Management's Discussion and Analysis and Results of Operations
The following management's discussion and analysis ("MD&A") should be read in
conjunction with West Coast Ventures Group Corp. ("WCVC") financial statements
for the years ended December 31, 2018 and December 31, 2017, and the notes
thereto. Additional information relating to WCVC is available through its brand
website: www.illegalburger.com and www.westcoastventuresgroupcorp.com
Safe Harbor for Forward-Looking Statements
Certain statements included in this MD&A constitute forward-looking statements,
including those identified by the expressions anticipate, believe, plan,
estimate, expect, intend, and similar expressions to the extent they relate to
NRG or its management. These forward-looking statements are not facts, promises
or guarantees; rather, they reflect current expectations regarding future
results or events. These forward-looking statements are subject to risks and
uncertainties that could cause actual results, activities, performance or events
to differ materially from current expectations. These include risks related to
revenue growth, operating results, industry, products and litigation, as well as
the matters discussed in WCVC MD&A under Risk Factors. Readers should not place
undue reliance on any such forward-looking statements. WCVC disclaims any
obligation to publicly update or to revise any such statements to reflect any
change in the Company's expectations or in events, conditions, or circumstances
on which any such statements may be based, or that may affect the likelihood
that actual results will differ from those set forth in the forward-looking
statements.
Overview
West Coast Ventures Group Corp. ("our", "us", "we", "WCVC"or the "Company") was
originally incorporated as Energizer Tennis, Corp. on June 16, 2011 in the State
of Nevada. On October 4, 2017, effective for accounting purposes on June 30,
2017, WCVC entered into an agreement to acquire Nixon Restaurant Group, Inc. in
a transaction accounted for as a reverse acquisition.
Nixon Restaurant Group, Inc. ("us", "we" NRG or "our") was formed on October 12,
2015, under the laws of the State of Florida. On October 19, 2015, we issued 20
million shares of common stock to acquire 100% of the ownership interests in J&F
Restaurants, LLC, Illegal Burger, LLC and Illegal Burger Writer Square LLC,
Colorado Limited Liability Companies controlled by our founder, James Nixon. As
a result of the transaction, J&F Restaurants, LLC, Illegal Burger, LLC and
Illegal Burger Writer Square LLC became our wholly-owned subsidiaries.
·
We own and operate the following seven (7) restaurant locations:
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J&F Restaurants, LLC was formed in Colorado on March 12, 2011 and owns and
operates El Senor Sol, a casual Mexican restaurant located at 29017 Hotel Way,
Unit 103B Evergreen, Colorado 80439-8235 which opened in June 2011.
·
J&F Restaurants, LLC also owns and operates Illegal Burger, an upscale fast
casual restaurant located at 29017 Hotel Way, Unit 102B, Evergreen, Colorado
80439-8235 which opened in August 2013.
·
Illegal Burger, LLC was formed in Colorado on May 31, 2013 and owns and operates
Illegal Burger, an upscale fast food restaurant located at 15400 W 64th Avenue,
Unit E1A, Arvada Colorado 80007-6876which opened in January 2013,
·
Illegal Burger Writer Square LLC was formed in Colorado on April 19, 2015, and
owns and operates an Illegal Burger location at 1512 Larimer Street, Suite R,
Denver Colorado 80202-1690 which opened in January 2016, and
·
Illegal Burger Capital Hill, LLC was formed in Colorado on March 4, 2016 and
owns and operates an Illegal Burger location at 609 North Grant Street, Denver
Colorado 80202-3506 which opened in June 2016.
·
Illegal Burger CitiSet, LLC was formed in Colorado on June 21, 2018 and owns and
operates an Illegal Burger location at 652 South Colorado Boulevard, Unit A,
Denver Colorado 80246 which opened in October 2018.
·
Illegal Pizza Lauderhill, LLC was formed in Florida on February 5, 2019 and owns
and will operate our first Illegal Pizza location at 5401 N. University Dr.,
Lauderhill, FL 33351 which opened at the end of June 2019.
