0001493152-17-009683.txt : 20170821 0001493152-17-009683.hdr.sgml : 20170821 20170821165934 ACCESSION NUMBER: 0001493152-17-009683 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 53 CONFORMED PERIOD OF REPORT: 20170702 FILED AS OF DATE: 20170821 DATE AS OF CHANGE: 20170821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Giggles N' Hugs, Inc. CENTRAL INDEX KEY: 0001381435 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING & DRINKING PLACES [5810] IRS NUMBER: 201681362 STATE OF INCORPORATION: NV FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-53948 FILM NUMBER: 171043545 BUSINESS ADDRESS: STREET 1: 3222 GLENDALE GALLERIA WAY CITY: GLENDALE STATE: CA ZIP: 91210 BUSINESS PHONE: 310-553-4847 MAIL ADDRESS: STREET 1: 3222 GLENDALE GALLERIA WAY CITY: GLENDALE STATE: CA ZIP: 91210 FORMER COMPANY: FORMER CONFORMED NAME: Teacher's Pet, Inc. DATE OF NAME CHANGE: 20061117 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 July 2, 2017

 

[  ] 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)

 

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, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer [  ] Accelerated Filer [  ] Non-Accelerated Filer (do not check if Smaller Reporting Company) [  ]

 

Smaller Reporting Company [X] Emerging Growth Company [  ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

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 August 21, 2017 was 135,667,251 shares.

 

 

 

   
  

 

GIGGLES N’ HUGS, INC.

TWENTY-SIX WEEKS ENDED JULY 2, 2017

 

Index to Report on Form 10-Q

 

    Page No.
  PART I - FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements (unaudited) 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 13
     
Item 4. Controls and Procedures 13
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 14
     
Item 1A. Risk Factors 14
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
     
Item 3. Defaults Upon Senior Securities 14
     
Item 4. Mine Safety Disclosure 14
     
Item 5. Other Information 14
     
Item 6. Exhibits 15
     
  Signature 16

 

 2 
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   July 2, 2017   January 1, 2017 
   (Unaudited)     
Assets          
           
Current assets:          
Cash and cash equivalents  $154,288   $144,520 
Inventory   25,617    20,331 
Prepaid expenses, other   16,517    13,806 
Total current assets   196,422    178,657 
           
Fixed assets:          
Total fixed assets, net   865,991    994,128 
           
Other assets   2,620    2,620 
           
Total assets  $1,065,033   $1,175,405 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities:          
Accounts payable  $543,610   $610,925 
Incentive from lessor – current portion   94,756    87,420 
Note payable from lessor, current portion net of discount of $283,377 and $35,094, respectively   21,734    21,544 
Accrued expenses   501,836    328,952 
Deferred revenue   11,630    24,159 
Promissory note payable and accrued interest   -    193,340 
Convertible note payable and accrued interest,   50,000    151,383 
Derivative liability   -    357,411 
Total current liabilities   1,223,566    1,775,134 
           
Long-term liabilities:          
Incentive from lessor – long-term   603,129    653,008 
Note payable - lessor   406,758    411,173 
Deferred gain   435,654    429,115 
Total long-term liabilities   1,445,541    1,493,296 
           
Total liabilities   2,669,107    3,268,430 
           
Stockholders’ deficit:          
Common stock, $0.001 par value, 1,125,000,000 shares authorized, 134,922,251 and 67,934,205 shares issued and outstanding as of July 2, 2017 and January 1, 2017, respectively   134,922    67,933 
Common stock issuable (9,297,619 and 405,556 shares as of July 2, 2017 and January 1, 2017, respectively)   846,535    218,535 
Additional paid-in capital   9,151,365    8,229,747 
Accumulated deficit   (11,736,896)   (10,609,240)
Total stockholders’ deficit   (1,604,074)   (2,093,025)
           
Total liabilities and stockholders’ deficit  $1,065,033   $1,175,405 

 

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   Twenty -Six Weeks Ended   Twenty -Six Weeks Ended 
    July 2, 2017    June 26, 2016    July 2, 2017    June 26, 2016 
Revenue                    
Net sales  $575,824   $831,464   $1,237,527   $1,710,398 
                     
Costs and operating expenses                    
Cost of operations   429,164    734,151    932,955    1,504,669 
General and administrative expenses   249,822    319,926    1,185,556    644,118 
Depreciation and amortization   64,068    88,741    128,137    177,882 
Total operating expenses   743,054    1,142,818    2,246,648    2,326,669 
                     
Loss from Operations   (167,230)   (311,354)   (1,009,121)   (616,271)
                     
Other income (expenses):                    
Finance and interest expense   (14,772)   (84,378)   (64,042)   (173,331)
Change in fair value of derivatives liability   -    -    (50,629)   - 
Gain on extinguishment of derivative liability   -    -    185,604    - 
Loss on extinguishment of debt   (186,818)   -    (186,818)   - 
Gain on sale of asset   -    5,971    -    5,971 
Gain on lease termination   -    214,111    -    214,111 
Loss before provision for income taxes   (368,820)   (175,650)   (1,125,006)   (569,520)
Provision for/benefit from income taxes   (2,650)   616    (2,650)   (184)
                     
Net loss  $(371,470)  $(175,034)  $(1,127,656)  $(569,704)
                     
Net loss per share – basic and diluted  $-   $-   $(0.01)  $(0.01)
                     
Weighted average number of common shares outstanding – basic and diluted   134,355,584    42,806,033    120,473,746    42,367,492 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

 F-2 
 

 

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

 

   Common Stock   Additional   Common       Total 
           Paid in   Stock   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Issuable   Deficit   Deficit 
Balance January 1, 2017   67,934,205   $67,933   $8,229,747   $218,535   $(10,609,240)  $(2,093,025)
                               
Shares issued for employees compensation   10,170,000    10,170    18,300              28,470 
Shares issued to settle accounts payable   2,100,000    2,100    243,900              246,000 
Shares issued for convertible notes   54,118,046    54,119    218,728              272,847 
Cash received for stock issuable                  75,000         75,000 
Shares issued for professional services   600,000    600    9,690              10,290 
Fair value of warrants granted for services             531,000              531,000 
Stock issuable to settle the convertible notes             (100,000)   553,000         453,000 
Net loss                       (1,127,656)   (1,127,656)
Balance July 2, 2017   134,922,251   $134,922   $9,151,365   $846,535   $(11,736,896)  $(1,604,074)

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

 F-3 
 

 

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Twenty-Six Weeks ended   Twenty-Six Weeks ended 
   July 2, 2017   June 26, 2016 
         
Cash flows from operating activities          
Net loss  $(1,127,656)  $(569,704)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   128,137    177,882 
Amortization of debt discount   -    154,658 
Gain on sales of fixed assets   -    (5,971)
Gain on lease termination   -    (214,111)
Stock-based compensation   28,470    - 
Loss on stock issuance for payable settlement   109,096    - 
Warrants vested for services   531,000    31,000 
Interest and fees included in note payable   21,449    - 
Shares issued for services   10,290    30,170 
Gain on extinguishment of derivative liability   (185,604)   - 
Change in fair value of derivative liability   50,629    - 
Promissory note settlement   186,818    - 
Changes in operating assets and liabilities:          
Increase in prepaid expenses and deposits   (2,711)   (3,890)
(Increase) decrease in inventory   (5,286)   10,553 
Increase in accounts payable   69,589    179,976 
Decrease in lease incentive liability   (42,543)   (61,653)
Increase (decrease) increase in accrued expenses   180,623    (320,676)
(Decrease) increase in deferred revenue   (12,529)   10,380 
Amortization of deferred gain   6,539    - 
Net cash used in operating activities   (53,689)   (581,386)
           
Cash flows from investing activities          
Provided from lease termination   -    350,000 
Provided from sales or purchase of fixed assets   -    10,500 
Net cash provided by investing activities   -    360,500 
           
Cash flows from financing activities          
Payments on promissory note payable   (11,543)   - 
Proceeds from common stock issuable   75,000    - 
Net cash provided by financing activities   63,457    - 
           
NET INCREASE (DECREASE) IN CASH   9,768    (220,886)
CASH AT BEGINNING OF PERIOD   144,520    334,191 
           
CASH AT END OF PERIOD  $154,288   $113,305 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Interest paid  $-   $26,834 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Shares issued to settle convertible notes payable  $272,847   $- 
Reclass of notes payable to accrued interest   3,125    - 
Shares issued to settle payable  $136,904   $31,500 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

 F-4 
 

 

GIGGLES N’ HUGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Twenty-Six Weeks ended July 2, 2017 and June 26, 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 31st 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.

