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 ~~March~~June 3130, 2019

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

Commission files number 000-53948

GIGGLES N’ HUGS, INC.

(Exact name of registrant as specified in its charter)

Nevada

20-1681362

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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

(818) 956-4847

(Registrant’s telephone number, including area code)

Copies of Communications to:

BEVILACQUA PLLC

1050 Connecticut Avenue, NW, Suite 500

Washington, DC 20036

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

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

Yes [X] No [ ]

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

Large accelerated filer [ ]	Accelerated filer [ ]

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

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

Yes [ ] No [X]

The number of shares of Common Stock, $0.001 par value, outstanding on ~~May~~August 2014, 2019 was ~~168~~169,~~924~~074,080 shares.

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class Trading Symbol(s) Name of each exchange on which registered Not applicable Not applicable Not applicable

GIGGLES N’ HUGS, INC.

TWENTY-SIX WEEKS ENDED ~~MARCH~~JUNE 3130, 2019

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	1011
Item 4.	Controls and Procedures	1011
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	1112
Item 1A.	Risk Factors	1112
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1112
Item 3.	Defaults Upon Senior Securities	1112
Item 4.	Mine Safety Disclosure	1112
Item 5.	Other Information	1112
Item 6.	Exhibits	1213
	Signature	1314

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2019			December 30, 2018
	June 30, 2019			December 30, 2018
	(Unaudited)	~~(Unaudited)~~
Assets
Current assets:
Cash and equivalents	$	2831,~~599~~028		$	57,642
Inventory		23,~~349~~437			23,860
Prepaid expenses, other		1719,~~219~~118			22,458
Total current assets		6973,~~167~~583			103,960
Property and Equipment, net of accumulated depreciation and amortization of $1,761,112 and $1,708,865		455,597			507,844
Property and Equipment, net of accumulated depreciation and amortization of $1,810,863 and $1,708,865		408,838			507,844
Other assets		2,620			2,620
Right of use asset, net		~~865~~822,~~713~~339			-
Total assets	$	1,~~393~~307,~~097~~380		$	614,424
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	~~621~~677,~~713~~260		$	621,454
Incentive from lessor – current portion		-			117,460
Note Payable - lessor, in default		420,881			420,881
Accrued expenses		~~137~~184,~~391~~145			157,368
Accrued officers salary		~~477~~510,~~291~~882			466,541
Current portion of lease liability		~~316~~328,~~057~~018			-
Deferred revenue		198,~~925~~511			16,964
Convertible note payable		50,000			50,000
Total current liabilities		2,~~043~~179,~~258~~697			1,850,668
Long-term liabilities:
Incentive from lessor – long-term		-			433,379
Deferred gain		~~315~~298,~~282~~086			332,478
Lease liability		1987,~~099,119~~638			-
Total long-term liabilities		1,~~414~~285,~~401~~724			765,857
Total liabilities		3,~~457~~465,~~659~~421			2,616,525
Commitments and contingencies
Stockholders’ deficit:
Common stock, $0.001 par value, 1,125,000,000 shares authorized, 168,774,080 and 168,424,080 shares issued and outstanding as of March 31, 2019 and December 30, 2018, respectively		168,774			168,424
Common stock, $0.001 par value, 1,125,000,000 shares authorized, 168,924,080 and 168,424,080 shares issued and outstanding as of June 30, 2019 and December 30, 2018, respectively		168,924			168,424
Common stock issuable (1,397,619 shares as of March 31, 2019 and December 30, 2018, respectively)		293,535			293,535
Common stock issuable (1,397,619 shares as of June 30, 2019 and December 30, 2018, respectively)		293,535			293,535
Additional paid-in capital		10,~~524~~582,~~054~~449			10,458,959
Accumulated deficit		(13,~~050~~202,~~925~~949	)		(12,923,019	)
Total stockholders’ deficit		(2,~~064~~158,~~562~~041	)		(2,002,101	)
Total liabilities and stockholders’ deficit	$	1,~~393~~307,~~097~~380		$	614,424

See Accompanying Notes to Condensed Consolidated Financial Statements.

