NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Thirty-Nine Weeks ended October 1, 2017 and September 25, 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. 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 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 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 October 1, 2017, the Company incurred a net loss
of $1,314,909, used cash in operations of $213,887, and had a stockholders’ deficit of $1,626,577 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 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 $104,135 as of October 1, 2017. Management estimates that the current funds on hand
will be sufficient to continue operations through December 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 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 liability and 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 October 1, 2017 and September 25, 2016, the assumed conversion of convertible
notes 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.
In
July 2017, the FASB issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities
from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down
Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11
allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature)
is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with
down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value
of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding
financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income
available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features
containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be
amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective
approach. The adoption of ASU 2017-11 is not expected to have any impact on the Company’s financial statement presentation
or disclosures.
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:
|
|
October
1, 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
|
|
|
(1,412,441
|
)
|
|
|
(1,220,099
|
)
|
Property
and equipment, net
|
|
$
|
801,786
|
|
|
$
|
994,128
|
|
Depreciation
and amortization expense for the thirteen weeks and thirty-nine weeks ended October 1, 2017 were $64,205 and $192,342, respectively,
and for the thirteen weeks and thirty-nine weeks ended September 25, 2016 were $64,069 and $241,950, respectively. Repair and
maintenance expense for the thirteen weeks and thirty-nine weeks ended October 1, 2017 were $15,071 and $48,851, respectively,
and for thirteen weeks and thirty-nine weeks ended September 25, 2016 were $18,447 and $70,273, respectively.
NOTE
5 – 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 October 1, 2017,
the balance of note payable was $695,968, and unamortized note discount was $273,607, with a net balance due of $422,361.
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 October 1, 2017, the Company was delinquent
in its payments to GGP under the note, but has subsequently brought the note current.
NOTE
6 – CONVERTIBLE NOTE PAYABLE
A
summary of convertible debentures payable as of October 1, 2017 and January 1, 2017 is as follows:
|
|
October
1, 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
Covertible Notes
|
|
$
|
50,000
|
|
|
$
|
151,383
|
|
Iconic
Holdings, LLC
- On December 21, 2015, the Company 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 per annum, 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 per share.
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 liability
(see Note 9).
During
the thirty-nine weeks ended October 1, 2017, the Company converted the remaining balance of the principal of $81,491 and accrued
interest of $39,741into 38,457,435 shares of common stock at average conversion price $0.00259 per share. Upon extinguishment
of note, the derivative of $118,873 was eliminated.
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 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
7 – 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”).
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. 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.
As
of January 1, 2017, the amount due under the promissory note was $193,450. During January and February of 2017. the Holder converted
$48,914 of its debt into 15,660,611 shares of Common Stock with a fair value of $48,914. In addition, the Company paid $7,517
of the principal balance. 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 disagreed as to the conversion price set in the note agreement
due to execution by the parties of different versions of the document. St. George claimed for additional damages. The Company
believed these claims lacked merit and the Company retained counsel to vigorously defend this action. Effective 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. On August 14, 2017, the Company and St. George entered into a settlement agreement
whereby the Company agreed to deliver 7,900,000 unrestricted free-trading shares to St. George upon signing a final settlement
agreement. The fair value of shares issued was determined to be $553,000 based on the trading price of the shares at the date
of the settlement. The company considered the settlement as a debt extinguishment and accounted for the issuance of the 7,900,000
shares valued at $553,000 offset by the extinguishment of the aggregate face value of the note and accrued interest of $143,740,
and the remaining value of the derivative liability of $222,436, resulting in a loss on extinguishment of $186,818.
As
part of the settlement agreement, St. George agreed to purchase an additional 1,100,000 shares of common stock for a purchase
price of $110,000 at $0.10 per share.
As
of October 1, 2017, all the terms and conditions of the settlement have been completed.
NOTE
8 – 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 originally matured in August 2016 but 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 October 1, 2017 and January 1, 2017,
$424 and $136,629 was outstanding and is included in accrued expenses in the accompanying balance sheets.
NOTE
9 - 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
fair value of the derivative liability related to the St. George note was determined to be $238,538 at January 1, 2017. During
2017, and through April 2, 2017, the Company settled principal balance amounting to $48,914. As a result, the Company extinguished
the fair value of the corresponding derivative liability of $66,731 prior to conversion as a gain on settlement. At April 2, 2017,
the Company determined the FV of the remaining DL to be $222,346. After the conversions through April 2, 2017, the Company and
St. George had a dispute as to ultimate settlement of this obligation. During the period, the Company and St. George agreed to
settle the outstanding amount of convertible notes due for the issuance of 7,900,000 shares of common stock at which time the
fair value of derivative was determined to be $222,346. As a result, the Company recorded a cost of $50,629 to account for the
change in fair value up to the date of extinguishment.
The
settlement was accounted for as a debt extinguishment. As such, given that the debt was extinguished, the extinguishment of the
remaining derivative liability of $222,346 was included in the calculation of loss on debt extinguishment.