 

 F-5 
 

 

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 twenty-six weeks ended July 2, 2017, the Company incurred a net loss of $1,127,656, used cash in operations of $53,689, and had a stockholders’ deficit of $1,604,074 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 $154,288 as of July 2, 2017. Management estimates that the current funds on hand will be sufficient to continue operations through September 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 stock holders, in case or equity financing.

 

Principles of consolidation

 

The 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.

 

 F-6 
 

 

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 July 2, 2017 and June 26, 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.

 

 F-7 
 

 

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.

 

 F-8 
 

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following at:

 

   July 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   (1,348,236)   (1,220,099)
Property and equipment, net  $865,991   $994,128 

 

Depreciation and amortization expenses for the thirteen weeks and twenty-six weeks ended July 2, 2017 were $64,069 and $128,137, respectively, and for the thirteen weeks and twenty-six weeks ended June 26, 2016 were $88,741 and $177,882, respectively. Repair and maintenance expense for the thirteen weeks and twenty-six weeks ended July 2, 2017 were $18,238 and $33,780, respectively, and for thirteen weeks and twenty-six weeks ended June 26, 2016 were $22,833 and $51,826, respectively.

 

 F-9 
 

 

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 July 2, 2017, the balance of note payable was $711,869, and unamortized note discount was $283,377, with a net balance due of $428,492.

 

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 July 2, 2016, the Company was delinquent in its payments to GGP under the note, but has subsequently brought the note current.

 

 F-10 
 

 

NOTE 6 – CONVERTIBLE NOTE PAYABLE

 

A summary of convertible debentures payable as of July 2, 2017 and January 1, 2017 is as follows:

 

   July 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, 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 twenty-six weeks ended July 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.

 

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.

 

 F-11 
 

 

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.

 

During the period the Holder converted $48,914 of debt into 15,660,611 shares of Common Stock. 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 SGI Immediately upon signing a final settlement agreement and St. George agreed to purchase an additional 1,100,000 shares for a purchase price of $110,000 at $0.10 per share.

 

These shares shall be delivered pursuant to a conversion under the existing outstanding note. The shares had a fair value of $.07 per share as of the settlement date, or $553,000 in the aggregate. At the time of the settlement, the outstanding balance under the note was $132,928 and accrued interest of $10,818.

 

The company considered the settlement as a debt extinguishment as the consideration to be issued was greater than 10% of the debt at the date of the modification. As such the Company recorded the fair value of the shares to be issued, and recognized a loss on 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. The Company determined that it was appropriate to record this loss as of July 2, 2017) as it related to outstanding claims that were due at that time, with the ultimate settlement becoming known prior to filing of the 10Q.

 

 F-12 
 

 

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 July 2, 2017 and January 1, 2017, $149,917 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 prior to conversion/payment and recorded a gain on settlement of $66,731. At April 2, 2017, the Company determined the FV of the remaining DL to be $222,346. As a result, the Company recorded a cost of $50,629 to account for the change in FV between the reporting periods. After the conversions through April 2, 2017, the Company and St. George had a dispute as to ultimate settlement of this obligation. On August 14, 2017, 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.  The settlement was accounted for as a debt extinguishment. As such, given that the debt was extinguished, the remaining associated derivative liability of $222,346 was also extinguished 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.

 

 F-13 
 

 

NOTE 10 – COMMON STOCK

 

Issuance of Common Stock

 

During the twenty-six weeks ended July 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 600,000 shares with a fair value of $10,290 based on the fair value of the shares on the date of grant for services rendered.

 

During the twenty-six weeks ended July 2, 2017, the Company issued 2,100,000 shares of common stock in settlement of an accounts payable amounting to $138,000. The fair value of the shares issued was $246,000 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 twenty-six weeks ended July 2, 2017, the Company received $75,000 from the sales of 992,602 shares of stock. Such shares have not yet been issued and warrants to acquire 357,142 shares of common stock at an excise price of $0.12 per share that expire in June 2020.

 

During the twenty-six weeks ended July 2, 2017, the Company issued total of 54,118,046 shares of its common stock for conversion of convertible notes in the amount of $172,847 (see Note 6 and 7).

 

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, July 2, 2017   115,000   $4.50 
Exercisable, July 2, 2017   115,000   $4.50 

 

As of July 2, 2017, the stock options had no intrinsic value.

 

There were no options granted during the fiscal quarter ended July 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 twenty-six weeks ended July 2, 2017.

 

 F-14 
 

 

NOTE 10 – COMMON STOCK (CONTINUED)

 

Warrants

 

The following table summarizes the changes in the warrants outstanding at July 2, 2017, and the related prices.

 

A summary of the Company’s warrants as of July 2, 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, July 2, 2017   6,113,643   $0.11 
Exercisable, July 2, 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    4.55    6,113,643   $0.11 
                          
    6,113,643         4.55    6,113,643      

 

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 to have been achieved and are included in the table of outstanding warrants above. At July 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, as such, the warrants have not been included as outstanding in the table above.

 

During the twenty-six weeks ended July 2, 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%.

 

 F-15 
 

 

NOTE 11 – LEASES

 

The Company currently leases its restaurant locations. The Company evaluates each 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 $163,319 for the thirteen weeks ended July 2, 2017 and June 26, 2016, respectively, and $202,363 and $261,406 for the twenty-six weeks ended July 2, 2017 and July 26, 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 twenty-six weeks ended July 2, 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 twenty-six weeks ended July 2, 2017, $31,398 of the deferred gain was amortized and offset to rent expense, resulting in a remaining deferred gain balance of $435,654 as of July 2, 2017.

 

The balance of the incentive from lessor as of July 2, 2017 and January 1, 2017, were $697,885 and $740,428, and included deferred rent of $126,104 and $117,056, respectively. As of July 2, 2017, $94,756 of the incentive from lessor was current and $603,129 was long term. Amortization of the incentive from lessor was $21,679 and $33,479 for the thirteen weeks ended July 2, 2017 and June 26, 2016, respectively, and $42,543 and $61,653 for twenty-six weeks ended July 2, 2017 and June 26, 2016, respectively.

 

 F-16 
 

 

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

Litigation

 

The Company entered into an agreement settling all claims with St. George on August 14, 2017 pursuant to a confidential settlement agreement. Subject to the execution of documents memorializing the settlement terms, the Company agreed to convert the outstanding balance of St. George’s note into 7,900,000 shares of common stock (see Note 7) and St. George agreed to purchase an additional 1,100,000 shares for a purchase price of $110,000 at $0.10 per share.

 

NOTE 13 – SUBSEQUENT EVENTS

 

On August 1, 2017, the Company issued to a consultant 745,000 unrestricted shares of common stock at fair value of $52,150 for services rendered.

 

The Company entered into an agreement settling all claims with St. George on August 14, 2017 pursuant to a confidential settlement agreement. Subject to the execution of documents memorializing the settlement terms, the Company agreed to convert the outstanding balance of St. George’s note into 7,900,000 shares of common stock (see Note 7) and St. George agreed to purchase an additional 1,100,000 shares for a purchase price of $110,000 at $0.10 per share.

 

 F-17 
 

 

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 2016 and 2017 consists of a year ending January 1, 2017 and December 31, 2017.