F-1

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Thirteen Weeks Ended			Thirteen Weeks Ended			Twenty -Six Weeks Ended			Twenty -Six Weeks Ended
	March 31, 2019			April 1, 2018
	June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018
Revenue
Net sales	$	~~699~~554,~~226~~062		$	~~613~~579,~~363~~937		$	1,253,288		$	1,193,300
Costs and operating expenses
Cost of operations		~~495~~408,~~662~~628			~~499~~466,~~677~~786			904,290			966,463
General and administrative expenses		~~268~~233,~~786~~717			~~278~~303,~~226~~515			502,504			581,742
Depreciation and amortization		5249,~~247~~751			6158,~~635~~516			101,998			120,150
Total operating expenses		~~816~~692,~~695~~096			~~839~~828,~~538~~817			1,508,792			1,668,355
Loss from Operations		(~~117~~138,~~469~~034	)		(~~226~~248,~~175~~880	)		(255,504	)		(475,055	)
Other expenses:
Loss on settlement		-			~~(1,000~~-	)		-			(1,000	)
Finance and interest expense		(1011,~~437~~590	)		(1411,~~390~~747	)		(22,026	)		(26,137	)
Net loss	$	(127,906	)	$	(241,565	)
Loss before provision for income taxes		(149,624	)		(260,627	)		(277,530	)		(502,192	)
Net loss per share – basic and diluted	$	0.00		$	0.00
Provision for income taxes		(2,400	)		-			(2,400	)
Weighted average number of common shares outstanding – basic and diluted		168,511,580			146,989,918
Net loss	$	(152,024	)	$	(260,627	)	$	(279,930	)	$	(502,192	)
Net loss per share – basic and diluted	$	0.00		$	0.00		$	0.00		$	(0.01	)
Weighted average number of common shares outstanding – basic and diluted		168,574,080			165,407,413			168,849,080			157,076,499

See Accompanying Notes to Condensed Consolidated Financial Statements.

F-2

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Common Stock				Additional Paid in		Common Stock		Accumulated			Total Stockholders’
					Additional		Common					Total
	Common Stock				Paid in		Stock		Accumulated			Stockholders’
	Shares		Amount		Capital		Issuable		Deficit			Deficit
Balance December 30, 2018		168,424,080	$	168,424	$	10,458,959	$	293,535	$	(12,923,019	)	$	(2,002,101	)
Shares issued for employees compensation		50,000		50		300							350
Shares issued for professional services		~~300~~450,000		~~300~~450		14,~~800~~200							24,~~100~~650
Warrants granted						62,995							62,995
Fair value of warrants issued to officers						118,990							118,990
Net loss										(~~127~~279,~~906~~930	)		(~~127~~279,~~906~~930	)
Balance March 31, 2019		168,774,080	$	168,774	$	10,524,054	$	293,535	$	(13,050,925	)	$	(2,064,562	)
Balance June 30, 2019		168,924,080	$	168,924	$	10,582,449	$	293,535	$	(13,202,949	)	$	(2,158,041	)

The following is the ~~same~~ schedule for period ended ~~April~~July 1 ,2018.

					Additional		Common					Total
	Common Stock				Paid in		Stock		Accumulated			Stockholders'’
	Shares		Amount		Capital		Issuable		Deficit			Deficit
Balance December 31, 2017		145,602,251	$	145,602	$	9,874,936	$	293,535	$	(12,231,650	)	$	(1,917,577	)
Shares issued for cash		19,791,829		19,792		573,963							593,755
Shares issued for employees compensation		200,000		200		4,400							4,600
Shares issued to settle accounts payable		1,000,000		1,000		35,000							36,000
Shares issued for professional services		~~530~~590,000		~~530~~590		1011,~~550~~540							1112,~~080~~130
Net Loss										(241,565	)		(241,565	)
Net loss										(502,192	)		(502,192	)
Balance April 1, 2018		147,332,251	$	147,332	$	9,924,886	$	293,535	$	(12,473,215	)	$	(2,107,462	)
Balance July 1, 2018		167,184,080	$	167,184	$	10,499,839	$	293,535	$	(12,733,842	)	$	(1,773,284	)

The following schedules for thirteen weeks end June 30, 2019 and July 1, 2018.

					Additional		Common					Total
	Common Stock				Paid in		Stock		Accumulated			Stockholders’
	Shares		Amount		Capital		Issuable		Deficit			Deficit
Balance March 31, 2019		168,774,080	$	168,774	$	10,524,054	$	293,535	$	(13,050,925	)	$	(2,064,562	)

Shares issued for professional services		150,000		150		2,400							2,550
Fair value of warrants issued to officers						55,995							55,995
Net loss										(152,024	)		(152,024	)
Balance June 30, 2019		168,924,080	$	168,924	$	10,582,449	$	293,535	$	(13,202,949	)	$	(2,158,041	)

					Additional		Common					Total
	Common Stock				Paid in		Stock		Accumulated			Stockholders’
	Shares		Amount		Capital		Issuable		Deficit			Deficit
Balance April 1, 2018		147,332,251	$	147,332	$	9,924,886	$	293,535	$	(12,473,215	)	$	(2,107,462	)
Shares issued for cash		19,791,829		19,792		573,963							593,755
Shares issued for professional services		60,000		60		990							1,050
Net loss										(260,627	)		(260,627	)
Balance July 1, 2018		167,184,080	$	167,184	$	10,499,839	$	293,535	$	(12,733,842	)	$	(1,773,284	)

See Accompanying Notes to Condensed Consolidated Financial Statements.

