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HIP CUISINE INC (HLTY)
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HIP CUISINE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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05/03/2018 | 12:40am CEST

The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of such financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates, including those related to useful lives of real estate assets, bad debts, impairment, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates. The analysis set forth below is provided pursuant to applicable SEC regulations and is not intended to serve as a basis for projections of future events. See "Cautionary Statement Regarding Forward Looking Statements" above.

Liquidity and Results of Operations


Results of Operations


For the three months ended March 31, 2018 compared to the three months ended March 31, 2017

The following table summarizes our results of operations for the three months ended March 31, 2108, and March 31, 2017:


                                   Three Months Ended
                                        March 31,
Statement of Operations Data:      2018           2017         Changes

Revenue                         $  149,395     $  127,737     $  21,658
Cost of Goods Sold                  75,383         91,932       (16,549 )
Gross Profit                        74,012         35,805        38,207
Operating Expenses                 478,328        432,199        46,129
Loss From Operations              (404,316 )     (396,394 )      (7,922 )
Other Expenses                     (21,988 )     (265,121 )     243,133
Net Loss                        $ (426,304 )   $ (661,515 )   $ 235,211



For the three months ended March 31, 2018, we earned revenue of $149,395 compared to $127,737 for the three months ended March 31, 2017. Cost of goods sold for the three months ended March 31, 2018 were $75,383 resulting in a gross profit of $74,012, compared to cost of goods sold of $91,932 and gross profit $35,805 from the three months ended March 31, 2017 due to growth and expansion of the business to new restaurants locations.



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Operating expenses were $478,328 for the three months ended March 31, 2018, compared to $432,199 for the three months ended March 31, 2017, due to additional costs related to the completion and opening of our restaurant and costs associated with ongoing regulatory expenses.


                                  Three Months Ended
                                       March 31,
Operating Expenses:               2018          2017         Changes

Depreciation and amortization   $  50,504     $  21,680     $  28,824
General and administrative        136,569       114,727        21,842
Professional fees                  31,593        40,480        (8,887 )
Salaries and wages                 74,992        13,312        61,680
Stock based compensation          184,670       242,000       (57,330 )
Total operating expenses        $ 478,328     $ 432,199     $  46,129



Operating expenses for the three months ended March 31, 2018 were comprised of $50,504 for depreciation and amortization, $136,569 for general and administrative, $31,593 for professional fees, $74,992 for salaries and wages and $184,670 for stock based compensation. Operating expenses for the three months ended March 31, 2017 were comprised of $21,680 for depreciation, $114,727 for general and administrative, $40,480 for professional fees, $13,312 for salaries and wages and $242,000 for stock based compensation.

Depreciation was $50,504 for the three months ended March 31, 2018, which increased by $28,824 from $21,680 for the three months ended March 31, 2017.

General and Administrative expenses were $136,569 for the three months ended March 31, 2018, which increased by $21,842 from $114,727 for the three months ended March 31, 2017, attributed to increase in rental expenses and other general administrative expenses for additional restaurant locations.

Professional fees were $31,593 for the three months ended March 31, 2018, decreased by $8,887 from $40,480 for the three months ended March 31, 2017.

Salaries and wages were $74,992 for the three months ended March 31, 2018, increased by $61,680 from $13,312 for the three months ended March 31, 2017, as the Company hired more restaurant staffs to support operational expansion.

Stock based compensation $184,670 was incurred for the three months ended March 31, 2018 compared to $242,000 for the three months ended March 31, 2017 , relates to the issuance of common shares for consulting services to support the expansion of the new restaurant locations.



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Liquidity and Capital Resources



The following tables present selected financial information on our capital as of
March 31, 2018 and December 31, 2017 and our cash flows as of March 31, 2018 and
March 31, 2017:



                               March 31,       December 31,
Capital Data                      2018             2017           Changes

Cash and Cash Equivalents      $  116,628     $       87,102     $  29,526
Current Assets                 $  203,259     $      159,175     $  44,084
Current Liabilities            $  497,411     $      435,942     $  61,469
Working Capital (Deficiency)   $ (294,152 )   $     (276,767 )   $ (17,385 )




                                                 Three Months Ended
                                                      March 31,
Cash Flow Data:                                  2018           2017         Changes

Cash Flows used in Operating Activities $ (166,723 ) $ (110,968 ) $ (55,755 ) Cash Flows used in Investing Activities

                -       (258,240 )      258,240

Cash Flows provided by Financing Activities 196,249 554,668 (358,419 ) Net increase in Cash During Period

            $   29,526     $  185,460     $ (155,934 )




As of March 31, 2018 and December 31, 2017 our cash was $116,628 and $87,102, respectively. The increase in cash for the three months ended March 31, 2018 was mainly attributed to increase in revenue and proceeds from issuance of convertible notes of $212,500 during the three months ended March 31 2018.

