ITEM 1.
DESCRIPTION OF BUSINESS
A.
History of the Company
Famous Uncle Al’s Hot Dogs & Grille, Inc. was originally incorporated in the State of Delaware on March 4, 2005. We were formed for the purpose of receiving future and existing restaurant franchising rights from Famous Uncle Al’s Hot Dogs, Inc., also a Delaware corporation. Famous Uncle Al’s Hot Dogs, Inc., owned the exclusive worldwide right to franchise quick service restaurants operating under the “Famous Uncle Al’s Hot Dogs” name. The Famous Uncle Al’s Hot Dogs restaurants serve hot dogs and other style sandwiches that use “secret recipes” and preparation techniques created by Al Stein, the original “Uncle Al”. We maintain offices at One Plaza West, 100 Mill Plain Road, Danbury, CT 06811, and our phone number is (203) 616-2930. Our Internet website address is www.fdoginc.com or www.famousunclealshotdogs.com. Our common stock is currently traded on the OTC Bulletin Board under the symbol FDOG. .
The Famous Uncle Al’s restaurant concept has been in operation since 1985 when the original “Uncle Al”, Al Stein, opened the first restaurant in Virginia Beach, VA. That restaurant continues to operate successfully under Al Stein’s management. Seven additional Famous Uncle Al’s Hot Dogs restaurants were opened by independent operators in the Virginia Beach area under various licensing agreements with Al Stein and continue to operate. One store is owned and operated by Mr. Stein’s son and one by a former employee.
The franchise assignor sold several regional franchise territories prior to assigning the franchise to us. Company came into those agreements under the global type of arrangement provided for under the Settlement Agreement of October 6, 2006, under which Company agreed to assume the debts, liabilities and obligations of the Company from which we were acquiring the franchise license in exchange for licensing rights. There are currently 13 franchised restaurants opened. Two additional franchised restaurants are under contract and/or under construction.
A regional franchisee purchases a defined geographic area and is obligated to develop Famous Uncle Al’s Hot Dogs & Grille restaurants in their defined territory. Regional franchisees endeavor to sell the individual franchise opportunity to prospects. The Company benefits in the short term by receiving a one-time fee from the regional franchisee and a one-time fee from each individual franchisee that the regional franchisee sells. The Company benefits long term from the weekly ongoing royalties collected from each individual franchise. This structure is designed to create a network of regional franchisees that serve as a sales force for the Company. Regional franchisees are compensated on a commission basis only. The Company believes that this structure will allow the Company to develop a dedicated national sales and marketing infrastructure without incurring the financial liability of supporting employed sales persons
The Company has 11 Operating franchises located in:
Winter Spring, FL; Melbourne, FL; ,Coconut Beach, FL, Franklin, VA; Chesapeake,VA;; Danbury, CT; West Haven, CT; Phoenix,AZ; Las Vegas, NV (two franchises) and Ohio.
The following stores have closed or left the system:
Las Vegas, (1)
B.
Employees:
Three (3) full time employees.
C.
Research and Development Expenditures
No direct costs have been incurred for research and development in the last 2 years, although management has spent time developing the business model, attending trade shows in the food services industry, and compiling demographic data related to potential franchises.
D.
Subsidiaries
The Company has no subsidiaries.
E.
Patents and Trademarks
The Company markets itself under its Famous Uncle Al’s Hot Dogs trademark. The Company has received trademark and service mark protection of this name and related designs from the United States Patent and Trademark Office and considers these trademarks and service marks to be important to its business. The Company received the right to this trademark by virtue of its application to the U.S. Patent and Trademark Office, and the approved assignment of it to us, dated August 16, 2005. The continuing right to license under this assignment is considered essential by the Company.
F.
Reports to Security Holders
At this time, the Company has not provided annual reports to security holders. However, shareholders and the general public may view copies of all of our filings with the SEC, by visiting the SEC website (http://www.sec.gov) and performing a search of Famous Uncle Al’s Hot Dogs & Grille, Inc.’s electronic filings.
ITEM 1A.
ITEM 1A.
RISK FACTORS
1.
We are subject to penny stock regulations and restrictions, which could affect the market liquidity of our stock.
Until such time, if any, that the Company's securities are listed on the NASDAQ SmallCap(R) Market or a registered U.S. securities exchange, they will continue to be subject to Rule 15g-9 under the 1934 Act, which imposes additional sales practice requirements on broker-dealers which sell such securities to persons other than established customers and institutional accredited investors. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, the rule may affect the ability of broker-dealers to sell the Company’s common tock and may affect the ability of purchasers in this offering to sell any of the common tock acquired pursuant to this registration in the secondary market. The Commission's regulations define a "penny stock" to be any equity security that has a market price (as therein defined) less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. The penny stock restrictions will not apply to the Company's common stock if the common stock is listed on The NASDAQ Small Cap(R) Market and has certain price and volume information provided on a current and continuing basis, or meets certain minimum net tangible assets and other criteria. There can be no assurance that the Company's securities will qualify for exemption from these restrictions. If the Company's common stock continues to be subject to the rules on penny stocks, the market liquidity for the common stock could be severely adversely affected.
2.
We have never paid a stock dividend and we do not anticipate paying any stock dividends in the foreseeable future.
The Company has not declared or paid, and does not anticipate declaring or paying in the foreseeable future, any cash dividends. The Company's ability to pay dividends is dependent upon, among other things, future earnings, the operating and financial condition of the Company, its capital requirements, general business conditions and other pertinent factors, and is subject to the discretion of the Board of Directors. Further, no distribution may be made with respect to the Company's common stock unless all cumulative dividends with respect to any series of preferred stock having a dividend preference have been paid. Accordingly, there is no assurance that any dividends will ever be paid on the Company's common stock. See "Description of Securities."
Risks Associated with the Company
3.
We have a limited history of business operations, and face substantial business and financial risks because we are in our initial stage of development.
The Company has limited operating history, having originally commenced operations in October of 2002 under the name “Famous Uncle Al’s Hot Dogs, Inc.”, a Delaware corporation. The Company itself was incorporated as National Franchise Directors, Inc., in March of 2005, and, effective October 6, 2005, Famous Uncle Al’s Hot Dogs, Inc., assigned to us all its existing and future franchise rights. The Company’s first franchised location was opened in May 2004. Businesses that are starting up, or in their initial stages of development, present substantial business and financial risks and may suffer significant losses from which they cannot recover. We face all of the challenges of a new business enterprise, including but not limited to, engaging the services of qualified support personnel and consultants, establishing budgets and implementing appropriate financial controls and internal operating policies and procedures. We need to attract and retain a number of key employees and other service personnel.
4.
We are expanding our business through sales of franchises in new locations and this brings with it financial risks related to the management of growth.
The Company has regional agreements that could result in the expansion of multiple stores nationwide. Regional agreements grant the right to a “regional franchisee” or “territory director” to develop Famous Uncle Al’s Hot Dogs & Grille franchised restaurants in a defined geographic area. Areas are defined by county or state, or other geographic criteria. The regional franchisee or territory director promotes and markets individual franchise sales for the Company. A regional franchisee is obligated to develop a fixed number of restaurants in his territory. The regional franchisee will receive $ 10,000 of the $ 17,500 franchise fee for each of the franchises that open in that franchisee’s territory. The regional franchisee or
territory director also receives 2% of the volume generated by each individual unit developed in the territory.
As of December 31, 2008, there are 8 active regional franchisees or territorial directors, some of which were obtained subsequent to the assignment of the license.
As of December 31, 2008, our active regional franchisee territories are as follows:
1)
Fairfield County, Connecticut
2)
New Haven County, Connecticut
3)
Northern portion of Palm Beach county, Florida-
4)
Nevada (One of three regional franchisees in Las Vegas area)
5)
Nevada (One of three regional franchisees in Las Vegas area)
6)
Nevada (One of three regional franchisees in Las Vegas area)
7)
Phoenix area of Arizona.
8)
Seminole and Orange counties, Florida
The following regions are considered non-active and in default of their agreements, however the Company has not taken any action to terminate these agreements.
1)
Alabama
2)
Georgia
3)
Mississippi
4)
Colorado
5)
Lee, Collier, Charlotte and Sarasota counties in Florida
6)
State of Virginia
As a result of the increase in operating expenses caused by expansion, operating results may be adversely affected if sales do not materialize, whether due to increased competition or otherwise. The can be no assurance that the Company will be able to grow in future periods or sustain any rates of revenue growth and profitability. As a result, the Company believes that period to period comparisons of its results of operation are not necessarily meaningful and should not be relied upon as an indication of future performance. The success of our planned expansion will be dependent upon numerous factors, many of which are beyond our control, including the following:
●
the hiring, training and retention of qualified marketing personnel; identification and availability of suitable restaurant sites or franchise locations;
●
negotiation of attractive lease terms, including significant tenant buildout allowances;
●
timely development of new restaurants, including the availability of construction materials and labor;
●
management of development, construction and pre-opening costs of new restaurants;
●
securing required governmental approvals and permits;
●
availability of adequate financing resources;
●
competition in our markets; and
●
general economic conditions.