F-3

GIGGLES N’ HUGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Thirteen Weeks ended			Thirteen Weeks ended
	For Twenty-Six Weeks Ended			For Twenty-Six Weeks Ended
	March 31, 2019			April 1, 2018
	June 30, 2019			July 1, 2018
Cash flows from operating activities
Net loss	$	(~~127~~279,~~906~~930	)	$	(~~241~~502,~~565~~192	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		52101,~~247~~998			61120,~~635~~150
Stock-based compensation		350			4,600
Loss on stock issuance for payable settlement		-			1,000
Shares issued for services		24,~~100~~650			1112,~~080~~130
Amortization of deferred gain		(1734,~~196~~392	)		(1734,~~196~~392	)
Value of warrants issued for services		62,995			-
Fair value of warrants issued to officers		118,990			-
Changes in operating assets and liabilities:
Decrease in prepaid expenses and deposits		5,239			8,422
Decrease (increase) in prepaid expenses and deposits		3,340			(3,507	)
Decrease (increase) in inventory		511			(2,368	)
Decrease in inventory		423			2,294
Amortization of right of use asset		4689,~~283~~657			-
Increase in accounts payable		259			96,312
Increase (decrease) in accounts payable		55,806			(64,332	)
Decrease in lease incentive liability		-			(2449,~~514~~877	)
Decrease in accrued expenses		(9,227	)		97,678
(Increase) decrease in accrued expenses		71,118			(60,764	)
Increase in deferred revenue		2,961			8,189
(Decrease) increase in deferred revenue		(8,453	)		14,324
Decrease in lease liability		(47147,~~659~~179	)		-
Net cash provided by (used in) operating activities		(2923,~~043~~622	)		3(560,~~273~~566	)
NET INCREASE (DECREASE) IN CASH		(29,043	)		3,273
Cash flows from investing activities
Purchase of fixed assets		(2,992	)		-
Net cash used in investing activities		(2,992	)		-
Cash flows from financing activities
Proceeds from sale of common shares		-			593,755
Net cash provided by financing activities		-			593,755
NET DECREASE IN CASH		(26,614	)		33,189
CASH AT BEGINNING OF PERIOD		57,642			131,336
CASH AT END OF PERIOD	$	2831,~~599~~028		$	~~134~~164,~~609~~525
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Shares issued to settle accounts payable	$	-		$	36,000
Increase in right of use asset and lease liability upon adoption of ASC 842	$	1,462,835		$	-
Increase in right of use assent and lease liability upon adoption of ASC 842	$	1,462,835		$	-
Adjustment of leasee incentive and right of use asset upon adoption of ASC 842	$	550,839		$	-

See Accompanying Notes to Condensed Consolidated Financial Statements.

F-4

GIGGLES N’ HUGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the ~~Thirteen~~Twenty-Six Weeks ended ~~March~~June 3130, 2019 and ~~April~~July 1, 2018

(Unaudited)

NOTE 1 – HISTORY AND ORGANIZATION

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

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

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

NOTE 2 – BASIS OF PRESENTATION

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

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

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

F-5

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going ~~Concern~~concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, during the ~~thirteen~~twenty-six weeks ended ~~March~~June 3130, 2019, the Company incurred a net loss of of $~~127~~279,~~906~~930, used cash in operations of $2923,~~043~~622, and had a stockholders’ deficit of $2,~~064562~~158,041 as of that date. In addition, the note payable to the Company’s landlord was in default. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. In addition, the Company’s independent registered public accounting firm in its report on the December 30, 2018 financial statements has raised substantial doubt about the Company’s ability to continue as a going concern within one year from the date that the financial statements are issued. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company had cash on hand in the amount of $2831,~~599~~028 as of ~~March~~June 3130, 2019. Management estimates that the current funds on hand will be sufficient to continue operations through ~~July~~September 3130, 2019. Management is currently seeking additional funds, primarily through the issuance of debt and equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company can obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.