 

 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 July 2, 2017 and June 26, 2016:

 

COSTS AND OPERATING EXPENSES

 

   For Thirteen Weeks   For Thirteen Weeks         
   Ended   Ended   Increase (Decrease) 
   July 2, 2017   June 26, 2016   $   % 
Revenue:                    
Net sales  $575,824   $831,464   $(255,640)   -30.7%
                     
Costs and operating expenses:                    
Cost of operations   429,164    734,151    (304,987)   -41.5%
General and administrative expenses   249,822    319,926    (70,104)   -21.9%
Depreciation and amortization   64,068    88,741    (24,673)   -27.8%
Total  operating expenses   743,054    1,142,818    (399,764)   -35.0%
                     
Loss from Operations   (167,230)   (311,354)   144,124    -46.3%
                     
Other income (expenses):                    
Finance and interest expenses   (14,772)   (84,378)   69,606    -82.5%
Loss on extinguishment of debt   (186,818)   -    (186,818)   * 
Gain on sale of asset   -    5,971    (5,971)   -100.0%
Gain on lease termination   -    214,111    (214,111)   -100.0%
Loss before provision for income taxes   (368,820)   (175,650)   (193,170)   110.0%
                     
Provision for/benefit from income taxes   (2,650)   616    (3,266)   -530.2%
Net loss  $(371,470)  $(175,034)  $(189,904)   108.5%

 

Notes to Costs and Operating Expenses Table:

 

Net sales. Net sales for the thirteen weeks ended July 2, 2017 and June 26, 2016 were $575,824 and $831,464 respectively. The decrease of $255,640 (-30.7%) was mostly attributable to the closing of the Century City store at the end of the 2nd quarter, 2016. However, the two remaining store operations in Topanga and Glendale reported an increase of $25,516 (or 4.6%), for the thirteen weeks ended July 2, 2017 versus the comparable period in 2016.

 

Cost of operations. Costs of operations of $429,164 and $734,151 for the thirteen weeks ended July 2, 2017 and June 26, 2016, respectively, reflecting a decline of $304,987 (-41.5%). Of that decline $65,955 was realized in Topanga and Glendale stores with the remaining decrease of $239,032 was result of the closing of the Century City store.

 

General and administrative expenses. General and administrative expenses for the thirteen weeks ended July 2, 2017 and June 26, 2016 were $249,823 and $319,926, respectively. This decline of $70,103 (-21.9%) was mainly attributable to lower professional fees.

 

Depreciation and amortization. The depreciation and amortization was $64,069 compared to the $88,741 for the thirteen weeks ended July 2, 2017 and June 26, 2016, respectively. This reduction of $24,672 or -27.8% is primarily due to the closing and sell off the fixed assets related to the closing of the Century City store at the end of the second quarter of 2016.

 

 5 
 

 

Finance and interest expense. The total finance and interest expenses of $14,772 for the thirteen weeks ended July 2, 2017 decreased by $69,606, from the $84,378 for the thirteen weeks ended June 26, 2016, and was due to lower debt.

 

Net Loss. The overall net losses of $371,470 and $175,034 for the thirteen weeks ended July 2, 2017 and June 26, 2016, respectively, reflects an increased loss of $189,904, which almost entirely a result of the extinguishment of a promissory note.

 

 6 
 

 

Results of Operations for the Twenty-Six Weeks Ended July 2, 2017 and June 26, 2016:

 

COSTS AND OPERATING EXPENSES

 

   For Twenty-Six Weeks   For Twenty-Six Weeks         
   Ended   Ended   Increase (Decrease) 
   July 2, 2017   June 26, 2016   $   % 
Revenue:                    
Net sales  $1,237,527   $1,710,398    (472,871.00)   -27.6%
                     
Costs and operating expenses:                    
Cost of operations   932,955    1,504,669    (571,714)   -38.0%
General and administrative expenses   1,185,556    644,118    541,438    84.1%
Depreciation and amortization   128,137    177,882    (49,745)   -28.0%
Total operating expenses   2,246,648    2,326,669    (80,021)   -3.4%
                     
Loss from Operations   (1,009,121)   (616,271)   (392,850)   63.7%
                     
Other income (expenses):                    
Finance and interest expenses   (64,042)   (173,331)   109,289    -63.1%
Change in fair value of derivatives   (50,629)   -    (50,629)   * 
Gain on extinguishment of derivatives   185,604    -    185,604    * 
Loss on extinguishment of debt   (186,818)   -    (186,818)   * 
Gain on Sale of Asset   -    5,971    (5,971)   -100.0%
Gain on Lease Termination   -    214,111    (214,111)   -100.0%
Loss before provision for income taxes   (1,125,006)   (569,520)   (555,486)   97.5%
Provision for income taxes   (2,650)   (184)   (2,466)   1340.2%
                     
Net loss  $(1,127,656)  $(569,704)  $(557,952)   97.9%

 

Notes to Costs and Operating Expenses Table:

 

The net sales for the twenty-six weeks ended July 2, 2017 and June 26, 2016 were $1,237,527 and $1,710,398, respectively. The 27.6% decrease was mostly attributable to the closing of the Century City store at the end of the 2nd quarter, 2016. Despite the total decrease, the remaining operational stores in Topanga and Glendale reported an increase of $111,810 (or 9.9%).

 

Cost of operations. Cost of operations of $932,955 and $1,504,787 for the twenty-six weeks ended July 2, 2017 and June 26, 2016, respectively. The decrease of $571,714 (-38.0%) was mostly attributable to the closing of the Century City store at the end of the 2nd quarter, 2016. Of the total decrease the remaining operational stores in Topanga and Glendale had decreased their cost of operations by $79,682 (or 7.9%).

 

General and administrative expenses. General and administrative expenses for the twenty-six weeks ended July 2, 2017 and July 26, 2016 were $1,185,556 and $644,118, respectively. The substantial increase of 84.1% was mostly due to the fair value of $531,000 for warrants granted for services rendered and a $109,096 charge relating to settlement of an outstanding payable.

 

Depreciation and amortization. The depreciation and amortization was $49,745 less than the same period in the previous year. The decline was mostly due to the closing of the Century City store at the end of the second quarter of 2016.

 

Finance and interest expense. The total finance and operating expenses of $64,043 and $173,33 for the twenty-six weeks ended July 2, 2017 and June 26, 2016, respectively. The decrease of $109,288 (-63.1%) mostly attributable to a lower debt.

 

Net Loss. The overall net loss of $1,127,656 and $569,704 for the twenty weeks ended July 2, 2017 and June 26, 2016, respectively, reflects an increase in the net loss of 97.9%. The increase in the operating loss is mostly attributable to the fair value of $531,000 for warrants grated for services rendered and a $109,096 charge to settlement of an outstanding payable.

 

 7 
 

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of July 2, 2017, the Company has $154,288 in cash and cash equivalents, $25,616 in inventory, and $16,516 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 July 2, 2017 and June 26, 2016:

 

   For Twenty-Six Weeks Ended   For Twenty-Six Weeks Ended 
    July 2, 2017    June 26, 2016 
Net cash used in operating activities  $(53,689)  $(581,386)
Net cash provided by investing activities   -    360,500 
Net cash provided by financing activities   63,457    - 
Net increase (decrease) in Cash   9,768    (220,886)
Cash, beginning of period   144,520    334,191 
Cash, end of period  $154,288   $113,305 

 

Operating activities

 

Net cash used in operating activities was $53,689 for the twenty-six weeks ended July 2, 2017 compared to $581,386 used in operating activities for the twenty-six weeks ended June 26, 2016. The significant change was mostly attributable to the promissory note settlement.

 

Investing activities

 

The cash provided by investing activities for the twenty-six weeks ended June 26, 2016 was $360,500 which consisted of cash received for the closure of the Century City store under the lease termination agreement with Westfield and the sales of remaining fixed assets. There were no investing activities or the twenty-six weeks ended July 2, 2017.

 

Financing activities

 

Net cash provided for the twenty-six weeks ended July 2, 2017 was $63,457 from cash receipts from investors for future common stock issuable. There were no financing activities or the twenty-six weeks ended June 26, 2016.