As of March 31, 2018, we experienced a decrease in our working capital of $17,385. The decrease in working capital during the three months ended March 31, 2018 was primarily from increase in current liabilities mainly due to increase in convertible notes payable and advances from shareholders.


Cash Flows


We fund our operations with cash generated from restaurant sales revenue, capital contributions, and issuances of common stock.



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Operating Activities


For the three months ended March 31, 2018, net cash used in operating activities was $166,723, related to our net loss of $426,304 reduced by depreciation and amortization of $50,504, stock based compensation of $184,670, amortization on note discount $17,356, an increase of $17,482 in accounts payable, an increase in sales tax payable of $3,492, an increase of $3,300 in accrued interest and an increase in prepaid expenses.

For the three months ended March 31, 2017, net cash used in operating activities was $110,968, related to our net loss of $661,515 reduced by depreciation of $21,680, loss on debt settlement of $266,250, stock based compensation of $242,000, a decrease in refundable sales taxes of $14,029, an increase in prepaid expenses of $8,523, an increase in checks drawn in excess of bank balance of $21,198, an increase of $39,425 in accounts payable and a decrease of $34,500 in accrued interest.

The increase of net cash used in operating cash flow was primarily due to an increase in cash used for operating activities to support business expansion.


Investing Activities


For the three months ended March 31, 2018, net cash used in investing activities was $0 compared to net cash used of $258,240 during the three months ended March 31, 2017. During the three months ended March 31, 2017, net cash used in investing activities was primarily related to $245,332 of costs for the acquisition of building and equipment for the Company's restaurants.


Financing Activities


Net cash provided by financing activities was $196,249 for the three months ended March 31, 2018 mainly attributed to cash proceeds from issuance of convertible notes for $212,500 and advances from related party for $16,000. The Company has also repaid shareholders loans at $30,164 and bank loans at $2,087.

Net cash provided by financing activities was $554,668 for the three months ended March 31, 2017 mainly attributed to cash proceeds from issuance of common shares for $750,000 from the Company second public offering. The Company has also repaid notes payable at $127,500, bank loans at $2,225 and shareholders loans at $65,607.



Material Commitments



The following is a schedule by years of minimum future rentals on leases as of March 31, 2018:

Nine Months Ending December 31:

             2018                 $   233,751
Year Ending December 31:
             2019                     314,543
             2020                     241,674
Thereafter                            322,064
Total minimum future rentals      $ 1,112,032




Going Concern.


The accompanying condensed consolidated financial statements have been prepared assuming that the company will continue as a going concern which contemplates, amongst other things, the realization of assets and satisfaction of liabilities in the course of business.



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We anticipate that our future liquidity requirements will arise from the need to fund our growth, pay our current obligations and future capital expenditures. The primary sources of funding for such requirements are expected to be cash generated from operations and raising additional funds from private sources and/or debt financing.

Our independent auditors included an explanatory paragraph in their report on the accompanying financial statements expressing concerns about our ability to continue as a going concern. Our condensed consolidated financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.


Critical Accounting Policies


The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures about contingent assets and liabilities. We base these estimates and assumptions on historical experience and on various other information and assumptions that are believed to be reasonable under the circumstance. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as additional information is obtained, as more experience is acquired, as our operating environment changes and as new events occur. Our critical accounting policies are listed in the notes to our unaudited condensed consolidated financial statements.


Future Financings.


We will continue to rely on equity sales of the Company's Common Stock in order to continue to fund business operations. Issuances of additional shares will result in dilution to existing shareholders. There is no assurance that the Company will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned operations

Recently Issued Accounting Pronouncements.

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued but not yet adopted that might have a material impact on its financial position or results of operations.

Off-Balance Sheet Arrangements.

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

During the period covered by this report, the Company has had no changes in or disagreements with its accountants.

Basic loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shares in the loss of the entity. As of March 31, 2018 and March, 2017, there are no outstanding dilutive securities.

For the three months ended March 31, 2018 and 2017, there were 300,000 and 0 shares of stock warrants issued in conjunction with convertible notes were dilutive instruments and were not included in the calculation of diluted loss per share as their effect would be antidilutive.



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© Edgar Online, source Glimpses

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Natalia A. Lopera President, Chief Executive Officer & Director
Doug Samuelson CFO & Principal Accounting Officer
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