Principles of ~~Consolidation~~consolidation

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

Use of ~~Estimates~~estimates

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

F-6

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue

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

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

Leases

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

Loss per ~~Common~~common ~~Share~~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 ~~March~~June 3130, 2019, the assumed conversion of convertible notes payable and the exercise of 52,964,917 stock warrants, and 115,000 options to acquire shares of common stock are anti-dilutive due to the Company’s net losses and are excluded in determining diluted loss per share.

F-7

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-based ~~Compensation~~compensation

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

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

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

Recent Accounting Standards

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

F-8

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:

	March 31, 2019			December 30, 2018
	June 30, 2019			December 30, 2018
Leasehold improvements	$	1,889,027		$	1,889,027
Fixtures and equipment		60,310			60,310
Computer software and equipment		~~267~~270,~~372~~364			267,372
Property and equipment, total		2,~~216~~219,~~709~~701			2,216,709
Less: accumulated depreciation		(1,~~761~~810,~~112~~863	)		(1,708,865	)
Property and equipment, net	$	~~455~~408,~~597~~838		$	507,844

Depreciation and amortization expense for the thirteen weeks and twenty-six weeks ended ~~March~~June 3130, 2019 were $49,751 and ~~April~~$101,998, respectively, and for the thirteen weeks and twenty-six weeks ended July 1, 2018 ~~was~~were $5258,~~247~~516 and $61120,~~635~~150, respectively. Repair and maintenance expense for the thirteen weeks and twenty-six weeks ended ~~March~~June 3130, 2019 were $12,712 and ~~April~~$25,818, respectively, and for thirteen weeks and twenty-six weeks ended July 1, 2018 were $1214,~~551~~959 and $1530,~~560~~518, respectively.

Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. For the periods ended ~~March~~June 3130, 2019 and December 30, 2018, there were no indications of further impairment based on management’s assessment of these assets.

F-9

NOTE 5 – NOTE PAYABLE FROM LESSOR – In Default

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

On August 12, 2016 the Company entered into a third amendment on its lease at The Glendale Galleria. The amendment covered several areas, including adjustment to percentage rent payable, reduced the minimum rent payable, along with the payment and principal of Promissory Note. The Promissory Note was adjusted to a balance due of $763,261 from $683,316, with no interest, payable in equal monthly instalments of $5,300 through maturity of Note on May 31, 2028. The Company imputed interest using a discount rate of 10% to determine a fair value of the note of $443,521. As of ~~March~~June 3130, 2019, and December 30, 2018 the balance of note payable net of unamortized note discount was $420,881 and $420,881 respectively.

The lender under the Note is GGP Limited Partnership (GGP). GGP is an affiliate of Glendale II Mall Associates, the lessor of the Company’s Glendale Mall restaurant location. In accordance with the note agreement, an event of default would occur if the Borrower defaults under the lease between the Company and Glendale II Mall Associates. Upon the occurrence of an event of default, the entire balance of the Note payable and accrued interest would become due and payable, and the balance due becomes subject to a default interest rate (which is 5% higher than the defined interest rate). As of ~~March~~June 3130, 2019, the Company was delinquent in its payments to GGP under the note, and as such, the Note has been reflected as currently due and disclosed as in default.

F-10

NOTE 6 – CONVERTIBLE NOTE PAYABLE

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

F-11

NOTE 7 – COMMON STOCK

Issuance of Common Stock

During the ~~thirteen~~twenty-six weeks ended ~~March~~June 3130, 2019, the Company granted and issued ~~300~~450,000 shares of restricted common stock with a fair value of $24,~~100~~650 ~~to a consultant~~ for services.

During the ~~thirteen~~twenty-six weeks ended ~~March~~June 3130, 2019, the Company issued 50,000 shares of common stock at fair value of $350 tofor an employee ~~for services~~.

Employee Stock Options

The following table summarizes the changes in the options outstanding at ~~March~~June 3130, 2019, and the related prices for the shares of of the Company’s common stock issued to employees of the Company under a non-qualified employee stock option plan.

			Weighted Average
	Stock		Weighted Average
	Options		Exercise Price
Outstanding, December 30, 2018		115,000	$	0.37
Outstanding, December 31, 2017		115,000	$	4.50
Granted		—-		—-
Exercised		—-		—-
Expired/Cancelled		—		—
Outstanding, April 1, 2018		115,000	$	4.50
Outstanding, March 31, 2019		115,000	$	0.37
Exercisable, April 1, 2018		115,000	$	4.50
Exercisable, March 31, 2019		115,000	$	0.37

As of ~~March~~June 3130, 2019, the stock options had no intrinsic value.