 

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.

 

 8 
 

 

Going Concern and Liquidity

 

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 condensed consolidated financial statements, during the twenty-six weeks ended July 2, 2017, the Company incurred a net loss of $1,127,656, used cash in operations of $53,689 and had a stockholders’ deficit of $1,604,074 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. 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.

 

At July 2, 2017, the Company had cash on hand in the amount of $154,288. Management estimates that the current funds on hand would be sufficient to continue operations through September 2017. 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

 

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 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 July 2, 2017, the balance of note payable was $711,869, and unamortized note discount was $283,377, with a net balance due of $428,492.

 

 9 
 

 

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).

 

Convertible Notes Payable

 

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 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.

 

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.

 

During the period, the Holder converted $48,914 of debt into 15,660,611 shares of Common Stock. 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 SGI Immediately upon signing a final settlement agreement and St. George agreed to purchase an additional 1,100,000 shares of the companies restricted common stock for a purchase price of $110,000 at $0.10 per share. These shares shall be delivered pursuant to a conversion under the existing outstanding note.  The shares had a fair value of $.07 per share as of the settlement date, or $553,000 in the aggregate. At the time of the settlement, the outstanding balance under the note was $132,928 and accrued interest of $10,818.

 

The company considered the settlement as a debt extinguishment as the consideration to be issued was greater than 10% of the debt at the date of the modification.  As such the Company recorded the fair value of the shares to be issued, and recognized a loss on 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. The Company determined that it was appropriate to record this loss as of July 2, 2017) as it related to outstanding claims that were due at that time, with the ultimate settlement becoming known prior to filing of the 10Q.

 

 10 
 

 

Recent Accounting Pronouncements

 

See Note 3 of the 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 1 to the 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.

 

 11 
 

 

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.

 

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.

 

 12 
 

 

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 quarterly period ended July 2, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over 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.

 

 13 
 

 

PART II—OTHER INFORMATION

 

ITEM 1. Legal Proceedings.

 

The Company entered into an agreement settling all claims with St. George on August 14, 2017 pursuant to a confidential settlement agreement. Subject to the execution of documents memorializing the settlement terms, the Company agreed to convert the outstanding balance of St. George’s note into 7,900,000 shares of common stock (see Note 7) and St. George agreed to purchase an additional 1,100,000 shares for a purchase price of $110,000 at $0.10 per share.

 

ITEM 1A. Risk Factors

 

Our significant business risks are described in Item 1A to Form 10-K for the year ended January 1, 2017, which is incorporated herein by this reference.

 

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

 

During the period covered by the report, the Company issued the following unregistered securities:

 

10,170,000 shares of restricted common stock to employees; and

500,000 shares of restricted common stock to a consultant.

 

The Company issued these securities in reliance on the exemption from registration afforded by Section 4(a)(2) of Securities on the basis the transactions did not involve public offerings.

 

Issuer Purchases of Equity Securities

 

None

 

ITEM 3. Defaults Upon Senior Securities.

 

None.

 

ITEM 4. Mine Safety Disclosures.

 

Not applicable.

 

ITEM 5. Other Information.

 

None.

 

 14 
 

 

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.

 

 15 
 

 

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 August 21, 2017

By: /s/ Joey Parsi
    Joey Parsi
    Chief Executive Officer
    (Principal Executive Officer and duly authorized signatory)

 

 16 
 

 

 

EX-31.1 2 ex31-1.htm

 

EXHIBIT 31.1

 

CERTIFICATION

 

I, Joey Parsi, certify that:

 

1. I have reviewed this Thirteen Week Report on Form 10-Q of Giggles N’ Hugs, Inc. (the “Company”);
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented ire this report;
   
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

Date: August 21, 2017

 

  /s/ Joey Parsi
  Joey Parsi
  Principal Executive Officer and Principal Financial Officer

 

   
  

EX-32.1 3 ex32-1.htm

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Thirteen Week Report of Giggles N’ Hugs, Inc. (the “Company”) on Form 10-Q for the period ended April 2, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joey Parsi, Principal Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 21, 2017

 
   
  /s/ Joey Parsi
  Joey Parsi
  Principal Executive Officer
  and Principal Financial Officer

 

   
  