We also face the risk that our existing systems and procedures, restaurant management systems, financial controls, and information systems will be inadequate to support our planned expansion. We cannot predict whether we will be able to respond on a timely basis to all of the changing demands that our planned expansion will impose on management and these systems and controls. If we fail to continue to improve our information systems and financial controls or to manage other factors necessary for us to achieve our expansion objectives, our business, financial condition, operating results or cash flows could be materially adversely affected.
5.
We have limited operating capital, and will require additional financing to continue to operate and expand, although we have not made a significant effort to secure any additional sources of financing. There is no assurance that additional financing can be obtained and, if it can be obtained, it may result in dilution of our stockholders’ interests.
If additional funds are required, the inability of the Company to raise such funds will have an adverse effect upon its operations. To the extent that additional funds are obtained by the sale of equity securities, the stockholders may sustain significant dilution. If adequate capital is not available, the Company will have to reduce or eliminate its planned expansion activities, which could otherwise ultimately provide significant revenue to the Company. Even if such additional financing is available on satisfactory terms, it, nonetheless, could entail significant additional dilution of the equity ownership of the Company to existing shareholders and the book value of their outstanding shares.
6.
Our business faces competition by other franchising companies, both in the fast-food industry and in other business sectors.
The fast food restaurant industry is highly competitive and can be significantly affected by many factors, including changes in local, regional or national economic conditions, changes in consumer tastes, consumer concerns about the nutritional quality of quick-service food and increases in the number of, and particular locations of, competing restaurants. Factors such as inflation, increases in food, labor and energy costs, the availability and cost of suitable sites, fluctuating interest and insurance rates, state and local regulations and licensing requirements and the availability of an adequate number of hourly paid employees can also adversely affect the fast food restaurant industry. Multi-unit restaurant chains like the Company can also be substantially adversely affected by publicity resulting from food quality, illness, injury, or other health concerns. Major chains, which have substantially greater financial resources and longer operating histories than the Company, dominate the fast food restaurant industry. The Company competes primarily on the basis of location, food quality and price. Changes in pricing or other marketing strategies by these competitors can have an adverse impact on the Company's sales, earnings and growth. There can be no assurance that the Company will be able to compete effectively against its competitors. In addition, with respect to the sale of franchises, the Company competes with many franchisors of restaurants and other business concepts for qualified and financially capable franchisees. We also face competition with non-restaurant franchise business opportunities with similar start up costs in all categories. Some of those opportunities are pack and mail outlets, diet and health centers and domestic cleaning services.
7.
We receive as royalty income a certain percentage of the earnings of the independent franchisees to who we have sold our franchises and our profitability is related to the success of those third-party franchisees.
We receive as royalty income a certain percentage of the earnings of the independent franchisees to whom we have sold our franchises. The specific characteristics of an individual franchise have a direct and unpredictable impact on the royalty income we will receive from a particular franchise, which in turn have a direct and unpredictable impact on our earnings.
8.
Costs are greater and profits are lower for new franchise locations and royalty profits could be lower for new locations.
New franchise locations typically take several months to reach budgeted operating levels due to problems commonly associated with new restaurants, including inability to hire sufficient staff and other factors. There can be no assurance that the franchisees to whom we license will be successful in operating their new restaurants on a profitable basis. We entered several new markets in 2007-2008, in which we have no prior market experience. These new markets and any future new markets are likely to require us to expend significant funds on marketing campaigns. These markets may also have different competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause our new restaurants to be less successful than restaurants in our existing markets. Further, since many of our restaurants have been open for less than four years, the earnings achieved to date by such restaurants may not be indicative of future operating results. Accordingly, there can be no assurance that the new restaurants will perform in accordance with management's expectations, or that we will not encounter unanticipated problems or liabilities in connection with the new locations.
9.
Our franchise locations are subject to natural disasters and other problems, and these problems could affect the profitability of our franchise locations, which would affect the profits we receive for franchise royalties.
In the past, some of our locations in Florida were damaged by hurricanes. Some of our coastal franchised stores are particularly susceptible to damage caused by hurricanes or other severe weather conditions. There can be no assurance that if a severe hurricane or other natural disaster should affect the geographical area in which one of our franchised stores operates, that a damaged store would be able to maintain operations.
10.
Franchised stores are dependent upon supply and quality of meat and other Products, and any interruptions in these supplies or quality could affect the profitability of our franchise locations, which would affect the profits we receive for franchise royalties.
The success of our restaurant concept depends upon frequent deliveries of fresh products. Shortages or interruptions in supply can occur and adversely affect the availability, quality and cost of these critical food products. Regional weather conditions may also adversely affect product supply and quality. We have historically utilized one main meat suppliers and have not experienced significant difficulty in obtaining adequate supplies of fresh products on a timely basis; however, we can make no assurances that in the future inadequate supplies of meat products might not have a materially adverse affect on our franchised operations and
profitability. We do not have long-term supply agreements with any of our suppliers or manufacturers. Although we believe that alternative sources of materials and contract manufacturing services are available, the loss of one or more suppliers or manufacturers could have a material adverse effect on our results of operations until an alternative source is located and has commenced producing our products.
11.
If our third party suppliers or manufacturers fail to timely deliver products of acceptable quality or comply with FDA manufacturing guidelines, or raise prices, our franchised stores could be negatively affected, and as a result, Company profits could be affected.
The use of third party suppliers and manufacturers and the resulting loss of direct control over production could result in our failure to receive timely delivery of products of acceptable quality. Any failure by third party suppliers or manufacturers to deliver products, or the delivery of defective products, may adversely affect our ability to deliver products to our customers in a timely manner and of an acceptable quality. If we fail to deliver products of acceptable quality in a timely manner, our customers may seek alternative sources for our products.
Our use of third party suppliers and manufacturers could also reduce our gross profits if the suppliers or manufacturers raise prices and we cannot find alternative, less costly sources or pass price increases on to customers.
We cannot assure that third parties will always act in accordance to these regulations. If the manufacturing facilities used by our third party suppliers or manufacturers did not meet those standards, the production of our products could be delayed until the necessary modifications are made to comply with those standards or alternate suppliers or manufacturers are located. Furthermore, the potential exists for circumstances to arise that would require us to seek out alternate suppliers or manufacturers who operate in compliance with the FDA’s requirements.
12.
Franchised stores are subject to changes in food and other costs and this could have an unpredictable effect on the Company’s profits.
Part of our franchise profitability depends on our ability to anticipate and react to changes in food and supply costs. We believe we will be able to continue our current arrangement with our master distributor, or another distributor if necessary, however, any increase in distribution prices could cause our food and supply costs to increase. In addition, various factors beyond our control, including adverse weather conditions and governmental regulations, could cause our food and supply costs to increase. We cannot predict whether we will be able to anticipate and react to changing food and supply costs by adjusting our purchasing practices. A failure to do so could adversely affect our operating results and cash flows.
13.
Franchise operations are affected by labor costs and labor availability and franchise profits will be reduced when those costs are high or when a qualified labor force cannot be maintained.
Our franchised stores will always be subject to impact by any increased labor costs associated with a tight labor market and mandatory wage increases across the country. The success of our franchised stores depends in part upon their ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and
servers, necessary to operate existing locations and to keep pace with our expansion schedule. Qualified individuals of the requisite caliber and number needed to fill these positions are in short supply in some areas. Although we are not aware of any significant problems in the ability of the franchise stores to recruit or retain employees, any future inability to recruit and retain sufficient individuals can have a material adverse impact on store operations and related royalties generated. Any significant increase in employee turnover rates in existing restaurants or difficulties attracting additional personnel for new locations could have a material adverse effect on our business, financial condition, operating results or cash flows. Additionally, competition for qualified employees could require our stores to pay higher wages to attract sufficient employees, which could result in higher labor costs.
14.
Other costs of franchised operations could increase unpredictably and this has an unpredictable impact on our profitability.
Our stores’ profitability is also adversely impacted by other cost increases, over which we have limited or no control, such as high utility costs. Utility costs are projected to be high in the foreseeable future. There can be no assurance that any measures to anticipate or absorb such unpredictable costs will be successful.
15.
Certain stockholders have the ability to control the Company and have other substantial rights, preferences and privileges.
Five individuals, including Paul Esposito, our Chief Executive Officer who owns shares amounting to 15.6 % of our total issued and outstanding shares, and Dean Valentino, our President, and owner of shares amounting to 12.5% ownership (the “Principal Stockholders) collectively owned 50.05 of our outstanding common stock. For information on the number of shares of common stock beneficially owned by each Principal Stockholder, see “Selling Security Holders” and “Security Ownership of Certain Beneficial Owners and Management.” There are no pre-emptive rights in connection with our common stock. Each share of common stock is entitled to one vote on all matters submitted to a vote of stockholders, and directors will be elected by a plurality of the votes cast at meetings at which directors are to be elected. As a result, the Principal Stockholders have the ability to elect all of our directors, control the outcome of all matters requiring stockholder approval and control our management and affairs.