There were no options granted during the fiscal quarter ended ~~March~~June 3130, 2019, and there was no stock-based compensation expense in connection with options granted to employees.

F-12

NOTE 8 – COMMON STOCK (CONTINUED)

Warrants

On January 1, 2019, the Company entered into employee agreements with three individuals. In accordance with the agreements, the employees are to receive warrants of 32,997,000 at an exercise price of $0.0001. ~~A total of 1,000,000 warrants vested immediately and the others that vest over the reminder of the year.~~ The Company calculated the fair value of the warrants to be $230,979 based on the ~~fair~~stock ~~value~~price at the date of grant. During the period ended ~~March~~June 3130, 2019, the Company amortized $62118,~~995~~ 990 of this amount as an expense which is included in general and administrative costs on the accompanying statement of operations. As of ~~March~~June 3130, 2019 the remaining unamortized balance was $~~167~~111,~~984~~990 which will be amortized over the remainder of the year.

The following table summarizes the changes in the warrants outstanding at ~~March~~June 3130, 2019, and the related prices.

A summary of the Company’s warrants as of ~~March~~June 3130, 2019 is presented below:

			Weighted
			Average
			Exercise
	Warrants		Price
Outstanding, December 30, 2018		19,967,917	$	0.07
Granted		32,997,000		0.007
Exercised		-		-
Outstanding, March 31, 2019		52,964,917	$	0.04
Outstanding, June 30, 2019		52,964,917	$	0.03
Exercisable, March 31, 2019		52,964,917	$	0.04
Exercise, June 30, 2019		52,964,917	$	0.03

					Weighted
			Weighted		Average				Weighted
Range of			Average		Remaining				Average
Exercise	Number		Exercise		Contractual		Number		Exercise
Prices	Outstanding		Price		Life		Exercisable		Price
$0.01 ~ $0.37		19,967,917	$	0.0403		2.0308		19,967,917	$	0.72
		32,997,000		0.0001		109.0050		32,997,000		0.0001
		52,964,917				1211.0358		52,964,917

The intrinsic value of the warrants outstanding as of ~~March~~June 3130, 2019 was $167,000.

F-13

NOTE 9 – LEASES

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

On August 12, 2016, the Company entered into a third amendment on its lease at The Glendale Galleria. The amendment covered ~~several~~ several areas, including adjustment to percentage rent payable, reduced the minimum rent payable and payment and principal of the Promissory Note payable to GGP. The Promissory Note was adjusted to a balance due of $763,262 from $683,316, with zero percent interest, payable in equal monthly instalments of $5,300 through maturity of Note on May 31, 2028, creating a gain on extinguishment of of the old note of $220,~~686.~~68 (see Note 5). The change in the payment terms of the lease caused a change in the previously calculated deferred rent of $69,614. For reporting purposes, the Company determined that since the GGP Promissory Note and the related revision of the lease were agreed to at the same time, that the change in the lease payment terms and the reduced rent, and the issuance of the new note are directly related. In addition, past due rent of $164,987 was forgiven. As such the gain on the termination of the note of $220,686, the adjustment to the deferred rent in the aggregate amount of $69,614, and the forgiveness of past due rent of $164,987, resulting in an aggregate gain of $455,287 had been deferred, and is being amortized on the straight-line basis over the remaining life of the lease as an adjustment to rent expense. The balance of the deferred gain was $~~315~~298,~~282~~086 as of ~~March~~June 3130, 2019.

During the period ended ~~March~~June 3130, 2019, $1734,~~197~~394 of deferred gain was amortized and offset to rent expense, resulting in a remaining deferred gain balance of $~~315~~298,~~282~~086 as of ~~March~~June 3130, 2019 which will be amortized as an offset to rent expense over the remainder of the lease.

F-14

NOTE 9 – LEASES (CONTINUED)

Lease Obligations

The Company has operating lease agreements for Topanga and Glendale and with remaining lease terms of 3.8 years and 4.42 years, respectively. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate ~~determined to be 10%,~~ in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and lease incentives were removed. The balance of the right of use asset at ~~March~~June 3130, 2019 was $~~865~~822,~~713~~339, net of accumulated amortization of $4351,~~929~~593.