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Remaining Derivative Liability [Member] Iconic Note [Member] Confidential Settlement Agreement [Member] St. George [Member] Assets, Current Assets [Default Label] Liabilities, Current Liabilities, Noncurrent Liabilities Stockholders' Equity Attributable to Parent Liabilities and Equity Operating Expenses Operating Income (Loss) Financing Interest Expense Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Noncontrolling Interest Income Tax Expense (Benefit) Shares, Outstanding Depreciation, Depletion and Amortization, Nonproduction Gain (Loss) on Disposition of Property Plant Equipment WarrantsVestedForServices Increase (Decrease) in Prepaid Expenses, Other Increase (Decrease) in Inventories Net Cash Provided by (Used in) Operating Activities ProvidedFromLeaseTermination Payments to Acquire Property, Plant, and Equipment Net Cash Provided by (Used in) Investing Activities Repayments of Debt Net Cash Provided by (Used in) Financing Activities Cash and Cash Equivalents, Period Increase (Decrease) NotePayableLessorDisclosureTextBlock Property, Plant and Equipment, Gross Property, Plant and Equipment, Other, Accumulated Depreciation Derivative Liability [Default Label] Accrued Liabilities Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number ShareBasedCompensationArrangementBySharesBasedPaymentAwardNonOptionsEquityExercisable ShareBasedCompensationArrangementByShareBasedPaymentAwardNonOptionsOutstandingWeightedAverageNumberOfShares ShareBasedCompensationArrangementByShareBasedPaymentAwardNonOptionGrantedInPeriodWeightedAverageExercisePrice ShareBasedCompensationArrangementByShareBasedPaymentAwardNonOptionExerciseInPeriodWeightedAverageExercisePrice Deferred Revenue EX-101.PRE 9 gigl-20170702_pre.xml XBRL PRESENTATION FILE XML 10 R1.htm IDEA: XBRL DOCUMENT v3.7.0.1
Document and Entity Information - shares
6 Months Ended
Jul. 02, 2017
Aug. 21, 2017
Document And Entity Information    
Entity Registrant Name Giggles N' Hugs, Inc.  
Entity Central Index Key 0001381435  
Document Type 10-Q  
Document Period End Date Jul. 02, 2017  
Amendment Flag false  
Current Fiscal Year End Date --01-02  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   135,667,251
Trading Symbol GIGL  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2017  
XML 11 R2.htm IDEA: XBRL DOCUMENT v3.7.0.1
Condensed Consolidated Balance Sheets - USD ($)
Jul. 02, 2017
Jan. 01, 2017
Current assets:    
Cash and cash equivalents $ 154,288 $ 144,520
Inventory 25,617 20,331
Prepaid expenses, other 16,517 13,806
Total current assets 196,422 178,657
Fixed assets:    
Total fixed assets, net 865,991 994,128
Other assets 2,620 2,620
Total assets 1,065,033 1,175,405
Current liabilities:    
Accounts payable 543,610 610,925
Incentive from lessor - current portion 94,756 87,420
Note payable from lessor, current portion net of discount of $283,377 and $35,094, respectively 21,734 21,544
Accrued expenses 501,836 328,952
Deferred revenue 11,630 24,159
Promissory note payable and accrued interest 193,340
Convertible note payable and accrued interest, 50,000 151,383
Derivative liability 357,411
Total current liabilities 1,223,566 1,775,134
Long-term liabilities:    
Incentive from lessor - long-term 603,129 653,008
Note payable - lessor 406,758 411,173
Deferred gain 435,654 429,115
Total long-term liabilities 1,445,541 1,493,296
Total liabilities 2,669,107 3,268,430
Stockholders' deficit:    
Common stock, $0.001 par value, 1,125,000,000 shares authorized, 134,922,251 and 67,934,205 shares issued and outstanding as of July 2, 2017 and January 1, 2017, respectively 134,922 67,933
Common stock issuable (9,297,619 and 405,556 shares as of July 2, 2017 and January 1, 2017, respectively) 846,535 218,535
Additional paid-in capital 9,151,365 8,229,747
Accumulated deficit (11,736,896) (10,609,240)
Total stockholders' deficit (1,604,074) (2,093,025)
Total liabilities and stockholders' deficit $ 1,065,033 $ 1,175,405
XML 12 R3.htm IDEA: XBRL DOCUMENT v3.7.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
Jul. 02, 2017
Jan. 01, 2017
Statement of Financial Position [Abstract]    
Note payable, discount current $ 283,377 $ 35,094
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 1,125,000,000 1,125,000,000
Common stock, shares issued 134,922,251 67,934,205
Common stock, shares outstanding 134,922,251 67,934,205
Common stock issuable, shares 9,297,619 405,556
XML 13 R4.htm IDEA: XBRL DOCUMENT v3.7.0.1
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jul. 02, 2017
Jun. 26, 2016
Jul. 02, 2017
Jun. 26, 2016
Revenue        
Net sales $ 575,824 $ 831,464 $ 1,237,527 $ 1,710,398
Costs and operating expenses        
Cost of operations 429,164 734,151 932,955 1,504,669
General and administrative expenses 249,822 319,926 1,185,556 644,118
Depreciation and amortization 64,068 88,741 128,137 177,882
Total operating expenses 743,054 1,142,818 2,246,648 2,326,669
Loss from Operations (167,230) (311,354) (1,009,121) (616,271)
Other income (expenses):        
Finance and interest expense (14,772) (84,378) (64,042) (173,331)
Change in fair value of derivatives liability (50,629)  
Gain on extinguishment of derivative liability   185,604
Loss on extinguishment of debt     (186,818)
Gain on sale of asset 5,971 5,971
Gain on lease termination 214,111 214,111
Loss before provision for income taxes (368,820) (175,650) (1,125,006) (569,520)
Provision for/benefit from income taxes (2,650) 616 (2,650) (184)
Net loss $ (371,470) $ (175,034) $ (1,127,656) $ (569,704)
Net loss per share - basic and diluted $ (0.01) $ (0.01)
Weighted average number of common shares outstanding - basic and diluted 134,355,584 42,806,033 120,473,746 42,367,492
XML 14 R5.htm IDEA: XBRL DOCUMENT v3.7.0.1
Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) - 6 months ended Jul. 02, 2017 - USD ($)
Common Stock [Member]
Additional Paid-In Capital [Member]
Stock Issuable [Member]
Accumulated Deficit [Member]
Total
Balance at Jan. 01, 2017 $ 67,933 $ 8,229,747 $ 218,535 $ (10,609,240) $ (2,093,025)
Balance, shares at Jan. 01, 2017 67,934,205        
Shares issued for employees compensation $ 10,170 18,300   28,470
Shares issued for employees compensation, shares 10,170,000        
Shares issued to settle accounts payable $ 2,100 243,900   246,000
Shares issued to settle accounts payable, shares 2,100,000        
Shares issued for convertible notes $ 54,119 218,728   272,847
Shares issued for convertible notes, shares 54,118,046        
Cash received for stock issuable 75,000 75,000
Shares issued for professional services $ 600 9,690   10,290
Shares issued for professional services, shares 600,000        
Fair value of warrants granted for services 531,000   531,000
Stock issuable to settle the convertible notes   (100,000) 553,000 453,000
Net loss   (1,127,656) (1,127,656)
Balance at Jul. 02, 2017 $ 134,922 $ 9,151,365 $ 846,535 $ (11,736,896) $ (1,604,074)
Balance, shares at Jul. 02, 2017 134,922,251        
XML 15 R6.htm IDEA: XBRL DOCUMENT v3.7.0.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jul. 02, 2017
Jun. 26, 2016
Cash flows from operating activities    
Net loss $ (1,127,656) $ (569,704)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 128,137 177,882
Amortization of debt discount 154,658
Gain on sales of fixed assets (5,971)
Gain on lease termination (214,111)
Stock-based compensation 28,470
Loss on stock issuance for payable settlement 109,096
Warrants vested for services 531,000 31,000
Interest and fees included in note payable 21,449
Shares issued for services 10,290 30,170
Gain on extinguishment of derivative liability (185,604)  
Change in fair value of derivative liability 50,629  
Promissory note settlement 186,818
Changes in operating assets and liabilities:    
Increase in prepaid expenses and deposits (2,711) (3,890)
(Increase) decrease in inventory (5,286) 10,553
Increase in accounts payable 69,589 179,976
Decrease in lease incentive liability (42,543) (61,653)
Increase (decrease) increase in accrued expenses 180,623 (320,676)
(Decrease) increase in deferred revenue (12,529) 10,380
Amortization of deferred gain 6,539
Net cash used in operating activities (53,689) (581,386)
Cash flows from investing activities    
Provided from lease termination 350,000
Provided from sales or purchase of fixed assets 10,500
Net cash provided by investing activities 360,500
Cash flows from financing activities    
Payments on promissory note payable (11,543)
Proceeds from common stock issuable 75,000
Net cash provided by financing activities 63,457
NET INCREASE (DECREASE) IN CASH 9,768 (220,886)
CASH AT BEGINNING OF PERIOD 144,520 334,191
CASH AT END OF PERIOD 154,288 113,305
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Interest paid 26,834
NON-CASH INVESTING AND FINANCING ACTIVITIES:    
Shares issued to settle convertible notes payable 272,847
Reclass of notes payable to accrued interest 3,125
Shares issued to settle payable $ 136,904 $ 31,500
XML 16 R7.htm IDEA: XBRL DOCUMENT v3.7.0.1
History and Organization
6 Months Ended
Jul. 02, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
History and Organization

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 2017 and 2016 consists of a year ending December 31, 2017 and January 1, 2017.

XML 17 R8.htm IDEA: XBRL DOCUMENT v3.7.0.1
Basis of Presentation
6 Months Ended
Jul. 02, 2017
Accounting Policies [Abstract]  
Basis of Presentation

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.

XML 18 R9.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies
6 Months Ended
Jul. 02, 2017
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

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 twenty-six weeks ended July 2, 2017, the Company incurred a net loss of $1,127,656, used cash in operations of $53,689, and had a stockholders’ deficit of $1,604,074 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 $154,288 as of July 2, 2017. Management estimates that the current funds on hand will be sufficient to continue operations through September 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 stock holders, in case or equity financing.

 

Principles of consolidation

 

The 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.

 

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 July 2, 2017 and June 26, 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.

   

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.

XML 19 R10.htm IDEA: XBRL DOCUMENT v3.7.0.1
Property and Equipment
6 Months Ended
Jul. 02, 2017
Fixed assets:  
Property and Equipment

NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following at:

 

    July 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     (1,348,236 )     (1,220,099 )
Property and equipment, net   $ 865,991     $ 994,128  

 

Depreciation and amortization expenses for the thirteen weeks and twenty-six weeks ended July 2, 2017 were $64,069 and $128,137, respectively, and for the thirteen weeks and twenty-six weeks ended June 26, 2016 were $88,741 and $177,882, respectively. Repair and maintenance expense for the thirteen weeks and twenty-six weeks ended July 2, 2017 were $18,238 and $33,780, respectively, and for thirteen weeks and twenty-six weeks ended June 26, 2016 were $22,833 and $51,826, respectively.

XML 20 R11.htm IDEA: XBRL DOCUMENT v3.7.0.1
Note Payable Lessor
6 Months Ended
Jul. 02, 2017
Note Payable Lessor  
Note Payable Lessor

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 July 2, 2017, the balance of note payable was $711,869, and unamortized note discount was $283,377, with a net balance due of $428,492.

 

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 July 2, 2016, the Company was delinquent in its payments to GGP under the note, but has subsequently brought the note current.