16.
Because we currently have only two directors, who are our two executive officers, control of the Company is concentrated in two individuals, who could make and control corporate decisions that may be disadvantageous to or opposed by shareholders.
We have two directors who are also the only two executive officers of the corporation. Accordingly, they will have a significant influence in determining the outcome of all corporate transactions. They will also have the power to prevent or cause a change in control. The interests of our directors may differ from the interests of the other stockholders and thus could result in corporate decisions that are disadvantageous to other shareholders.
17.
We Depend On 3 Key Personnel, The Loss Of Whom Could Impair The Security Of The Company’s Day-To-Day Operations And Cause A Loss To The Company Or Its Investors.
The Company is dependent upon Paul Esposito, Chief Executive Officer, Dean Valentino, President, Secretary and Treasurer, as well as Richard Michael, a franchise consultant, with respect to its operations. The Company has not entered into employment or consulting agreements with Messrs. Esposito, Valentino, or Michael, and has not obtained key men life insurance on their lives. The Company has compensated only Paul Esposito $ 33,703 during the year 2008. Richard Michael has been compensated according to a commission schedule. The Company's future success also depends on its ability to attract and retain other qualified personnel, for which competition is intense. The loss of certain key employees or the Company's inability to attract and retain other qualified employees could have a material adverse effect on the Company's results of operations.
18.
Since Our Franchise Licensing Rights Are Subject To A License Agreement, The Termination Of Or Failure To Renew Such License Agreement In The Future Can Cause us to discontinue use of the name “Famous Uncle Al’s Hot Dogs” .
Our entire business is based upon our right to franchise the Uncle Al’s Hot Dog restaurants, based on the assignment to us of a Franchise Licensing Rights Agreement dated November 12, 2002, as amended September 7, 2005. That license agreement granted us a 75-year license to franchise the Famous Uncle Al’s Hot Dogs recipes and restaurant concept created by Alan Stein, the “original” Famous Uncle Al. There are certain terms and conditions that must be met in order to keep that license in place. The license agreement imposes certain license agreement payments on us. Termination of the license could occur if the Company failed to remedy any default by it under the agreement within thirty days after such a default. The termination of the license agreement in the future could cause us to discontinue use of the name “Famous Uncle Al’s Hot Dogs”.
ITEM 2.
ITEM 2.
DESCRIPTION OF PROPERTY
The Company currently rents an office located at 100 Mill Plain Road, Danbury, CT 06811. The office is 900 sq feet, and is located in a modern office complex. The Company pays $1743 per month for the office.
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings as of the date of filing. .
ITEM 4.
ITEM 4.
SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no items submitted during the fiscal years covered by this report to a vote of security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5.
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
We are listed on the Over the Counter (“OTC”) Bulletin Board under the symbol FDOG.
The OTC Bulletin Board is a market maker or dealer-driven system offering quotation and trading reporting capabilities. The OTC Bulletin Board system is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in OTC equity securities. The OTC Bulletin Board securities are not listed and traded on the floor of organized national or regional stock exchanges. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting market makers or dealers in stocks.
Holders of Our Common Stock
As of the date of this report, the Company had 126 registered shareholders.
Stock Option Grants and Equity Compensation Plans
On November 8, 2007, we retained Scarsdale Equities, LLC to serve as a consultant and financial advisor for a term of two years. As compensation for entering into the Agreement, the Company issued common Stock purchase warrants exercisable to purchase two million (2,000,000) shares of common stock of the Company at $.40 per share. The warrants will be exercisable for seven years from the date of issuance and contain cashless exercise provisions. The warrants are broken down into two holders as follows:
1.
N. Scott Fine, a registered principal with Scarsdale Equities, LLC will hold a warrant exercisable to purchase 1,400,000 share of common stock of the Company at $.40 per share. The Warrant is exercisable for seven years from the date of issuance and contains cashless exercise provisions.
2.
Scarsdale Equities, LLC will hold the other warrant exercisable to purchase 600,000 shares of common stock of the Company at $.40 per share. The Warrant is exercisable for seven years from the date of issuance and contains cashless exercise provisions.
On December 7, 2007, we retained JARS FAMILY GROUP, LLC (“Advisor”) to serve on the Company’s Advisory Board and to act as an advisor to the Company.
As compensation for entering into the Agreement, the Company issued common Stock purchase warrants exercisable to purchase one million five hundred thousand (1,500,000) shares of common stock of the Company at $.40 per share. The warrants will be exercisable for seven years from the date of issuance. The warrant is exercisable for seven years from the date of issuance.
On December 7, 2007, we retained C.C.R.I. Corporation, a Colorado corporation (“Consultant”) to perform and provide investor relations and development services for the Company until December 7, 2009.
As compensation for entering into the Agreement, the Company issued common Stock purchase warrants exercisable to purchase two hundred thousand (200,000) shares of common stock of the Company at $.40 per share. The warrants will be exercisable for seven years from the date of issuance.
Dividends
There are no restrictions in the Company’s articles of incorporation or bylaws that prevent it from declaring dividends. The Company has not declared any dividends and it does not plan to declare any dividends in the foreseeable future.
Recent Sales of Unregistered Securities
In 2008 we issued 816,000 shares of stock for services valued at $ 261,080. The shares were issued at $0.28-$0 .40 per share and reflect the market value of the stock at the time of the underlying agreements.
The above stock issues were authorized by resolutions dated February 19, 2008 and March 31, 2008.
In 2008 we issued 1,114,000 shares of common stock in exchange for $ 163,500 in cash.
The above stock issues were authorized by resolutions dated March 31, 2008.
All common shares issued are restricted as to transferability.
ITEM 6.
ITEM 6.
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
“Public Company Costs”
As a public company, we will incur significant legal, accounting and other costs that we have not previously incurred as a private company. The Sarbanes-Oxley Act of 2002 and related rules of the SEC and The NASDAQ Stock Market regulate corporate governance practices of public companies. We expect that compliance with these public company requirements, including ongoing costs to comply with Section 404 of the Sarbanes-Oxley Act, which includes documenting, reviewing and testing our internal controls, will increase our general and administrative costs. These costs will also include the costs of our independent accounting firm to issue an opinion on our assessment and the effectiveness of our internal controls on an annual basis. We also may incur higher costs for director and officer liability insurance. Our expected reporting will be $10,000 for an independent audit assessment and $20,000 in legal fees associated with compliance. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs.”
Plan of Operations for the next 12 months -
The Company’s primary short and long-term purpose is to continue to cause “Famous Uncle Al’s Hot Dogs & Grille” franchised restaurants to be opened.
The Company utilizes an industry standard structure of selling, or assigning, defined geographic territories to developers, also known as regional franchisee or territory director. The assigned developers are required to sell a prescribed number of franchise contracts. Developers work in cooperation with the Company to attract prospective franchisees through various forms of advertising and marketing methods.
Developers may meet with prospects individually or in formal group presentations. Part of the selling process may include visits to existing units, discussions with existing franchise owners and contact with Company management.
The Company will continue this process by investing in additional advertising, generating new sales and marketing materials, developing new marketing methods and other means. The Company intends to continue to recruit additional developers and franchise owners into the foreseeable future.
During the next 12 months the Company will implement a plan to enhance the Company’s position within the industry and with the public. The Company will focus on improving brand recognition, targeting both consumers and the foodservice industry.
Besides continuing its sales efforts through its network of developers the Company will also target Franchise and restaurant investor groups. These groups typically purchase and operate multiple unit franchise operations that meet particular criteria. The Company will identify and approach those groups for whom Famous Uncle Al’s Hot Dogs & Grille would be a suitable multiple unit investment.
Cash requirements of Company
The Company operates on a low fixed overhead. Cash requirements can be satisfied by maintaining the Company’s modest growth pattern. Additional funds will be required to implement an aggressive accelerated growth plan.
Our plan of operations, whether for modest or accelerated growth, consists of marketing the sale of franchises and regional franchises. Advertising is used to attract prospects to the individual and regional franchise opportunities. Follow up meetings with individual prospects as well as seminar style meetings for groups of prospects are the methods used to present a comprehensive description of the Famous Uncle Al’s Hot Dogs & Grille opportunity to prospects. Marketing for new restaurant franchised stores is targeted in areas where existing restaurants are operating and a regional franchisee is assigned. Regional franchise prospects are targeted in areas that do not have regional franchisees in place.
Marketing efforts and methods, currently considered modest, will be accelerated to the extent that additional capital will support. Currently our efforts are limited by the number of qualified personnel available to implement the marketing strategy and advertising and marketing budget constraints.
Plans for additional funds
Additional funds will be required to implement accelerated growth plans. The Company has made no significant effort to secure additional sources financing at this time. The Company intends to seek funding of up to $ 2,000,000 to support an accelerated marketing effort. Funds will be utilized to hire qualified sales and marketing personnel, increased advertising and to pay for other expenses associated with marketing such as travel, lodging and entertainment. Selling franchises is dependent, in great part, on the ability of the Company representative to present the opportunity in a highly professional manner to prospects. The Company works closely with regional Franchisees to market individual franchises in each territory.