The following is related to leases for the period:

	At March 31, 2019
	At June 30, 2019
Operating Leases
Long-term right-of-use assets, net	$	~~865~~822,~~713~~339
Short-term operating lease liabilities	$	~~316~~328,~~057~~018
Long-term operating lease liabilities		1987,~~099,119~~638
Total operating lease liabilities	$	1,~~415~~315,~~176~~656

The Company’s total lease payment is as follows:

2019		~~328~~219,~~889~~796
2020		452,956
2021		469,398
2022		279,077
2023		151,172
Total lease payments		1,~~681~~572,~~491~~398
Less: note discount		(~~266~~256,~~315~~742	)
Present value of lease liabilities	$	1,~~415~~315,~~176~~656

F-15

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Employment Agreements

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

The employment agreement also contains covenants prohibiting Mr. Richards from competing with us during his employment, and from (i) competing with us in California and in any other states where we provide management services relating to our business, (ii) soliciting any of our employees or consultants and (iii) disparaging the Company or any of our officers, directors, employees or agents for a period of two years after his employment ends. The employment agreement also contains customary confidentiality provisions. The employment agreement may be terminated by either party for any reason at any time.

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

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

The employment agreement also contains covenants prohibiting Mr. Parsi from disparaging the Company or any of our officers, directors, employees or agents for a period of two years after his employment ends. The employment agreement also contains customary confidentiality provisions.

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

The employment agreement with Mr. Gay also contains customary confidentiality provisions and may be terminated by either party for any reason at any time.

Litigation

As of ~~March~~June 3130, 2019, there was no material outstanding litigation.

NOTE 11 – SUBSEQUENT EVENTS

On ~~April~~July 1718, 2019, the Company issued 150,000 common stock for services, with a fair value of $21,~~550~~200.

F-16

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 31^st for financial reporting purposes. For the years 2018 and 2019 consists of a year ending December 30, 2018 and December 29, 2019.

Overview

Giggles N’ Hugs is a unique restaurant concept that brings together high-end, organic food with the play elements and entertainment ~~for~~ 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.

RESULTS OF OPERATIONS

Results of Operations for the Thirteen Weeks Ended ~~March~~June 3130, 2019 and ~~April~~July 1, 2018:

COSTS AND OPERATING EXPENSES

	For Thirteen Weeks Ended			For Thirteen Weeks Ended			Increase (Decrease)
	March 31, 2019			April 1, 2018			$			%
	June 30, 2019			July 1, 2018			$			%
Revenue:
Net sales	$	~~699~~554,~~226~~062		$	~~613~~579,~~363~~937		$	85(25,~~863~~875	)		14-4.05	%
Costs and operating expenses:
Cost of operations		~~495~~408,~~662~~628			~~499~~466,~~677~~786			(458,~~015~~158	)		-012.85	%
General and administrative expenses		~~268~~233,~~786~~717			~~278~~303,~~227~~515			(969,~~441~~798	)		-323.40	%
Depreciation and amortization		5249,~~247~~751			6158,~~634~~516			(98,~~387~~765	)		-15.20	%
Total operating expenses		~~816~~692,~~695~~096			~~839~~828,~~538~~817			(22136,~~843~~721	)		-216.75	%
Loss from Operations		(~~117~~138,~~469~~034	)		(~~226~~248,~~175~~880	)		~~108~~110,~~706~~846			-4844.15	%
Other expenses:
Loss on settlement with stock		-			(1,000	)		1,000				*
Finance and interest expenses		(11,590	)		(11,747	)		157			-1.3	%
Finance and interest expenses		(10,437	)		(14,390	)		3,953			-27.5	%
Loss before provision for income taxes liability		(149,624	)		(260,627	)		111,003			-42.6	%
Net Loss	$	(127,906	)	$	(241,565	)	$	113,659			-47.1	%
Provision for income taxes		(2,400	)		-			(2,400	)		*
Net Loss	$	(152,024	)	$	(260,627	)	$	108,603			-41.7	%

Notes to Costs and Operating Expenses Table:

Net sales. Net sales for the thirteen weeks ended ~~March~~June 3130, 2019 and ~~April~~July 1, 2018 were $~~699~~554,~~226~~062 and $~~613~~579,~~363~~937 respectively. The ~~RECORD~~decrease ~~increase~~ of $8525,~~863~~875 (144.5%) was mostly attributable to ~~the~~reduced ~~rainy~~food ~~winter we experienced this year, validating our belief that if we operated in markets with more extreme weather, we will be able to achieve significantly higher~~ sales ~~compared~~and toplay ~~prior~~area ~~results~~fees.