XML 21 R12.htm IDEA: XBRL DOCUMENT v3.7.0.1
Convertible Note Payable
6 Months Ended
Jul. 02, 2017
Debt Disclosure [Abstract]  
Convertible Note Payable

NOTE 6 – CONVERTIBLE NOTE PAYABLE

 

A summary of convertible debentures payable as of July 2, 2017 and January 1, 2017 is as follows:

 

    July 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, 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 twenty-six weeks ended July 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.

 

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.

XML 22 R13.htm IDEA: XBRL DOCUMENT v3.7.0.1
Promissory Note
6 Months Ended
Jul. 02, 2017
Debt Disclosure [Abstract]  
Promissory Note

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.

 

During the period the Holder converted $48,914 of debt into 15,660,611 shares of Common Stock. 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 SGI Immediately upon signing a final settlement agreement and St. George agreed to purchase an additional 1,100,000 shares for a purchase price of $110,000 at $0.10 per share. These shares shall be delivered pursuant to a conversion under the existing outstanding note. The shares had a fair value of $.07 per share as of the settlement date, or $553,000 in the aggregate. At the time of the settlement, the outstanding balance under the note was $132,928 and accrued interest of $10,818.

 

The company considered the settlement as a debt extinguishment as the consideration to be issued was greater than 10% of the debt at the date of the modification. As such the Company recorded the fair value of the shares to be issued, and recognized a loss on 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. The Company determined that it was appropriate to record this loss as of July 2, 2017) as it related to outstanding claims that were due at that time, with the ultimate settlement becoming known prior to filing of the 10Q.

XML 23 R14.htm IDEA: XBRL DOCUMENT v3.7.0.1
Business Loan and Security Agreement
6 Months Ended
Jul. 02, 2017
Business Loan And Security Agreement  
Business Loan and Security Agreement

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 July 2, 2017 and January 1, 2017, $149,917 and $136,629 was outstanding and is included in accrued expenses in the accompanying balance sheets.

XML 24 R15.htm IDEA: XBRL DOCUMENT v3.7.0.1
Derivative Liability
6 Months Ended
Jul. 02, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Liability

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 prior to conversion/payment and recorded a gain on settlement of $66,731. At April 2, 2017, the Company determined the FV of the remaining DL to be $222,346. As a result, the Company recorded a cost of $50,629 to account for the change in FV between the reporting periods. After the conversions through April 2, 2017, the Company and St. George had a dispute as to ultimate settlement of this obligation. On August 14, 2017, 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.  The settlement was accounted for as a debt extinguishment. As such, given that the debt was extinguished, the remaining associated derivative liability of $222,346 was also extinguished 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.

XML 25 R16.htm IDEA: XBRL DOCUMENT v3.7.0.1
Common Stock
6 Months Ended
Jul. 02, 2017
Equity [Abstract]  
Common Stock

NOTE 10 – COMMON STOCK

 

Issuance of Common Stock

 

During the twenty-six weeks ended July 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 600,000 shares with a fair value of $10,290 based on the fair value of the shares on the date of grant for services rendered.

 

During the twenty-six weeks ended July 2, 2017, the Company issued 2,100,000 shares of common stock in settlement of an accounts payable amounting to $138,000. The fair value of the shares issued was $246,000 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 twenty-six weeks ended July 2, 2017, the Company received $75,000 from the sales of 992,602 shares of stock. Such shares have not yet been issued and warrants to acquire 357,142 shares of common stock at an excise price of $0.12 per share that expire in June 2020.

 

During the twenty-six weeks ended July 2, 2017, the Company issued total of 54,118,046 shares of its common stock for conversion of convertible notes in the amount of $172,847 (see Note 6 and 7).

 

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, July 2, 2017     115,000     $ 4.50  
Exercisable, July 2, 2017     115,000     $ 4.50  

 

As of July 2, 2017, the stock options had no intrinsic value.

 

There were no options granted during the fiscal quarter ended July 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 twenty-six weeks ended July 2, 2017.

 

Warrants

 

The following table summarizes the changes in the warrants outstanding at July 2, 2017, and the related prices.

 

A summary of the Company’s warrants as of July 2, 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, July 2, 2017     6,113,643     $ 0.11  
Exercisable, July 2, 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       4.55       6,113,643     $ 0.11  
                                         
      6,113,643               4.55       6,113,643          

 

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 to have been achieved and are included in the table of outstanding warrants above. At July 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, as such, the warrants have not been included as outstanding in the table above.

 

During the twenty-six weeks ended July 2, 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%.

XML 26 R17.htm IDEA: XBRL DOCUMENT v3.7.0.1
Leases
6 Months Ended
Jul. 02, 2017
Leases [Abstract]  
Leases

NOTE 11 – LEASES

 

The Company currently leases its restaurant locations. The Company evaluates each 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 $163,319 for the thirteen weeks ended July 2, 2017 and June 26, 2016, respectively, and $202,363 and $261,406 for the twenty-six weeks ended July 2, 2017 and July 26, 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 twenty-six weeks ended July 2, 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 twenty-six weeks ended July 2, 2017, $31,398 of the deferred gain was amortized and offset to rent expense, resulting in a remaining deferred gain balance of $435,654 as of July 2, 2017.

 

The balance of the incentive from lessor as of July 2, 2017 and January 1, 2017, were $697,885 and $740,428, and included deferred rent of $126,104 and $117,056, respectively. As of July 2, 2017, $94,756 of the incentive from lessor was current and $603,129 was long term. Amortization of the incentive from lessor was $21,679 and $33,479 for the thirteen weeks ended July 2, 2017 and June 26, 2016, respectively, and $42,543 and $61,653 for twenty-six weeks ended July 2, 2017 and June 26, 2016, respectively.

XML 27 R18.htm IDEA: XBRL DOCUMENT v3.7.0.1
Commitments and Contingencies
6 Months Ended
Jul. 02, 2017
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

Litigation

 

The Company entered into an agreement settling all claims with St. George on August 14, 2017 pursuant to a confidential settlement agreement. Subject to the execution of documents memorializing the settlement terms, the Company agreed to convert the outstanding balance of St. George’s note into 7,900,000 shares of common stock (see Note 7) and St. George agreed to purchase an additional 1,100,000 shares for a purchase price of $110,000 at $0.10 per share.

XML 28 R19.htm IDEA: XBRL DOCUMENT v3.7.0.1
Subsequent Events
6 Months Ended
Jul. 02, 2017
Subsequent Events [Abstract]  
Subsequent Events

NOTE 13 – SUBSEQUENT EVENTS

 

On August 1, 2017, the Company issued to a consultant 745,000 unrestricted shares of common stock at fair value of $52,150 for services rendered.

 

The Company entered into an agreement settling all claims with St. George on August 14, 2017 pursuant to a confidential settlement agreement. Subject to the execution of documents memorializing the settlement terms, the Company agreed to convert the outstanding balance of St. George’s note into 7,900,000 shares of common stock (see Note 7) and St. George agreed to purchase an additional 1,100,000 shares for a purchase price of $110,000 at $0.10 per share.

XML 29 R20.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jul. 02, 2017
Accounting Policies [Abstract]  
Going Concern

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 twenty-six weeks ended July 2, 2017, the Company incurred a net loss of $1,127,656, used cash in operations of $53,689, and had a stockholders’ deficit of $1,604,074 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 $154,288 as of July 2, 2017. Management estimates that the current funds on hand will be sufficient to continue operations through September 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 stock holders, in case or equity financing.

Principles of Consolidation

Principles of consolidation

 

The 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

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.

Derivative Financial Instruments

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

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 July 2, 2017 and June 26, 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.

Recent Accounting Standards

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.