If efforts to raise significant capital fail to procure any funds then the Company will continue with its current “modest” growth pattern indefinitely or until the Company successfully raises the desired capital. If the Company rises less, or more, than the desired amount then efforts will be scaled to the amount of funds available.
Product development or research planned during next 12 months
The Company will continue to refine its in-store operating systems, menu offerings, location strategy and local consumer targeted marketing tactics. The Company will continue to refine its administrative systems including information technology, installing a system wide remote polling and automatic ACH royalty collection system.
Upcoming purchases or sale of plant or equipment
The Company has no plans for any significant plant or equipment purchases.
Expected changes in number of employees
The Company expects to employ or contract for additional field support and inside administrative support personnel as needed to support its growth. The Company does not expect a significant change in the next 12 months.
Results of Operations
Results of operations for 2008 was a net loss of ($ 619,,487) compared to a net loss of
($ 1,503,592) for 2007. The loss includes a one time charge to earnings of $ 120,000 for impairment of long-lived assets and $ 261,080 for value of shares issued for services, $ 1500 for depreciation and $ 3,472 for amortization of debt discount. Cash flow used by the Company was $ 227,815. This results in a decreased net loss of $ 884,105 and a 58% reduction in net loss compared to 2007. This is due primarily to reduced G&A expenses related to the issue of shares and warrants. .
Revenue for 2008 was $ 118,065 compared to $ 155,832 in 2007. This is a decrease in revenue of $ 37,767 or a 24% decrease.. This decrease is due primarily to reduced franchise sales compared to 2007. Franchise sales in 2008 were $ 21,500 compared to $ 72,000 in 2007.
Total costs and expenses in 2008 were $ $ 737,553 compared to $ 1,659,425 in 2007. The reduction in expenses is due primarily to reduced G&A expenses related to the issue of shares and options.
The Company’s revenue consisted of $ 21,500 from franchise fees, $ 63,072 from royalties and $ 33,494 from other sources.
Franchise sales in 2008 were $ 21,500 compared to $ 72,000 in 2007 resulting in a decrease in franchise sales of $ 50,500 or a 70% decrease. Weekly continuation fee (royalty) revenue in 2008 was $ 63,072 compared to $ 58,592 in 2007 resulting in a increase of
$ 4480 or a 7.6% increase. Other revenue(primarily marketing rebates) in 2008 were $ 33,494 compared to $ 25,240 in 2007 resulting in an increase of $ 8,254 or a 32% increase.
The Company’s primary sources of revenue are fees collected from the sale of regional territories to developers, fees from the sale of individual franchises and continuing royalties from individual franchised stores.
Geographic territories are sold to developers at a cost of approximately $ 40,000 to $60,000. Developers are authorized to sell individual franchises within the territory. The territories are based on population density, local economic conditions, availability of suitable retail sites, demographics and to some extent the ability of the developer. Each territory contract requires the developer to fulfill an annual quota of sold franchises. Developers receive a portion of the individual franchise fee and a portion of the continuing royalties from each unit. The Company has determined that there are at least 80 territories in the US that can be considered for sale to developers.
Franchises are sold on an individual basis to franchisees within the Regional territories. The franchise fee is $ 17,500. The selling developer receives $ 10,000 from each franchise sold. Based on information regarding other US franchise systems the Company believes that there is as many as 5000 suitable retail locations in the US.
Financial condition, changes in financial condition, and results of operations for last two fiscal years.
Activities of the Company for the last three fiscal years have been primarily start up and development related. The Company expended significant resources in the development and refinement of the Company’s franchise product, a turn key restaurant franchise based on a proprietary menu and operation system. The Company created and refined its menu offerings, store design and theme, food preparation methods and equipment and product sourcing. The Company compiled the information into related operations manuals and other informational packages.
A conforming Uniform Franchise Offering Document was completed to comply with Federal Trade Commission requirements as well as some individual State requirements.
Those activities were funded through investments and sales revenue generated by the sale of regional territories and individual franchise sales.
Loans and borrowings
The assignor company, Famous Uncle Al’s Hot Dogs, Inc., utilized funds from private placements and loans to develop the original concept of locally owned hot dog restaurants into a marketable franchise opportunity. This included legal fees associated with complying with relevant franchise laws and regulations, developing a broader menu selection, creating a uniform décor package, designing store layout options to accommodate specified cooking and preparation equipment and furniture arrangements. Funds were utilized to develop sources of specified products including development of proprietary private labeled meat products. Funds were also utilized for office rents and general overhead.
In the last twelve months the Company has received the following loans, as detailed:
The Company has received loan proceeds of $ 27,700 from officers.
The Company has received $ 35,000 from other debt borrowings.
In the past twelve months the Company has received a total of $ 163,500 from private placements.
The Company has received, from loans and private placements, a total of $ 226,200 in funding. The Company depended on these funds for legal fees (SEC and franchise attorney), product enhancements and development, G&A, marketing, advertising and other expenses.
The Company has long term debt liabilities of 111,090 debt liabilities remaining from part of the settlement agreement with the franchise license assignor.
The Company has assumed $55,000 in notes payable to 6 individuals in connection with its purchase of the licensing rights. The collective original amount of the notes was $85,000. $ 25,000 has been paid through a stock issuance. The notes are to be paid through proceeds derived from the sale of future franchises in or near the original subject store territory. The Company intends to pay in accordance with the terms of the notes or prepay from earned income, replacement or refinancing of the loan, or future offerings or a combination of these means.
The Company intends to repay those funds from revenues generated by continued operations.
The Company has long term debt liability of $ 27,700 consisting of loans from an officer.
The Company has short term debt liability of $ 26,806 consisting of convertible notes.
Past and future financial condition and results
The Company believes that the most significant start up and development costs associated with the primary business of the Company have been expended. The Company will continue to refine all aspects of its operations but does not require any further significant investment in developing the basic aspects of the Company’s primary offerings, franchise or retail.
With the start up and development stages completed, management has now turned its full attention to aggressively marketing its franchise offerings.
Key variables and qualitative/quantitative factors necessary to understand/evaluate business
The business requires a multi tiered administrative and sales structure to support an exponential growth pattern. The Company utilizes regional developers to extend the Company’s sales and field administration capacity. Developers are independent contractors that are responsible for the sale of franchised restaurants in their territory and for continuing monitoring and enforcement of the Company’s requirements for restaurant operations. The Company believes that this structure provides the most cost effective means to provide field management and a national sales force.
The Company’s ability to attract suitable regional developers and the ability of the individual developer are important factors to the growth of the Company.
The Company’s long-term success is dependent on the royalty stream generated by individual franchised units. Royalty fees are 7% of each unit’s volume, collected weekly. Out of that stream the developer is paid 2% of the volume on units within that territory, netting the
Company a 5% royalty stream. This net revenue is unencumbered by any further commissions or direct expenses. The royalty is based on the gross retail sales generated by each franchised unit and is not discounted or adjusted. The actual profitability of the franchised unit, revenue less expense, is not a direct factor in determining the revenue to, or profitability of, the Company.
The Company will focus on increasing the royalty stream by adding additional franchised units to the system and increasing same store sales. Although individual profitability of each unit does not directly impact the Company’s revenues or profits it is imperative that the Company assure the profitability of the individual units. Units closed because of lack of unit profitability for the franchisee will result in reduced revenue for the Company. Reduced sales volume in a unit will result in reduced royalty revenue to the Company. Vital to attracting franchisees is the reasonable expectation of profitability to be derived from a franchised restaurant. Franchisees will purchase a franchise only if they believe it has a good chance of profitability. Those profit expectations can most accurately be extrapolated from information derived from existing units. Negative profitability reports from existing units can dramatically impact the ability of the Company to continue to attract franchisees.
The Company is dependent on the sale, and continuing operation of, individual franchised restaurants. The Company will continue to streamline restaurant operations, adjust menu offerings, source products, and arrange product discounts for the benefit of the individual units.
Local, regional and national consumer targeted advertising programs will be implemented to impact restaurant retail sales.
Known trends or factors reasonably likely to have a material impact on short or long term liquidity
The Company does not foresee any known trends or uncertainties within the foodservice industry that might have a material impact on the business or liquidity. The Company does not anticipate any event that would require the Company to strain its resources. The Company’s fixed overhead and expenses are limited. Variable expenses are directly related to the level and intensity of the Company’s sales and marketing efforts. These expenditures are controllable and generally produce a short-term return at least equal to the expenditure.
Liquidity and Capital Resources
The Company is dependent on continuing sales of Regional and individual Franchises and continuing royalties for liquidity. At December 31, 2008, the Company had working capital deficiency of approximately $ 400,000.
