance Agreement, GIGL agreed to issue to consultant a warrant to purchase up to 4,400,000 shares of
GIGL’s common stock at an exercise price of $0.075 per share, which warrant vests in increments based upon the achievement
of certain milestones. As of September 25, 2016, 440,000 of these warrants with a fair value of $31,000 were deemed have been achieved
and are included in the table of outstanding warrants above. At April 2, 2017, the achievement of the corresponding milestones
for the remaining warrants to acquire 3,960,000 has been determined to be remote or undeterminable due to the early stages of the
agreement, as such, the warrants have not been included as outstanding in the table above.
During the period ended April 2, 2017, the
Company entered into agreements to issue warrants to acquire 5,150,000 shares of common stock for celebrities services to promote
the Company’s business. The warrants were fully vested upon issuance, expire 5 years from the date of issuance, and 5,000,000
of the warrants are exercisable at $.10 per share and 150,000 of the warrants are exercisable at $.20 per share. The total fair
value of these options at grant date was $531,000 using the Black-Scholes Option Pricing model with the following assumptions:
life of 5 years; risk free interest rate of 1.73%; volatility of 350% and dividend yield of 0%.
.
NOTE 12- LEASES
The Company currently leases its restaurant
locations. The Company evaluates teach lease to determine its appropriate classification as an operating or capital lease
for financial reporting purposes.
Minimum base rent for the Company’s
operating leases, which generally have escalating rentals over the term of the lease, is recorded on a straight-line basis over
the lease term. The initial rent term includes the build-out, or rent holiday period, for the Company’s leases, where
no rent payments are typically due under the terms of the lease. Deferred rent liabilities are recorded to the extent it exceeds
minimum base rent per the lease agreement. Rent expense for the Company’s restaurant operating leases was $100,773 and $148,500
for the thirteen weeks ended April 2, 2017 and March 27, 2016, respectively.
The Company disburses cash for leasehold
improvements and furniture, fixtures and equipment to build out and equip its leased premises. The Company also expends
cash for structural additions that it makes to leased premises of which $506,271 and $475,000 were initially reimbursed Topanga
and Glendale by its landlords, respectively, as construction contributions pursuant to agreed-upon terms in the lease agreements. Landlord
construction contributions usually take the form of up-front cash. Depending on the specifics of the leased space and the lease
agreement, amounts paid for structural components are recorded during the construction period as leasehold improvements or the
landlord construction contributions are recorded as an incentive from lessor.
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 which resulted in an aggregate gain of $455,287 which has been deferred, and
will amortized on the straight-line basis over the remaining life of the lease as an adjustment to rent expense. During the year
ended January 1, 2017, $26,172 of the deferred gain was amortized and offset to rent expense, resulting in a remaining deferred
gain balance of $429,115 as of January 1, 2017. During the period ended April 2, 2017, $15,699 of the deferred gain was amortized
and offset to rent expense, resulting in a remaining deferred gain balance of $413,416 as of April 2, 2017.
The balance of the incentive from lessor
as of April 2, 2017 and January 1, 2017, were $719,565 and $740,428, and included deferred rent of $121,988 and $117,056, respectively.
As of April 2, 2017, $91,071 of the incentive from lessor was current and $628,494 was long term. Amortization of the incentive
from lessor was $20,863 and $28,175 for the thirteen weeks ended April 2, 2017 and March 27, 2016, respectively.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Litigation
On March 23, 2017, St. George Investments,
LLC ("St. George") served an arbitration demand and summons claiming that the Company had breached its obligations under
a convertible note by preventing St. George from converting the remaining balance of the note to common stock. The parties disagree
as to the conversion price set in the note agreement due to execution by the parties of different versions of the document. St.
George has claimed for additional damages. We believe these claims lack merit and the Company has retained counsel to vigorously
defend this action. Effective May 3, 2017, the Company has counter-sued for full damages for breaching the contract, claiming
mistakes, rescission, breach of the covenant of good faith and fair dealing and unjust enrichment.
NOTE
14 – SUBSEQUENT EVENTS
On
May 2, 2017, the Company issued to a consultant 300,000 unrestricted shares of common stock at fair value of $24,000 for services.
On
May 15, 2017, the Company issued 100,000 restricted shares of common stock at a fair value of $8,000 for services.