XML 30 R21.htm IDEA: XBRL DOCUMENT v3.7.0.1
Property and Equipment (Tables)
6 Months Ended
Jul. 02, 2017
Fixed assets:  
Schedule of Property and Equipment

Property and equipment consisted of the following at:

 

    July 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     (1,348,236 )     (1,220,099 )
Property and equipment, net   $ 865,991     $ 994,128  

XML 31 R22.htm IDEA: XBRL DOCUMENT v3.7.0.1
Convertible Note Payable (Tables)
6 Months Ended
Jul. 02, 2017
Debt Disclosure [Abstract]  
Summary of Convertible Debentures Payable

A summary of convertible debentures payable as of July 2, 2017 and January 1, 2017 is as follows:

 

    July 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  

XML 32 R23.htm IDEA: XBRL DOCUMENT v3.7.0.1
Common Stock (Tables)
6 Months Ended
Jul. 02, 2017
Equity [Abstract]  
Summary of Stock Awards for 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, July 2, 2017     115,000     $ 4.50  
Exercisable, July 2, 2017     115,000     $ 4.50  

Schedule of Stock Warrants Activity

A summary of the Company’s warrants as of July 2, 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, July 2, 2017     6,113,643     $ 0.11  
Exercisable, July 2, 2017     6,113,643     $ 0.11  

Schedule of Changes in Warrants Outstanding

                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       4.55       6,113,643     $ 0.11  
                                         