The Company's operations have been financed to date through sales of its common stock through private placements, loans, sales of franchise territory agreements and royalties from franchisee sales. The Company requires significant additional capital for the expansion of its franchising operations. The Company believes that revenue generated from existing stores and $ 250,000 from anticipated Regional and individual franchise sales and additional royalty revenue will be required to fund its operations until at least December, 31, 2009. Cash flows used by operating activities in 2008 was ($ 227,815). Revenue in 2008 was $ 118,065 including franchise fees of $ 21,500 and ongoing royalty revenue of $ 63,072 and other revenue of $ 33,494.. Some of the franchised stores from which royalty revenue was
generated were opened for less than the full year and some stores were granted a temporary ‘royalty holiday”. Based on existing stores continued operations and continuing “royalty holiday” for some stores the Company currently generates ongoing royalty revenue at an annual rate of $ 65,000. If the Company terminates all “royalty holidays” the Company will generate $ 150,00. If regional and individual franchise sales and additional royalty revenue of at least $ 250,000 do not materialize then the Company will require additional funding to continue operations.
Material commitments for capital expenditures and source of such funds
The Company does not anticipate any significant capital expenditure.
Known trends or factors reasonably expected to have material impact on net sales or revenue or income from continuing operations
The prevailing trend in the quick serve foodservice industry is towards the limited service casual dining experience. This trend is in line with the Company’s Famous Uncle Al’s Hot Dogs & Grille concept. The Company’s restaurants offer limited table service with quick service at moderate prices. Knowledge of this industry trend is more likely to impact investment decisions by franchise investment groups and franchise financing companies than that of individual franchisees. Although an important beneficial trend for the Company, management does not expect any specific quantifiable impact.
The Company’s business is not subject to any particular events other than general economic conditions. Being a moderately priced dining establishment the Company believes that the economic downturn has not and will not significantly impact retail sales in existing locations. The Company believes that the economic downturn has and will continue to affect the ability to attract new franchisees.
The Company’s core retail product is hot dogs. An interruption in the supply of hot dogs would have a major material impact on retail operations. A dramatic price increase for the product would also impact retail sales and/or the profitability of individual franchises.
The Company uses private label Famous Uncle Al’s hot dogs packed exclusively for the Company. A disruption in supply from the packer would be temporarily disruptive; however equivalent quality product can be obtained from other sources.
The Company’s hot dog product contains beef and pork. A general interruption in the supply of either of those commodities would be detrimental.
Significant elements of income or loss not arising from continuing operations
In previous years significant expenditures were for development and start up costs. Going forward the Company does not anticipate any significant element of income or loss not related to continuing operations.
Causes for any material changes from period to period in one or more line items of financial statements
Material changes in line items would be most substantially increases in income from Regional franchise and franchise fees. Expense items would most likely be advertising costs.
Seasonal aspects of business having a material effect on financial condition or results of operation
Individual restaurants are subject to local seasonal effects. However the Company expects that operating units will be in various areas of the US and that their individual operating fluctuations will be balanced and have limited impact on the Company’s seasonal revenue.
Material commitments of Regional Franchise operators
There are several regional franchise operators. Each regional franchise operator is committed by contract to sell a minimum number of individual franchises within a designated geographic area. Each regional franchise operator is responsible for advertising and promotional activities within their assigned territory to attract franchise prospects. Each regional franchise operator is responsible for supervising the opening process for each unit, assisting the franchisee with site selection, lease negotiations, contractor and build out coordination, equipment installation and local marketing. Regional franchise operators are trained to comply with FTC and state franchising regulations.
See Risk Factors included at Item 1 above.
ITEM 7.
ITEM 7.
FINANCIAL STATEMENTS
Famous Uncle Al’s Hot Dogs & Grille, Inc.
Summary of Significant Accounting Policies
December 31, 2008
Background: We were incorporated as National Franchise Directors, Inc., under the laws of the State of Delaware on March 4, 2005 and on October 25, 2005 changed our name to Famous Uncle Al’s Hot Dogs & Grille, Inc. (Uncle Al). We were formed for the purpose of obtaining all existing and future restaurant franchising rights from Famous Uncle Al’s Hot Dogs, Inc. We acquired those rights on October 6, 2005. Famous Uncle Al’s Hot Dogs, Inc. owned the exclusive worldwide right to franchise fast casual service restaurants operating under the “Famous Uncle Al’s Hot Dogs” name. Our restaurants serve hot dogs, bratwurst, sausage and other heated sandwiches that use secret recipes and preparation techniques created by Al Stein, the original “Uncle Al”.
As of December 31, 2008, we had eleven franchised stores.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
Cash and Cash Equivalents: For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents.
Fair Value Measurements: In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The statement emphasizes that fair value is a market-based measurement and not an entity-specific measurement. It also establishes a fair value hierarchy used in fair value measurements and expands the required disclosures of assets and liabilities measured at fair value. For financial assets and liabilities, this statement is effective for fiscal periods beginning after November 15, 2007 and does not require any new fair value measurements. In February 2008, the Financial Accounting Standards Board Staff Position No. 157-2 (“FSP No. 157-2”) was issued which delayed the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 for non-financial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).
The Company adopted the provisions of SFAS No. 157, as amended by FSP No. 157-2, on January 1, 2008. Pursuant to the provisions of FSP No. 157-2, the Company will not apply the provisions of SFAS No. 157 until January 1, 2009 for non-financial assets and liabilities (principally intangible assets).
Fair Value Hierarchy
SFAS No. 157 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs), or reflect the Company’s own assumptions of market participant valuation (unobservable inputs). In accordance with SFAS No. 157, these two types of inputs have created the following fair value hierarchy:
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Level 1 - Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities.
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Level 2 - Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly.
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Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
SFAS No. 157 requires the use of observable market data if such data is available without undue cost and effort.
Measurement of Fair Value
The Company measures fair value as an exit price using the procedures described below for all assets and liabilities measured at fair value. When available, the Company uses unadjusted quoted market prices to measure fair value and classifies such items within Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based or independently-sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be inputs that are readily observable. If quoted market prices are not available, the valuation model used generally depends on the specific asset or liability being valued. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments.
Financial Instruments: Our financial instruments consist of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, and long and short-term borrowings. The fair value of these instruments approximates their recorded value. The Company does not have financial instruments with off-balance sheet risk. The fair value estimates were based on market information available to management as of December 31, 2008
Financial instruments that potentially subject us to concentrations of market/credit risk consist principally of cash and cash equivalents and trade accounts receivable. We place cash and cash equivalents with high credit quality financial institutions, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
A concentration of credit risk may exist with respect to trade receivables. We perform ongoing credit evaluations of franchisees and generally do not require collateral. We review trade accounts receivable on a regular basis to determine if any such amounts may be potentially uncollectible. In reviewing the adequacy of the valuation allowances for accounts and notes receivable, we consider factors such as historical collection experience, the estimated value of personal guarantees and real property collateral, the debtor’s sales and operating trends, including potential for improvement in operations, and general and local economic conditions that may affect the debtor’s ability to pay. We include any balances that are determined to be uncollectible, along with a general reserve, in the overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on management’s best estimate, we believe the allowance for doubtful accounts is adequate as presented. Historically, the Company has not experienced significant losses related to receivables from individual franchisees or groups of franchisees in any particular geographic area.
Property and Equipment: Property and equipment are recorded at cost. Depreciation is computed using the straight line balance method over the estimated useful lives of the assets, generally 5 years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place. We depreciate our office equipment and computers over 3 years. Depreciation expense was $1,500 for 2008 and 2007.
Valuation of Long-Lived Assets: We review the recoverability of long-lived assets, including equipment and intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The Company’s primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.
We amortize the costs of other intangibles (excluding goodwill) over their contractual life or estimated useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives, such as goodwill, are tested for impairment, at least annually, and written down to fair value as required.
Earnings per Common Share: Basic earnings per share is computed by dividing income available to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. Diluted earnings per share assumes that any dilutive convertible securities outstanding were converted,
with related preferred stock dividend requirements and outstanding common shares adjusted accordingly. It also assumes that outstanding common shares were increased by shares issuable upon exercise of those stock options for which market price exceeds the exercise price, less shares which could have been purchased by us with the related proceeds. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.
Revenue Recognition: The Company accounts for revenue under the guidance provided by SFAS 45 “Accounting for Franchise Fee Revenue (as amended)” and EITF 00-21 “Revenue Arrangements With Multiple Deliverables”
Individual Franchise Sales: Franchise fee revenue from an individual franchise sale ordinarily is recognized, with an appropriate provision for estimated uncollectible amounts, when all material services or conditions relating to the sale have been substantially performed or satisfied. Substantial performance means that:
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the Company has no remaining obligation or intent-by agreement, trade practice, or law-to refund any cash received or forgive any unpaid notes or receivables;
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substantially all of the initial services required by the franchise agreement have been performed; and
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no other material conditions or obligations related to the determination of substantial performance exist. The Company may be obligated to perform initial services outside the scope of the franchise agreement in situations where a practice of voluntarily rendering such initial services exists or is likely to exist because of business or regulatory circumstances. Substantial performance is not assumed until either the initial services have been substantially performed or reasonable assurance exists that the services will not be performed. The commencement of operations by the franchisee is presumed to be the earliest point at which substantial performance has occurred.