Cost of operations. Costs of operations consist of cost of goods sold, restaurant utilities, supplies, administrative and other operating expenses, labor cost, and occupancy cost. For the thirteen weeks ended ~~March~~June 3130, 2019 and ~~April~~July 1, 2018, cost of operations were $~~495~~408,~~662~~628 and $~~499~~466,~~677~~786, respectively. The decrease of $458,~~015~~158 was mainly attributable to the reduced food ~~cost~~costs, restaurant supplies and new lease accounting standards that amortization of tenant allowance netted to the rent expenses.

General and administrative expenses. General and administrative expenses for the thirteen weeks ended ~~March~~June 3130, 2019 and ~~April~~July 1, ~~2018~~ 2018 were $~~268~~233,~~786~~718 and $~~278~~303,~~227~~515, respectively. This decrease of $969,~~441~~797 was mainly attributable to reduced legal fees, ~~non-employees stock compensations,~~ and CEO salary, to offset increased stock-based employee compensation which included $6355,~~345~~995 fair value of warrants granted during the current period.

Depreciation and amortization. Depreciation and amortization were $5249,~~247~~751 and $6158,~~634~~516 for the thirteen weeks ended ~~March~~June 3130, 2019 and ~~April~~July 1, 2018, respectively. The decrease was due to some assets that have been fully depreciated.

Finance and interest expense. The total finance and interest expenses of $1011,~~437~~590 for the thirteen weeks ended ~~March~~June 3130, 2019 ~~decreased~~virtually byhas ~~$3,953,~~no ~~from~~change ~~the~~compared ~~$14,390~~to ~~for~~ the ~~thirteen~~prior ~~weeks~~year ~~ended~~at ~~April~~the ~~1, 2018, and was mainly due to termination of American Express loan~~quarter.

Net Loss. The overall net losses of $~~127~~152,~~906~~024 and $~~241~~260,~~565~~627 for the thirteen weeks ended ~~March~~June 3130, 2019 and ~~April~~July 1, 2018, respectively, reflects a decrease of $~~113~~108,~~659~~602 was mostly attributable to ~~increased revenue and~~ decreased operating expenses.

Results of Operations for the Twenty-Six Weeks Ended June 30, 2018 and July 1, 2018:

COSTS AND OPERATING EXPENSES

	For Twenty-Six Weeks Ended			For Twenty-Six Weeks Ended			Increase (Decrease)
	June 30, 2019			July 1, 2018			$			%
Revenue:
Net sales	$	1,253,288		$	1,193,300			59,988.00			5.0	%

Costs and operating expenses:
Cost of operations		904,290			966,463			(62,173	)		-6.4	%
General and administrative expenses		502,504			581,742			(79,238	)		-13.6	%
Depreciation and amortization		101,998			120,150			(18,152	)		-15.1	%
Total operating expenses		1,508,792			1,668,355			(159,563	)		-9.6	%

Loss from Operations		(255,504	)		(475,055	)		219,551			-46.2	%

Other income (expenses):
Finance and interest expenses		(22,026	)		(26,137	)		4,111			-15.7	%
Loss on settlement		-			(1,000	)		1,000			*
Loss before provision for income taxes		(277,530	)		(502,192	)		224,662			-44.7	%
Provision for income taxes		(2,400	)		-			(2,400	)		*

Net loss	$	(279,930	)	$	(502,192	)	$	222,262			-44.3	%

Notes to Costs and Operating Expenses Table:

The net sales for the twenty-six weeks ended June 30, 2019 and July 1, 2018 were $1,253,288 and $1,193,300, respectively. The 5% increase was mostly attributable to the rainy winter we experienced during the first quarter.

Cost of operations. Costs of operations consist of cost of goods sold, restaurant utilities, supplies, administrative and other operating expenses, labor cost, and occupancy cost. For the twenty-six weeks ended June 30, 2019 and July 1, 2018, cost of operations were $904,290 and $966,463, respectively. The decrease of $62,173 (6.4%) was mostly attributable to reduced food costs, labor cost, and implementing the new lease accounting standards that amortization of tenant allowance netted to the rent expenses.

General and administrative expenses. General and administrative expenses for the twenty-six weeks ended June 30, 2019 and July 1, 2018 were $502,504 and $581,742, respectively. The reduction of $79,238 (13.6%) was mostly due to reduced legal fee, professional fee, and CEO salary, to offset increase stock-based compensation.

Depreciation and amortization. The depreciation and amortization were $18,152 less than the same period in the previous year. The decrease was due to some assets have been completed depreciated.

Finance and interest expense. The total finance and operating expenses of $22,026 and $26,137 for the twenty-six weeks ended June 30, 2019 and July 1, 2018, respectively. The decrease of $4,111 mostly attributable to eliminated American Express loan.

Net Loss. The overall net losses of $279,930 and $502,192 for the twenty-sis weeks ended June 30, 2019 and July 1, 2018, respectively, reflects a decrease of $44.3% was mostly attributable to increased revenue and decreased operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

As of ~~March~~June 3130, 2019, the Company has $2831,~~599~~028 in cash and cash equivalents, $23,~~349~~437 in inventory, and $1719,~~219~~118 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 ~~March~~June 3130, 2019 and ~~April~~July 1, 2018:

	For Thirteen Weeks Ended			For Three Months Ended
	For Twenty-Six Weeks Eneded			For Twenty-Six Weeks Eneded
	March 31, 2019			April 1, 2018
	June 30, 2019			July 1, 2018
Net cash provided by (used in) operating activities	$	(2923,~~043~~622	)	$	3(560,~~273~~566	)
Net increase (decrease) in Cash		(29,043	)		3,273
Net cash used in investing activities		(2,992	)		-
Net cash provided by financing activities		-			593,755
Net (decrease) increae in Cash		(26,614	)		33,189
Cash, beginning of period		57,642			131,336
Cash, end of period	$	2831,~~599~~028		$	~~134~~164,~~609~~525

Operating activities

Net cash used in operating activities was $2923,~~043~~622 for the ~~thirteen~~twenty-six weeks ended ~~March~~June 3130, 2019 compared to $3560,~~273~~566 provide in operating activities for the thirteen weeks ended ~~April~~July 1, 2018. This significant ~~change~~increase of cash used is mostly attributable to decreased liabilities.

Investing activities

~~There~~Net ~~were~~cash noused in investing activities was $2,992 and zero, respectively, for ~~both~~the ~~periods~~twenty-six weeks ended ~~March~~June 3130, 2019 and ~~April~~July 1, 2018.,

Financing activities

~~There~~Net ~~were~~cash noprovided by financing activities for ~~both~~the ~~periods~~twenty-six weeks ended ~~March~~June 3130, 2019 and ~~April~~July 1, 2018 was zero and $593,755, respectively.

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

Going Concern and Liquidity

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, during the ~~thirteen~~period ~~weeks~~ ended ~~March~~June 3130, 2019, the Company incurred a net loss of $~~127~~279,~~906~~930, and $2923,~~043~~622 of cash used in operations, and had a stockholders’ deficit of $2,~~064~~158,~~562~~041 as of that date. In addition, the note payable to the Company’s landlord was in default. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date that the financial statements are issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The Company’s independent registered public accounting firm in its report on the December 30, 2018 financial statements has raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

At ~~March~~June 3130, 2019, the Company had cash on hand in the amount of $2831,~~599~~028. Management estimates that the current funds on hand would be sufficient to continue operations through ~~July~~September 2019. Management is currently seeking additional funds through sponsorships and promotions to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.

Notes Payable – in default

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

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

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

Convertible Notes Payable

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

Recent Accounting Pronouncements

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

Critical Accounting Policies

Use of Estimates

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

Long-Lived Assets

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

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

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.

910

Item 3. Quantitative and Qualitative Disclosure about Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

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

Limitations on Effectiveness of Controls and Procedures

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

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PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings.

As of ~~March~~June 3130, 2019, there was no material outstanding litigation.

ITEM 1A. Risk Factors

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

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

None.

Issuer Purchases of Equity Securities

None.

ITEM 3. Defaults Upon Senior Securities.

None.

ITEM 4. Mine Safety Disclosures.

Not applicable.

ITEM 5. Other Information.

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ITEM 6. Exhibits.

Exhibit No.		Description
31.1*		Certification of Principal Executive Officer & Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certifications of Principal Executive Officer & Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase

101.DEF**		XBRL Taxonomy Extension Definition Linkbase

101.LAB**		XBRL Taxonomy Extension Label Linkbase

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase

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

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SIGNATURE

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

	GIGGLES N’ HUGS, INC.
Date May 20, 2019	By:	/s/ Joey Parsi
Date August 14, 2019	By:	/s/ Joey Parsi
		Joey Parsi
		Chief Executive Officer
		(Principal Executive Officer and duly authorized signatory)
	~~By:~~	~~/s/ Philip Gay~~By:	/s/ Philip Gay
		~~Philip Gay~~	Philip Gay
		~~Co- Chief Executive Officer~~	Co- Chief Executive Officer
		~~(Co-Principal Executive Officer; Co-Principal Financial Officer )~~	(Co-Principal Executive Officer; Co-Principal Financial Officer )

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Filing Compare · Giggles N' Hugs, Inc.