      6,113,643               4.55       6,113,643          

XML 33 R24.htm IDEA: XBRL DOCUMENT v3.7.0.1
Summary of Significant Accounting Policies (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jul. 02, 2017
Jun. 26, 2016
Jul. 02, 2017
Jun. 26, 2016
Jan. 01, 2017
Dec. 27, 2015
Accounting Policies [Abstract]            
Net loss $ 371,470 $ 175,034 $ 1,127,656 $ 569,704    
Net cash used in operating activities     53,689 581,386    
Stockholders' deficit 1,604,074   1,604,074   $ 2,093,025  
Cash and equivalents $ 154,288 $ 113,305 $ 154,288 $ 113,305 $ 144,520 $ 334,191
XML 34 R25.htm IDEA: XBRL DOCUMENT v3.7.0.1
Property and Equipment (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jul. 02, 2017
Jun. 26, 2016
Jul. 02, 2017
Jun. 26, 2016
Fixed assets:        
Depreciation and amortization $ 64,068 $ 88,741 $ 128,137 $ 177,882
Repair and maintenance expenses $ 18,238 $ 22,833 $ 33,780 $ 51,826
XML 35 R26.htm IDEA: XBRL DOCUMENT v3.7.0.1
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($)
Jul. 02, 2017
Jan. 01, 2017
Fixed assets:    
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 (1,348,236) (1,220,099)
Property and equipment, net $ 865,991 $ 994,128
XML 36 R27.htm IDEA: XBRL DOCUMENT v3.7.0.1
Note Payable Lessor (Details Narrative) - USD ($)
6 Months Ended
Aug. 12, 2016
Feb. 12, 2013
Jul. 02, 2017
Jun. 26, 2016
Mar. 01, 2015
Promissory notes payable face value $ 683,316 $ 700,000 $ 100,000    
Notes payable accrued interest rate        
Debt maturity date May 31, 2028 Oct. 31, 2023      
Promissory note principal balance $ 443,521   711,869   $ 683,316
Repayment of debt, periodic payment $ 5,300        
Fair value of discount rate 10.00%        
Unamortization of debt discount $ 319,740   283,377    
Net balance due     428,492    
Maximum percentage of defined interest rate 10.00%        
Gain on debt extinguishment $ 220,668   $ (186,818)  
Gain on termination of note       $ 220,668  
Minimum default interest rate     5.00%    
Adjusted Balance [Member]          
Promissory notes payable face value $ 763,261        
Through October 15, 2015 [Member]          
Notes payable accrued interest rate   10.00%      
Through October 31, 2017 [Member]          
Notes payable accrued interest rate   12.00%      
Through October 31, 2023 [Member]          
Notes payable accrued interest rate   15.00%      
XML 37 R28.htm IDEA: XBRL DOCUMENT v3.7.0.1
Convertible Note Payable (Details Narrative) - USD ($)
6 Months Ended
Aug. 12, 2016
Dec. 21, 2015
Aug. 24, 2015
Feb. 12, 2013
Jul. 02, 2017
Convertible note payable interest rate        
Convertible note payable face amount $ 683,316     $ 700,000 $ 100,000
Discount on convertible note payable $ 319,740       $ 283,377
Debt maturity date May 31, 2028     Oct. 31, 2023  
Debt conversion shares issued         15,660,611
Iconic Holdings LLC [Member]          
Debt conversion shares issued         38,457,435
Trading price per share         $ 0.00259
Unsecured Note Payable Agreement [Member] | Iconic Holdings LLC [Member]          
Convertible note payable interest rate   8.00%      
Convertible note payable face amount   $ 161,250      
Discount on convertible note payable   11,250      
Debt fee and costs   11,250      
Net proceeds form debt issuance   $ 138,500      
Convertible note payable guaranteed interest rate   10.00%      
Debt maturity date   Dec. 21, 2016      
Convertible note payable redemption price percentage   65.00%      
Convertible note payable conversion price per share   $ 0.08      
Unsecured Note Payable Agreement [Member] | J&N Invest LLC [Member]          
Convertible note payable interest rate     5.00%    
Convertible note payable face amount     $ 50,000    
Discount on convertible note payable     $ 50,000    
Debt maturity date     Aug. 31, 2016    
Convertible note payable conversion price per share     $ 0.10    
Trading price per share     $ 0.23    
XML 38 R29.htm IDEA: XBRL DOCUMENT v3.7.0.1
Convertible Note Payable - Summary of Convertible Debentures Payable (Details) - USD ($)
Jul. 02, 2017
Jan. 01, 2017
Total Convertible Notes $ 50,000 $ 151,383
Accrued interest 17,192
Net Convertible Notes 50,000 151,383
Iconic Holdings LLC [Member]    
Total Convertible Notes 84,191
J&N Invest LLC [Member]    
Total Convertible Notes $ 50,000 $ 50,000
XML 39 R30.htm IDEA: XBRL DOCUMENT v3.7.0.1
Promissory Note (Details Narrative) - USD ($)
6 Months Ended
Aug. 12, 2016
Jul. 02, 2017
Jun. 26, 2016
Jan. 01, 2017
Dec. 18, 2015
Mar. 01, 2015
Debt conversion, converted amount   $ 48,914        
Debt conversion shares issued   15,660,611        
Debt instrument periodic payment, per month   $ 7,517        
Number of share purchase during period   992,602        
Number of share purchase during period, value   $ 75,000        
Note oustanding balance $ 443,521 711,869       $ 683,316
Accrued interest     $ 17,192    
Gain loss on extinguishment of debt $ 220,668 $ (186,818)      
August 14, 2017 [Member] | Derivative Liability [Member]            
Debt conversion shares issued   7,900,000        
Settlement Agreement [Member] | August 14, 2017 [Member]            
Debt conversion, converted amount   $ 553,000        
Debt conversion shares issued   7,900,000        
Number of unrestricted free trading shares agreed to deliver for settlement   $ .07        
Number of share purchase during period   1,100,000        
Number of share purchase during period, value   $ 110,000        
Purchase price per share   $ 0.10        
Note oustanding balance   $ 132,928        
Accrued interest   10,818        
Gain loss on extinguishment of debt   143,740        
Derivative liability   222,436        
Settlement Agreement [Member] | August 14, 2017 [Member] | Derivative Liability [Member]            
Gain loss on extinguishment of debt   $ 186,818        
Settlement Agreement [Member] | August 14, 2017 [Member] | Maximum [Member]            
Debt consideration percentage   10.00%        
St. George Investments, LLC [Member]            
Unsecured promissory note principal         $ 265,000  
XML 40 R31.htm IDEA: XBRL DOCUMENT v3.7.0.1
Business Loan and Security Agreement (Details Narrative) - USD ($)
1 Months Ended
Aug. 31, 2015
Jul. 02, 2017
Jan. 01, 2017
Accrued expenses   $ 149,917 $ 136,629
American Express Bank [Member]      
Line of credit facility maximum borrowing capacity $ 174,000    
Loan maturities date August 2016    
Proceeds from advances $ 180,000    
Percentage of loan fee 0.50%    
XML 41 R32.htm IDEA: XBRL DOCUMENT v3.7.0.1
Derivative Liability (Details Narrative) - USD ($)
6 Months Ended
Jan. 01, 2017
Jul. 02, 2017
Apr. 02, 2017
Derivative liability fair value $ 238,538   $ 222,346
Gain on derivative   $ 185,604  
Number of shares issued to settle notes   15,660,611  
Iconic Note [Member]      
Derivative liability fair value 118,873    
Gain on derivative $ 118,873    
Number of shares issued to settle notes 38,457,435    
Derivative Liability [Member]      
Repayments of derivatives   $ 48,914  
Gain on derivative   $ 66,731  
Derivative Liability [Member] | August 14, 2017 [Member]      
Number of shares issued to settle notes   7,900,000  
Remaining Derivative Liability [Member] | August 14, 2017 [Member]      
Derivative liability fair value     $ 222,346
XML 42 R33.htm IDEA: XBRL DOCUMENT v3.7.0.1
Common Stock (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Jul. 02, 2017
Jan. 01, 2017
May 17, 2016
Number of shares issued for settlement accounts payable, shares 2,100,000    
Number of shares issued for settlement accounts payable $ 138,000    
Fair value of shares issued 246,000    
Fair value of additional cost 109,096    
Sale of stock amount received $ 75,000    
Number of sale of stock shares received 992,602    
Number of common stock for conversion of convertible notes $ 272,847    
Warrant to purchase common stock 5,150,000 440,000  
Warrant expire date June 2020    
Fair value of warrants   $ 31,000  
Remaining warrants to acquire 3,960,000    
Warrant term 5 years    
Warrant exercisable 5,000,000    
Warrant exercisable, per share $ .10    
Fair value of options grant $ 531,000    
Strategic Alliance Agreement [Member]      
Warrant to purchase common stock     4,400,000
Warrant exercise price     $ 0.075
Warrants [Member]      
Warrant to purchase common stock 357,142    
Warrant exercise price $ 0.12    
Warrant exercisable 150,000    
Warrant exercisable, per share $ .20    
Fair value of life 5 years    
Risk free interest 1.73%    
Volatility 350.00%    
Dividend yield 0.00%    
Convertible Notes [Member]      
Number of common stock for conversion of convertible notes, shares 54,118,046    
Number of common stock for conversion of convertible notes $ 172,847    
Officers And Employees [Member]      
Shares issued during period restricted shares 10,170,000    
Shares issued during period restricted shares, value $ 28,470    
Non Employees [Member]      
Shares issued during period restricted shares 600,000    
Shares issued during period restricted shares, value $ 10,290    
XML 43 R34.htm IDEA: XBRL DOCUMENT v3.7.0.1
Common Stock - Summary of Stock Awards for Options (Details)
6 Months Ended
Jul. 02, 2017
$ / shares
shares
Equity [Abstract]  
Stock Options, Outstanding, Beginning balance | shares 115,000
Stock Options, Granted | shares
Stock Options, Exercised | shares
Stock Options, Outstanding, Ending balance | shares 115,000
Stock Options, Exercisable | shares 115,000
Weighted Average Exercise Price, Outstanding, Beginning balance | $ / shares $ 4.50
Weighted Average Exercise Price, Granted | $ / shares
Weighted Average Exercise Price, Exercised | $ / shares
Weighted Average Exercise Price, Outstanding, Ending balance | $ / shares 4.50
Weighted Average Exercise Price, Exercisable | $ / shares $ 4.50
XML 44 R35.htm IDEA: XBRL DOCUMENT v3.7.0.1
Common Stock - Schedule of Stock Warrants Activity (Details) - Warrant [Member]
6 Months Ended
Jul. 02, 2017
$ / shares
shares
Warrants, Outstanding, Beginning balance | shares 606,500
Warrants, Granted | shares 5,507,143
Warrants, Exercised | shares
Warrants, Outstanding, Ending balance | shares 6,113,643
Warrants, Exercisable | shares 6,113,643
Weighted Average Exercise Price, Outstanding, Beginning | $ / shares $ 0.13
Weighted Average Exercise Price, Granted | $ / shares 0.1
Weighted Average Exercise Price, Exercised | $ / shares
Weighted Average Exercise Price, Outstanding, Ending | $ / shares 0.11
Warrants Exercisable, price | $ / shares $ 0.11
XML 45 R36.htm IDEA: XBRL DOCUMENT v3.7.0.1
Common Stock - Schedule of Changes in Warrants Outstanding (Details)
6 Months Ended
Jul. 02, 2017
$ / shares
shares
Number of Options, Outstanding | shares 6,113,643
Weighted Average Remaining Contractual Life 4 years 6 months 18 days
Number of Options, Exercisable | shares 6,113,643
Range 1 [Member]  
Range of Exercise Prices, Lower Range Limit | $ / shares $ 0.01
Range of Exercise Prices, Upper Range Limit | $ / shares $ 0.15
Number of Options, Outstanding | shares 6,113,643
Weighted Average Exercise Price | $ / shares $ 0.11
Weighted Average Remaining Contractual Life 4 years 6 months 18 days
Number of Options, Exercisable | shares 6,113,643
Weighted Average Exercise Price, Exercisable | $ / shares $ 0.11
XML 46 R37.htm IDEA: XBRL DOCUMENT v3.7.0.1
Leases (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jul. 02, 2017
Jun. 26, 2016
Jul. 02, 2017
Jun. 26, 2016
Jan. 01, 2017
Aug. 12, 2016
Jul. 26, 2016
Operating lease rent expenses $ 100,773 $ 163,319 $ 202,363 $ 261,406      
Incentive from lessor amount 603,129   603,129   $ 653,008    
Deferred revenue         429,115 $ 455,287  
Deferred gain amortized and offset rent expense 31,398   31,398   26,172    
Remaining deferred gain amortized and offset rent expense 435,654   435,654   429,115    
Additional deferred gain amortized and offset rent expense 37,937   37,937        
Incentive from lessor remaining balance amount 697,885   697,885   740,428    
Deferred rent 126,104   126,104   $ 117,056    
Incentive from lessor amount current 94,756   94,756        
Amortization of incentives from lessors 21,679 $ 33,479 42,543 $ 61,653      
Topanga [Member]              
Incentive from lessor amount $ 506,271   $ 506,271        
Glendale II Mall Associates, LLC [Member]              
Incentive from lessor amount             $ 475,000
XML 47 R38.htm IDEA: XBRL DOCUMENT v3.7.0.1
Commitments and Contingencies (Details Narrative)
6 Months Ended
Jul. 02, 2017
USD ($)
shares
Number of common shares for note settlement | shares 15,660,611
Number of common shares for note settlement, value | $ $ 48,914
XML 48 R39.htm IDEA: XBRL DOCUMENT v3.7.0.1
Subsequent Events (Details Narrative) - USD ($)
6 Months Ended
Aug. 14, 2017
Aug. 14, 2017
Aug. 02, 2017
Jul. 02, 2017
Jun. 26, 2016
Number of common stock shares issued       $ (10,290) $ (30,170)
Number of common shares for note settlement       15,660,611  
Number of common shares for note settlement, value       $ 48,914  
Subsequent Event [Member] | Confidential Settlement Agreement [Member] | August 14, 2017 [Member]          
Number of common shares for note settlement 7,900,000        
Number of common shares for note settlement, value $ 110,000        
Conversions price per share $ 0.10 $ 0.10      
Subsequent Event [Member] | Consultants [Member]          
Number of common stock shares issued     $ 745,000    
Number of common stock value issued, value     52,150    
Subsequent Event [Member] | St. George [Member] | Confidential Settlement Agreement [Member] | August 14, 2017 [Member]          
Number of common shares for note settlement   1,100,000      
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