Franchise fees collected but not yet earned are included in unearned income.
Repossessed Franchises: From time to time the Company may recover franchise rights through repossession if a franchisee decides not to open an outlet. If, for any reason, the Company refunds the consideration received, the original sale is canceled, and revenue previously recognized is accounted for as a reduction in revenue in the period the franchise is repossessed. If franchise rights are repossessed but no refund is made (a) the transaction is not regarded as a sale cancellation, (b) no adjustment is made to any previously recognized revenue, (c) any estimated uncollectible amounts resulting from unpaid receivables is provided for, and (d) any consideration retained for which revenue was not previously recognized is reported as revenue.
Royalties: Continuing franchise fees (royalties) are reported as revenue as the fees are earned and become receivable from the franchisee. Royalties are paid to the Company based on individual franchise agreements and are calculated as a percentage of franchisees’ restaurant sales, as defined in the franchise agreement, and are recognized as earned in the period of the related sales Costs relating to continuing franchise fees are expensed as incurred.
Collective Marketing Funds: The Company treats the collection and disbursement of collective marketing funds as contractual obligation resulting in an agency relationship under which such designated funds are required to be segregated and used for a specified purpose. Any amounts collected from the franchisees and so designated are recorded as a liability against which the specified costs are charged.
Advertising Costs: Franchisees may be required to pay a percentage of monthly sales to the Famous Uncle Al’s Advertising Fund (the “Fund”) for collective advertising and marketing programs. We have not required any funds be paid into nor have any expenses been incurred on behalf of the advertising fund through December 31, 2008. The Company incurs franchise development related advertising costs and expenses those costs as incurred. Advertising expense was $87,000and $ 19,000 for the years ended December 31, 2008 and 2007 respectively.
Risk and Uncertainties: The primary uncertainty which the Company faces is its ability to locate knowledgeable franchisees that also have the financial resources to successfully operate the stores. In addition, the Company needs to be able to identify appropriate locations for our newly franchised stores. We believe that we have taken the steps necessary to minimize these risks.
Income Taxes: We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities,
which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
Deferred income taxes are recorded in accordance with SFAS No. 109, “Accounting for Income Taxes,” or SFAS 109. Under SFAS No. 109, deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. SFAS 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Realization of our net deferred tax assets is dependent upon our generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit from the reversal of temporary differences and from net operating loss, or NOL carryforwards. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all of our net deferred tax asset. Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related adjustment to income during the period in which we make the determination. Our tax rate may also vary based on our results and the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we will reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We will record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.
Uncertain Tax Positions
The Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, Accounting for Income Taxes” (“FIN No. 48”) which was effective for the Company on January 1, 2007. FIN No. 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN No. 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure requirements.
Stock Based Compensation: Stock-based awards to non-employees are accounted for using the fair value method in accordance with SFAS No. 123(R), Accounting for Stock-Based Compensation, and EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.
On January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) 123R, “Share-Based Payment” (“SFAS 123(R)”), which requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. Prior to January 1, 2006, we accounted for our stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees,” and related interpretations, and would typically recognize no compensation expense for stock option grants if options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.
We adopted SFAS 123(R) using the “modified prospective” method, which results in no restatement of prior period amounts. Under this method, the provisions of SFAS 123(R) apply to all awards granted or modified after the date of adoption. In addition, compensation expense must be recognized for any unvested stock option awards outstanding as of the date of adoption on a straight-line basis over the remaining vesting period. We calculate the fair value of options using a Black-Scholes option pricing model. We do not currently have any outstanding options subject to future vesting. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation expense to be reported in the Statement of Cash Flows as a financing cash inflow rather than an
operating cash inflow. In addition, SFAS 123(R) required a modification to the Company’s calculation of the dilutive effect of stock option awards on earnings per share. For companies that adopt SFAS 123(R) using the “modified prospective” method, disclosure of pro forma information for periods prior to adoption must continue to be made.
Accounting For Obligations And Instruments Potentially To Be Settled In The Company’s Common Stock: We account for obligations and instruments potentially to be settled in the Company’s stock in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in a Company’s Common Stock. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company’s own stock.
Under EITF Issue No. 00-19 contracts are initially classified as equity or as either assets or liabilities, in the following situations:
Equity
Contracts that require physical settlement or net-share settlement; and
Contracts that give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement), assuming that all the criteria for equity classification have been met.
Assets or Liabilities
Contracts that require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company); and
Contracts that give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
All contracts are initially measured at fair value and subsequently accounted for based on the current classification. Contracts initially classified as equity do not recognize subsequent changes in fair value as long as the contracts continue to be classified as equity. For contracts classified as assets or liabilities, the Company reports changes in fair value in earnings and discloses these changes in the financial statements as long as the contracts remain classified as assets or liabilities. If contracts classified as assets or liabilities are ultimately settled in shares, any previously reported gains or losses on those contracts continue to be included in earnings. The classification of a contract is reassessed at each balance sheet date.
In accordance with EITF Issue No. 00-19, a transaction which includes a potential for net-cash settlement, including liquidated damages, requires that derivative financial instruments, including warrants and additional investment rights, initially be recorded at fair value as an asset or liability and subsequent changes in fair value be reflected in the statement of operations. The recorded value of the liability for such derivatives can fluctuate significantly based on fluctuations in the market value of the underlying common stock of the issuer of the derivative instruments, as well as in the volatility of the stock price during the term used for observation and the remaining term.
Warrant Derivative Liabilities: We account for warrants issued in connection with financing arrangements in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Pursuant to EITF Issue No. 00-19, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required be classified as a derivative liability. The fair value of warrants classified as derivative liabilities is adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded in current period earnings.
Recent Accounting Pronouncements:
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles. Our Company is currently evaluating the impact of SFAS 162 on its financial statements but does not expect it to have a material effect.
Famous Uncle Al’s Hot Dogs & Grille, Inc.
Notes to Financial Statements
December 31, 2008
1. Franchise Agreements
Under the terms of the franchise agreement, which is for a term of 10 years and contains a renewal option, the franchisees are obligated for the payment of the following fees:
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Franchise Fees - In accordance with the terms of the franchise agreement, the Company receives an initial franchise fee of $17,500 to $60,000.
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Weekly Continuation Fees (Royalties) - The Company is entitled to receive a weekly continuation Fees of 7% of gross sales from the franchisees' operations of the restaurants.
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Advertising Fund - The franchise agreements require the franchisees to contribute to an advertising fund based upon 1%of gross sales. The funds are to be maintained in a separate bank account, and its use is restricted solely for advertising, marketing and public relations programs and materials to develop the goodwill and public image.
Through the terms of the "Franchise Agreement" the Company authorizes individuals and/or companies to form or establish and operate concept restaurants at approved locations. Under the agreement, Famous Al’s obligated to provide certain services both for the opening of, and the ongoing support of, each restaurant. Those services generally include:
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review and approval of restaurant location
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review and approval of plans and layout design
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identification of sources of supply of food purveyors and other suppliers
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provide an operations manual with respect to guidelines and restaurant management techniques
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provide initial and ongoing training in acceptable methods of operations, food preparation techniques, management controls, accounting functions, legal framework of restaurant operations, human resources, promotional programs and public relations
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provide ongoing support with respect to maintaining quality products and insuring such products are offered at competitive prices
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perform ongoing consistency and quality inspections of restaurants in order to maintain uniform acceptable standards
2. Impairment:
In 2007 we purchased a 50% non-operating interest in one of our restaurants. The carrying value of identifiable assets was been reflected as goodwill and is subject to our valuation policy.
Impairment of goodwill: Goodwill and indefinite life intangible assets are initially recorded at fair value and not amortized, but are reviewed for impairment at least annually or more frequently if impairment indicators arise. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. We allocate the fair value of a reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.
In assessing the recoverability of our goodwill management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flow, assumed royalty rates and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors to the assessment of recoverability. We have elected to make the first business day of the last month in the fiscal year the annual impairment assessment date for goodwill. Goodwill valuations will be calculated using an income approach based on the present value of future cash flows of each applicable reporting unit. Changes in economic and operating conditions impacting these assumptions could result in goodwill impairment in future periods.
We could be required to evaluate the recoverability of goodwill and other intangible assets prior to the required annual assessment if we experience disruptions to the business such as end market conditions, unexpected significant declines in operating results, divestiture of a significant component of the Company and market capitalization declines. These types of events and the resulting analysis could result in goodwill impairment charges in the future. In 2008 we determined the future cash flows did not exceed the carrying value and, therefore, recognized impairment charge of $120,000 at December 31, 2008.