The
fair value of the derivative liability related to the Iconic note was determined to be $118,873 at January 1, 2017. In January
2017, the lender converted all outstanding principal and interest due him in exchange for 38,457,435 shares of common stock. As
a result, the Company extinguished the recorded derivative liability of $118,873 and recorded as a gain on extinguishment.
NOTE
10 – COMMON STOCK
Issuance
of Common Stock
During
the thirty-nine weeks ended October 1, 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.
During
the thirty-nine weeks ended October 1, 2017, the Company issued 2,384,226 shares of common stock in settlement of an accounts
payable amounting to $156,800. The fair value of the shares issued was $265,896 based on the fair value of the shares on the date
of settlement resulting in an additional cost to the Company of $109,096.
During
the thirty-nine weeks ended October 1, 2017, the Company received $75,000 from the sale of 992,602 shares of common stock and
warrants to acquire 357,142 shares of common stock at an excise price of $0.12 per share that expire in June 2020. The shares
have not yet been issued and are included in common stock issuable as of October 1, 2017.
During
the thirty-nine weeks ended October 1, 2017, the Company issued 1,170,774 shares of common stock at fair value of $45,144for services
rendered
Employee
Stock Options
The
following table summarizes the changes in the options outstanding at October 1, 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,
October 1, 2017
|
|
|
115,000
|
|
|
$
|
4.50
|
|
Exercisable,
October 1, 2017
|
|
|
115,000
|
|
|
$
|
4.50
|
|
As
of October 1, 2017, the stock options had no intrinsic value.
There
were no options granted during the fiscal quarter ended October 1, 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 thirty-nine weeks
ended October 1, 2017.
NOTE
10 – COMMON STOCK (CONTINUED)
Warrants
The
following table summarizes the changes in the warrants outstanding at October 1, 2017, and the related prices.
A
summary of the Company’s warrants as of October 1, 2017 is presented below:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Outstanding,
January 1, 2017
|
|
|
606,500
|
|
|
$
|
0.13
|
|
Granted
|
|
|
5,507,143
|
|
|
|
0.10
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding,
October 1, 2017
|
|
|
6,113,643
|
|
|
$
|
0.11
|
|
Exercisable,
October 1, 2017
|
|
|
6,113,643
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
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
|
|
|
6,113,643
|
|
|
$
|
0.11
|
|
|
|
4.07
|
|
|
|
6,113,643
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
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6,113,643
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4.07
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6,113,643
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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 January 1, 2017, 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 October 1,
2017, the achievement of the corresponding milestones for the remaining warrants to acquire 3,960,000 has been determined to be
remote or undeterminable, as such, the warrants have not been included as outstanding in the table above.
During
the thirty-nine weeks ended October 1, 2017, the Company entered into agreements to issue warrants to acquire 5,150,000 shares
of common stock for celebrity 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 $0.10 per share and 150,000 of the
warrants are exercisable at $0.20 per share. The total fair value of these warrants 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
11 – 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 $84,773
and $98,405 for the thirteen weeks ended October 1, 2017 and September 25, 2016, respectively, and $255,738 and $488,700 for the
thirty-nine weeks ended October 1, 2017 and September 25, 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 be 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 thirty-nine weeks ended October 1, 2017, an additional adjustment of outstanding rent of $37,937 was added
to the deferred gain and will be amortized on the straight-line basis. During the thirty-nine weeks ended October 1, 2017, $48,594
of the deferred gain was amortized and offset to rent expense, resulting in a remaining deferred gain balance of $418,456 as of
October 1, 2017.
The
balance of the incentive from lessor as of October 1, 2017 and January 1, 2017, were $675,826 and $740,428, and included deferred
rent of $129,841 and $117,056, respectively. As of October 1, 2017, $98,450 of the incentive from lessor was current and $577,376
was long term. Amortization of the incentive from lessor was $22,059 and $18,495 for the thirteen weeks ended October 1, 2017
and September 25, 2016, respectively, and $64,602 and $80,148 for thirty-nine weeks ended October 1, 2017 and September 25, 2016,
respectively.
NOTE
12 – COMMITMENTS AND CONTINGENCIES
Litigation
On
August 14, 2017, the Company and St. George Investments, LLC (“St. George”) entered into a settlement agreement. As
of October 1, 2017, all the terms and conditions of the settlement have been satisfied.
As
of October 1, 2017, there was no material outstanding litigation.
NOTE
13 – SUBSEQUENT EVENTS
On
October 2, 2017, the Company issued to a consultant 325,000 unrestricted shares of common stock at fair value of $6,500 for service
rendered.
On
October 11, 2017, the Company issued 500,000 unrestricted shares of common stock at fair value of $10,000 in settlement of an
accounts payment.
On
October 15, 2017, the Company issued 500,000 unrestricted shares of common stock at fair value of $10,000 in settlement of an
accounts payment.