·
Illegal Burger Franchising, LLC was formed in Colorado on January 17, 2019 to be
the entity to sell franchises, filing and offering documents for such are being
prepared.
·
Illegal Brands, LLC was formed in Colorado on April 1, 2019 to be the entity to
sell CBD products which are currently under development.
·
Illegal Brands IP, LLC was formed in Colorado on April 9, 2019 to own all
registered trademarks for Illegal Burger, Illegal Pizza and Illegal Brands, and
as such will not have any operations.
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Each of our Illegal Burger and Illegal Pizza restaurants offers a full bar. Each
of our restaurants offers a full menu and alcoholic beverages including liquor.
Our Illegal Burger restaurants offer consumers a practical alternative to the
over- commercialized healthy dining craze by offering a variety of burgers made
with all never frozen, hormone-free beef, french fries, cheesy taters and adult
and virgin milk shares including Nutella, peanut butter, caramel, Oreo, vanilla,
chocolate and strawberry as well as a full bar. Our El Senor Sol restaurant
offers Mexican food and a full bar including tequila menu. Our new Illegal Pizza
concept offers consumers a practical alternative to the over-commercialized
healthy dining craze by offering a variety of pizzas made with all never frozen,
natural toppings.
Our principal executive office is located at 6610 Holman St, Suite 301, Arvada,
Colorado 80004. Our telephone number is (303) 423 1300. Our websites are:
www.illegalburger.com and www.illegalpizza.restaurant and www.illegalbrands.com
and www.westcoastventuresgroupcorp.com.
Three Months Ended September 30, 2019 Compared to the Three Months Ended
September 30, 2018
Revenue
For the three months ended September 30, 2019, revenue generated was $981,367,
as compared to $806,989 for the three months ended September 30, 2018. The year
over year increase of approximately 21.61% was mainly attributable to our
location in Glendale, CO which opened in October 2018 and Lauderhill, FL
location which opened the end of June 2019. The year over year same store sales
increase of approximately 16.78% was mainly attributable to expansion of our
marketing, especially in the downtown location and an increased emphasis on the
various on-line ordering and delivery platforms we employ.
Cost of Sales
Ongoing restaurant cost of sales, exclusive of depreciation, increased to
$1,003,454 from $648,620, or 55.71%. This increase was primarily due to an
active cost control program instituted during 2018 and increases related to
hiring managers at each location. Our ongoing restaurant cost of sales, as a
percentage of sales, was approximately 102.25% and 80.38% for the three months
ended September 30, 2019 and 2018, respectively.
Gross Profit
Our ongoing restaurant operations (operating loss) gross profit was ($22,087)
and $158,369 for the nine months ended September 30, 2019 and 2018,
respectively. Our ongoing restaurant (operating loss) gross profit, as a
percentage of sales, was approximately (2.25%) and 19.62% for the three months
ended September 30, 2019 and 2018, respectively.
Our ongoing restaurant gross profit, as a percentage of gross sales was slightly
lower in 2019 due to the current trend of high personnel cost in the industry
because of heavy competition for personnel from the construction and marijuana
industries in Denver; across the board increased prices in our foodstuffs, our
increased marketing costs and the start-up costs with our newest concept
location - Illegal Pizza Lauderhill. At the end of the first quarter 2018 we
raised our prices chain-wide to counteract the decrease in gross profit seen in
the first quarter.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30,
2019 were $392,672 compared to $281,893 for the three months ended September 30,
2018. The increase was the result principally due to share based compensation to
third parties.
Net Loss
Net loss for the three months ended September 30, 2019 was $1,072,744 compared
to a net loss of $486,470 for the three months ended September 30, 2018. This
increase in the loss was the result of many factors: high personnel cost in the
industry because of heavy competition for personnel from the construction and
marijuana industries in Denver; across the board increased prices in our
foodstuffs and our increased marketing costs; ongoing public company expenses,
interest expense and principally, derivative costs.
Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September
30, 2018
Revenue
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For the nine months ended September 30, 2019, revenue generated was $2,765,406,
as compared to $2,244,075 for the nine months ended September 30, 2018. The year
over year increase of approximately 23.23% was mainly attributable to a full
nine months of the CitiSet location operations and three months of the
Lauderhill location, expansion of our marketing, especially in the downtown
location and an increased emphasis on the various on-line ordering and delivery
platforms we employ.
Cost of Sales
Ongoing restaurant cost of sales, exclusive of depreciation increased to
$2,716,453 from $2,005,555, or 35.45%. This increase was primarily due to a full
nine months of the CitiSet location operations high personnel cost in the
industry because of heavy competition for personnel from the construction and
marijuana industries in Denver; across the board increased prices in our
foodstuffs and our increased marketing costs and hiring managers for all
locations. Our ongoing restaurant cost of sales, as a percentage of sales, was
approximately 98.23% and 89.37% for the nine months ended September 30, 2019 and
2018, respectively.
Gross Profit
Our ongoing restaurant operations gross profit was $48,953 and $238,520 for the
nine months ended September 30, 2019 and 2018, respectively. Our ongoing
restaurant gross profit, as a percentage of sales, was approximately 1.77% and
10.6% for the nine months ended September 30, 2019 and 2018, respectively.
Our ongoing restaurant gross profit, as a percentage of gross sales was lower in
2019 because of the current trend of high personnel cost in the industry because
of heavy competition for personnel from the construction and marijuana
industries in Denver; across the board increased prices in our foodstuffs and
our increased marketing costs. At the end of the first quarter 2018 we raised
our prices chain-wide to counteract the decrease in gross profit seen in the
first quarter.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2019
were $1,291,913 compared to $834,174 for the nine months ended September 30,
2018. The increase was the result principally due to share based compensation to
third parties.
Net Loss
Net loss for the nine months ended September 30, 2019 was $3,380,739 compared to
a net loss of $2,123,553 for the nine months ended September 30, 2018. This
increase in the loss was the result of many factors: high personnel cost in the
industry because of heavy competition for personnel from the construction and
marijuana industries in Denver; across the board increased prices in our
foodstuffs and our increased marketing costs; ongoing public company expenses
and principally, derivative costs.
Liquidity and Capital Resources
Cash Flow Activities
Cash was $78,020 at September 30, 2018 and $9,635 at December 31, 2018.
Financing Activities
During the nine months ended September 30, 2019, we received proceeds of
$1,858,000 from issuance of convertible notes and repaid $1,077,348 of
convertible debt; $275,000 from the issuance of third party debt and repaid
$223,296 of third party debt and received $30,866 and repaid $164,363 of our
officer loan; $120,423 from the sale of shares of common stock and $310,000 for
shares of common stock to be issued. During the nine months ended September 30,
2018, we received proceeds of $348,000 from issuance of convertible notes;
$181,998 from third party debt and repaid $109,031 of third party debt, $49,000
for common shares to be issued, $27,220 for the sale of common shares, expended
$34,000 to repurchase shares under a settlement agreement, $12,296 from and
repaid $9,980 of our officer loan and $79,968 from a bank overdraft.
Critical Accounting Policies and Estimates
We consider our critical accounting policies to be those that require the more
significant judgments and estimates in the
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preparation of financial statements, including the following:
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 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. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, trade
receivables, prepaid expenses, payables, accrued expenses and notes payable.
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. We consider the
carrying values of our financial instruments in the condensed consolidated
financial statements to approximate fair value, due to their short-term nature.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation is provided for using straight-line methods over the estimated
useful lives of the respective assets, usually three to seven years.
Valuation of Long-Lived Assets
We periodically evaluate long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. If the estimated future cash flows (undiscounted and without
interest charges) from the use of an asset were less than the carrying value, a
write-down would be recorded to reduce the related asset to its estimated fair
value. We do not believe that there has been any impairment to long-lived
assets as of September 30, 2019 and 2018.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K
Item 303(a)(4).
Recent Accounting Pronouncements
(See "Recently Issued Accounting Pronouncements" in Note 3 of Notes to the
Financial Statements.)
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WEST COAST VENTURES GROUP CORP. 