3. Income Taxes:
The Company has adopted SFAS 109 which provides for the recognition of a deferred tax asset based upon the value the loss carry-forwards will have to reduce future income taxes and management's estimate of the probability of the realization of these tax benefits. A summary of the deferred tax asset presented on the accompanying balance sheet is as follows:
We have a current operating loss carry-forward of $ 700,000 resulting in deferred tax assets of $230,000. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all our net deferred tax asset.
Utilization of federal and state NOL and tax credit carry forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of NOL and tax credit carry forwards before full utilization.
4. Summary of Long Term Debt:
8% Convertible Debt Issued in 2008
In 2008, we issued $35,000 in convertible promissory notes. The notes bear interest at 8% per annum until paid or converted. Interest is payable upon the maturity date (1 year from issuance). The initial conversion rate is $0.25 per share (subject to certain anti-dilution provisions). The convertible notes mature in 2009.
The convertible debt securities were issued with a non-detachable conversion feature and 70,000 common shares. We evaluate and account for such securities in accordance with EITF Issue Nos. 98-5, 00-19, 00-27, 05-02, 05-04 and 05-08, and SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as amended.
In accordance SFAS No. 133, we evaluate that the holder’s conversion right provision, interest rate adjustment provision, liquidated damages clause, cash premium option (if applicable), and the redemption option (collectively, the debt features) contained in the terms governing the Note to determine whether they are or are not clearly and closely related to the characteristics of the Note. Accordingly, if the features qualify as embedded derivative instruments at issuance and, furthermore if they do or do not qualify for any scope exception within SFAS No. 133 (paragraphs 12-32), then they are required by SFAS No. 133 to be accounted for separately from the debt instrument and recorded as derivative financial instruments.
The note is convertible at the option of the holder at any time and from time to time into Common Stock of the Company at a conversion price of $0.25 per share, subject to certain anti-dilution adjustments.
Interest is payable upon maturity and accrues at 8%. The principal amount matures in 2009, subject to earlier conversion, acceleration or redemption. The notes were issued along with 70,000 shares of common stock.
The values ascribed to the note, the conversion feature of the note, other potential embedded derivative features, and common stock follow the guidance of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock ; SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ; and EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments . The Company evaluated the embedded conversion feature and determined its effect based on EITF Issue No. 00-19. In accordance with EITF Issue No. 00-19, a transaction which includes a potential for net-cash settlement, including liquidated damages, requires that derivative financial instruments, including warrants and the embedded conversion feature, be bifurcated, and initially recorded at fair value as an asset or liability and subsequent changes in fair value be reflected in the statement of operations.
Because the conversion option is indexed to our own stock and a separate instrument with the same terms would be classified in stockholders’ equity in the statement of financial position, the written option is was not considered to be a derivative instrument for the issuer under SFAS 133 paragraph 11(a). Under EITF 00-19 we have determined that the current conversion rate is fixed and determinate and will not change in circumstances outside of management’s control and, accordingly, the conversion feature was not separated from the host contract.
The Company accounted for the common stock based upon the relative fair values of the stock and notes at the date of issue. The Company recorded the stock as a debt discount and additional paid-in capital for its relative fair value of $11,666. The initial value ascribed to the notes was $23,334.
In accordance with the FASB Emerging Issues Task Force (“EITF”) Issue No. 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” and EITF Issue No. 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments,” we determined that the convertible notes did not contains an embedded beneficial conversion feature. The effective conversion price exceeded the stock price on the valuation date.
For convertible debt securities, any recorded discount resulting from the allocation of proceeds to the beneficial conversion feature should be recognized as interest expense over the minimum period from the date of issuance to the date of maturity using the effective yield method.
The aggregate discount of $11,666 will be amortized to interest expense over the term of the note using the straight-line yield method. Amortization expense was $3,472 in 2008.
5. Commitments:
We are obligated to pay Al Stein monthly for the use of certain trademarks and processes necessary for the Famous Uncle Al’s chain. We also rent two offices. One is under a 3 year commitment and the other under a month-month agreement. Current expense as well as future commitments under these agreements is as follows:
Al Stein License Agreement
Office Rent
2008 Expense
$37,750
$16,194
Future Commitments:
20,700
Totals
$0
$20,700
6. Stockholders' Equity
Description of Securities
Common Stock: Our certificate of incorporation authorizes the issuance of 70,000,000 shares of $ 0.001 par value common stock. In general, the holders of our common stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors.
Recent Issuances:
In 2008 we issued 1,114,000 shares of common stock in exchange for $163,500 in cash. All common shares issued are restricted as to transferability.
We also issued 816,000 shares of stock for services valued at $261,080. The shares were valued at $0.28-$0
.40 per share and reflect the market value of the stock at the time of the underlying agreements.
Warrants:
In 2007 we granted 2,000,000 warrants with an exercise price of $0.40 for services. The warrants vest immediately and carry a cashless exercise provision. The holder of the warrants would receive restricted stock as result of net-share settlement. The Financial Accounting Standards Board, “Derivatives Implementation Group” (DIG), Statement 133 Implementation Issue No. A17 concluded that if either party could net share settle the contract, then it would be considered a derivative, regardless of whether the net shares received were readily convertible to cash or restricted for more than 31 days. Under the DIG, however, we determined the settlement of these net share settled contracts qualify for the scope exception in paragraph 11(a) of Statement 133 and tested the provisions for equity treatment under EITF 00-19 and have concluded that treatment them as equity instruments is appropriate. The contract contains an explicit limit on the number of shares to be delivered in a share settlement..
In 2007 we granted 1,700,000 warrants with a fixed exercise price of $0.40 for services. The warrants vest immediately and do not carry a cashless exercise provision. The holder of the warrants would receive restricted stock upon settlement.
The Company used the Black-Scholes option pricing model in valuing the warrants. The inputs for the valuation analysis of the warrants include the market value of the Company’s common stock, the estimated volatility of the Company’s common stock, the exercise price of the warrants and the risk free interest rate. The key inputs for the initial valuation analysis at December 31, 2007 were a volatility of 116%, common stock value of $0.34 and a risk free interest rate of 4.4%. A table summarizing 2008 activity is as follows:
* Amount by which the fair value of the stock at the balance sheet date exceeds the exercise price
7. Management’s Plan
At April 30 2009, we had working capital deficiency of approximately $420,000. We have recognized limited revenue to date. Our operations have been financed to date through sales of our common stock through private placements, loans, sales of franchise territory agreements and royalties from franchisee sales. We require significant additional capital for the expansion of our franchising operations. We believe additional funding will be required to fund our operations until at least December 31, 2009. However, no assurance can be given that additional funds will not be required prior to the expiration of such period or that any funds which may be required will be available, if at all, on acceptable terms. If additional funds are required, our inability to raise such funds will have an adverse effect upon our operations. If adequate capital is not available, we will have to reduce or eliminate our planned expansion activities, which could otherwise ultimately provide significant revenue.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Michael F. Cronin
Certified Public Accountant
Board of Directors and Shareholders
Famous Uncle Al’s Hot Dogs & Grille, Inc.
I have audited the accompanying balance sheet of Famous Uncle Al’s Hot Dogs & Grille, Inc. as of December 31, 2008 and 2007 and the related statements of operations, stockholders’ deficiency and cash flows for the years then ended. The financial statements are the responsibility of management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Famous Uncle Al’s Hot Dogs & Grille, Inc. as of December 31, 2008 and 2007 and the results of its operations, its cash flows and changes in stockholders’ deficiency for the years then ended in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 7 of the financial statements, the Company has incurred a $619,000 loss from operations and consumed $228,000 of cash due to its operating activities. The Company may not have adequate readily available resources to fund operations through December 31, 2009. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 7. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
May 15, 2009
/s/ Michael F. Cronin
Michael F. Cronin
Certified Public Accountant
Orlando, Florida
Item 8.
Item 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Company has had no disagreements with accountants..
Item 8A. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by the annual report, we have carried out an evaluation of the effectiveness of the design and operation of our Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Company’s management, including our President and Chief Executive Officer (our acting principle accounting and finance officer). Based upon that evaluation disclosure controls and procedures are deemed adequate as of the end of the period covered by this report. There have been no significant changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our president and financial officer as appropriate, to allow timely decisions regarding required disclosure.
Item 8B.
OTHER INFORMATION
Subsequent Events:
PART III
ITEM 9.
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(a)
Identifying Directors and Executive Officers
The following is information regarding our sole executive officer and our two directors and their ages as of December 31, 2008:
Set forth below is a brief description of the background and business experience of our sole executive officer and our directors.
Dean Valentino: Mr. Valentino has a B.S. Degree in Business and Marketing from Fairfield University. He has worked in the field of marketing for over twenty years, much of which experience was in the retail food business. Mr. Valentino has owned and operated a 200 seat restaurant for a two-year period, and he has also owned several franchises, including Taco Bell Express, Sylvan Learning Center, and Pak Mail. Mr. Valentino also owns two Exxon franchises, which he has owned since 1991 and 1994, respectively. These Exxon franchises include car wash, service bay, and full-service deli, and combined annual sales exceed nine million dollars annually. Mr. Valentino has his Connecticut real estate license and broker’s license.
Paul Esposito: Mr. Esposito has 17 years of experience as Vice President of Caiati-Drexel Heritage Furnishings, a regional furniture chain for which he had the position from 1978 to 1995. Mr. Esposito was also the founding President of Famous Food Group, Inc., which was originally founded as Toppers Brick Oven Pizza, Inc. in 1995. Mr. Esposito has served as a marketing and administration consultant to a number of public companies in the food, furniture, and manufacturing industry.
Term of Office
Our Directors are appointed to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board or until they resign.
(b)
Significant Employees
We have no significant employees.
(c)
Family Relationships
There are no family relationships among the directors, executive officers or persons nominated or chosen by the Company to become directors or executive officers.
(d)
Certain Legal Proceedings
No director or executive officer has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past five years.
(e)
Compliance with Section 16(A) of the Exchange Act
No Form 3s were filed upon becoming a director/officer or beneficial owner of more than 10% of the Company’s common stock, respectively, prior to the fiscal year ended.
(f)
Audit Committee Financial Expert
The Company has no separately-designated standing audit committee, therefore it has no audit committee financial expert. Management believes the cost related to retaining a financial expert at this time is prohibitive. Further, because of Company’s limited operations, management believes the services of a financial expert are not warranted.
(g)
Identification of Audit Committee
The Company does not have a separately-designated standing audit committee. Instead, the Company’s Directors performs the required functions of an audit committee. Dean Valentino and Paul Esposito are the only members of the Company’s Board of Directors, and its functional-equivalent of an audit committee. None of the directors meet the independent requirements for an audit committee member. The Directors selects the Company’s independent public accountant, establishes procedures for monitoring and submitting information or complaints related to accounting, internal controls or auditing matters, engages outside advisors, and makes decisions related to funding the outside auditory and non-auditory advisors engaged by the Board. The Company has not adopted an audit committee charter, as the current system is deemed by management to be sufficient to meet the Company’s requirements at this time.
(h)
Disclosure Committee and Charter
The Company has no disclosure committee or disclosure committee charter.
(i)
Code of Ethics
The Company does not have a formal Code of Ethics.
ITEM 10.
ITEM 10.
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to executive officers for all services rendered in all capacities to us through and including the date of this report, which is May 15, 2009.
SUMMARY COMPENSATION TABLE
Annual Compensation
Director Compensation; Employment Agreements
We presently only pay one officer and director any salary or consulting fee. Paul Esposito was compensated $33,703 in 2008. We do not have a written employment agreement with any officer or director.
ITEM 11.
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of April 14, 2008, by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each of our directors, (iii) named executive officers and (iv) officers and directors as a group. At this time, only four shareholders fall within these categories. The shareholders listed possess sole voting and investment power with respect to the shares shown.
Name and Address of
Number of Shares of
Percentage of
Title of Class
Beneficial Owner
Common Stock
Common Stock (1)
Common Stock
Dean Valentino
1,840,000
12.50%
Director, President,
Secretary and Treasurer
Paul Esposito
2,300,000
15.6 %
Chief Executive Officer
Richard Michael
2,078,000
14.1 %
Common Stock
All Officers and Directors
6,218,000
42.3 %
as a Group
(1)
The percent of class is based on 14,668,875 shares of common stock issued and outstanding as of December 31, 2008.
The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to
be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
ITEM 12.
ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None of the following parties has, since our date of incorporation, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us, other than noted in this section:
1.
Any of our directors or officers;
2.
Any person proposed as a nominee for election as a director;
3.
Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock;
4.
Any of our promoters;
5.
Any relative or spouse of any of the foregoing persons who has the same house as such person.
Dean Valentino, President and Director loaned the Company $ 20,000 0n 3/27/2008 and $ 7,500 on 10.02.08.
Dean Valentino, President and Director is the Regional Franchisee for Fairfield County, CT.
ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On November 8, 2007, we retained Scarsdale Equities, LLC to serve as a consultant and financial advisor for a term of two years. Scarsdale Equities, LLC has agreed to familiarize itself to the extent it deems appropriate with our business, operations, financial condition, and prospects.
Scarsdale Equities, LLC will advise the Company with respect to our business plan, strategy, debt or equity securities offerings, financial transactions, merger and acquisition services, as appropriate, and review of our presentation and marketing materials as they relate to the investment community.
As compensation for entering into the Agreement, the Company will issue common Stock purchase warrants exercisable to purchase two million (2,000,000) shares of common stock of the Company at $.40 per share. The warrants will be exercisable for seven years from the date of issuance and contain cashless exercise provisions. The warrants are broken down into two holders as follows:
3.
N. Scott Fine, a registered principal with Scarsdale Equities, LLC will hold a warrant exercisable to purchase 1,400,000 share of common stock of the Company at $.40 per share. The Warrant is exercisable for seven years from the date of issuance and contains cashless exercise provisions.
4.
Scarsdale Equities, LLC will hold the other warrant exercisable to purchase 600,000 shares of common stock of the Company at $.40 per share. The Warrant is exercisable for seven years from the date of issuance and contains cashless exercise provisions.
On December 7, 2007, we retained JARS FAMILY GROUP,LLC (“Advisor”) to serve on the Company’s Advisory Board and to act as an advisor to the Company. The parties hereto agree that the services to be provided hereunder by Advisor will be rendered primarily by John Kolaj. Service on the Advisory Board shall commence immediately upon formation of the advisory board.
JARS FAMILY GROUP.LLC will advise the Company with respect to our operations, financial condition, business plan and strategy;
As compensation for entering into the Agreement, the Company will issue common Stock purchase warrants exercisable to purchase one million five hundred thousand (1,500,000) shares of common stock of the Company at $.40 per share. The warrants will be exercisable for seven years from the date of issuance. The warrant is exercisable for seven years from the date of issuance.
On December 7, 2007, we retained C.C.R.I Corporation, a Colorado corporation (“Consultant”) to perform and provide investor relations and development services for the Company until December 7, 2009. Consultant will perform the Services with the assistance and full participation of Mr. Malcolm McGuire and his associates.
As compensation for entering into the Agreement, the Company will issue common Stock purchase warrants exercisable to purchase two hundred thousand (200,000) shares of common stock of the Company at $.40 per share. The warrants will be exercisable for seven years from the date of issuance.
UNREGISTERED SALE OF EQUITY SECURITIES:
The Warrants issued to N. Scott Fine and Scarsdale Equities, LLC were not registered under the Securities Act of 1933, as amended (the "Securities Act") at the time of issuance, and therefore may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. For these issuances, the Company relied on the exemption from federal registration under Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder, based on the Company's belief that the offer and sale of the warrants did not involve a public offering as each person/Company was "accredited" and no general solicitation has been involved.
The disclosures set forth
The Warrants issued to JARS FAMILY GROUP.LLC and C.C.R.I. CORPORATION were not registered under the Securities Act of 1933, as amended (the "Securities Act") at the time of issuance, and therefore may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. For these issuances, the Company relied on the exemption from federal registration under Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder, based on the Company's belief that the offer and sale of the warrants did not involve a public offering as each person/company was "accredited" and no general solicitation has been involved.
On December 7, 2007 we formed an Advisory Board for the purpose of advising management regarding various aspects of the Company’s business. The Board of Directors will appoint members.
Two members have been appointed to the Advisory Board
1)
N. Scott Fine of Scarsdale Securities, who had previously entered into an agreement with the Company to provide advisory services.
2)
John Kolaj of JARS FAMILY GROUP.LLC, who has entered into an agreement to serve on the Advisory Board.
ITEM 13.
ITEM 13.
EXHIBITS
(a) Financial Statements: included in Item 7 above.
(b) Exhibits
23.1
Consent of Independent Registered Public Accounting Firm
Filed herewith
Certification pursuant to Section 301 of the Sarbanes-Oxley Act of 2002
Filed herewith
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for Company’s audit of annual financial statements and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were:
:
$ 9,000
-
Michael Cronin
:
$ 9,000
(2) Includes Audit-Related Fees
(3) Tax Fees - None
(4) All Other Fees - None
(5) The Company’s Board of Directors, acting as audit committee, pre-approves all accounting-relating activities, including both audit and non-audit services, prior to the performance of any services by an accountant or auditor.
(6) The percentage of hours expended on the principal accountant’s engagement to audit Company’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full time permanent employees was 0.
* * * * *
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FAMOUS UNCLE AL’S HOT DOGS & GRILLE, INC.
By: /s/ Dean Valentino
President
Dated: May 15, 2009
Dean Valentino
Director, Secretary and Treasurer
By: /s/ Paul Esposito
Chief Executive Officer
Dated: May 15, 2009
Paul Esposito
INDEX TO EXHIBITS
EXHIBIT
DESCRIPTION
STATUS
23.1
Consent of Independent Registered Public Accounting Firm
Filed herewith
Certification pursuant to Section 301 of the Sarbanes-Oxley Act of 2002
Filed herewith
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith