Item 1. Business.
Overview
Organization & Business Model
We are a Nevada corporation incorporated in April 2006, with our principal office at 1511 E. 2nd Street, Webster City, Iowa 50595. Our telephone number is (515) 724-7976. We own proprietary wood-burning oven technology and process technique, which produces artisan quality of “Smoke-BakedTM” fish and meat that we believe to be superior in flavor, purity and nutritional wholesomeness to all “value-added” smoked food products currently being produced by commercial smoked food processors.
We are a development stage company, with the intent to procure capital to execute our branded marketing business plan. Having encountered financial and operational difficulties and failures relating to the consumer trends and economics of our specialized industry segment, we have generated very minimal revenue to date from wholesale and retail distribution of our product. However, we have enhanced our business model through creation of strategic operating and financial affiliations, and we intend to grow our revenue in 2015.
We plan to sell our line of smoked foods principally under the Smoky Market brand through multiple channels wholesale and retail distribution that include sales to food distributors, direct to commercial end-users and grocery retailers, and certain of our products will be sold retail over the Internet. We expect to also produce a certain amount of product for private label distribution.
Additionally, in the foreseeable future we intend to produce certified kosher smoked foods and to distribute this line of products under our “Smoky Kosher” brand through mostly the same distribution channels. In the future, when our earnings grow, we intend to develop a national chain of fast-casual, gourmet smoked food restaurants under the name “SmokeChefTM” that we believe would be an innovative concept of franchise operation within the restaurant industry.
Market Opportunity
Within the value-added, prepared food marketplace, we see a significant lack of artisan smoked fish and meat products that are truly wholesome, naturally wood-smoked by burning wood, and free of additives and chemical preservatives. We believe this specialized marketplace to be virtually untapped and without any major smoked food brand comparable in quality. We believe our two packaged food brand concepts, “Smoky Market” and “Smoky Kosher”, will enable us to penetrate national markets for sales to wholesale and retail customers in the value-added packaged food sector. We believe our business model to be a niche market opportunity to produce and distribute artisan quality smoked foods, at competitive prices, within a highly processed, commercial prepared food marketplace.
Food Production & Distribution
Proprietary Wood-burning Oven Technology & Process Technique
Our custom-engineered, wood-burning oven delicately Smoke-Bakes fish and meat with naturally moist smoke-heat, which is produced by the burning of freshly-cut hickory and without the use of curing or brining process, or injection of other forms of additives and chemical preservatives. Our products include fish, beef, pork, poultry and lamb that are fully cooked and vacuum-packaged for convenience, freshness and ease of preparation by foodservice operators and home consumers alike.
By contrast, the smoked food produced by commercial processors using standardized smokehouse-type ovens is essentially that of smoke-flavoring product, as these ovens use smoke generators that smolder hickory sawdust to create smoke. The fish and meat are smoked while being cooked by gas or electric heat with added moisture, and high concentrations of water, sodium, sugar, and various forms of additives and preservatives (brining & curing solutions) are used in the process.
In July 2011, we entered into a Purchase and Lease Agreement (the “Sale/Lease Agreement”) with SMKY Asset Fund LLC (the “Lessor”) related to our smoker-oven system. Pursuant to the Sale/Lease Agreement, we sold the smoker-oven system to the Lessor for a purchase price equal of $240,000 (the “Sale Price”). In addition, we are required to issue to Lessor a warrant to purchase a share of common stock for each $1.00 of the Lease Price. The warrants have an exercise price of $0.50 per share, a five-year term and include net exercise provisions. We leased back the smoker-oven system for rent equal to $0.20 per pound of product produced using the smoker-oven up to a maximum annual return of 30% on the sum of the Sale Price ($240,000) or $72,000. The Sale/Lease Agreement has a 10-year term and includes a provision that we must repurchase the smoker-oven system at any time after July 25, 2014 providing that the market price for our common stock has exceeded $0.50 for thirty trading days. The repurchase price is a number of shares of common stock with a fair market value equal to 20 times the Sale Price, plus $5,000.
On July 1, 2014, Smoky Market Foods, Inc. (the “Company”) entered into a Business Development License Agreement (the “Agreement”) with Mary Ann’s Specialty Foods, Inc. (“Mary Ann’s”). Pursuant to the terms of the Agreement, the Company granted to Mary Ann’s (a) an exclusive right to develop, manufacture, label, package, store, and distribute, under the Company’s trademarks and trade names (the “Marks”), the Company’s meat and fish products, and to process orders and collect sales; and (b) a non-exclusive, non-transferable license to the Marks. Mary Ann’s also agreed to (a) generate sales for the Company’s products, with the billing of such sales to be invoiced and proceeds collected solely by Mary Ann’s; and (b) provide a minimum of $650,000 of financing for inventory and receivables for the Company to be able to grow sales of its products. Mary Ann’s will retain a portion of sales proceeds as compensation for its processing (cost of raw product, materials, labor & profit), financing and brokerage services, and remit the remaining proceeds to the Company, which represent the Company’s margin of gross profit. As additional consideration, the Company agreed to issue to Mary Ann’s and its designees 5,000,000 shares of the Company’s common stock. The Agreement has a one-year term, which will renew automatically each year for an additional period of one year unless either party provides written notice of non-renewal.
USDA-Inspected Meat Production and Availability of Raw Materials
We presently outsource, and for the foreseeable future, expect to continue to outsource, our commercial smoked food processing to Mary Ann’s Specialty Foods (“Specialty Foods”). Specialty Foods is a USDA-approved contract food processing company located in Webster City, Iowa and operates a 70,000 square foot processing facility, which sits on 15 acres of family-owned land, and is expected to be responsible for our food production and distribution requirements. In order to establish production capability and complete the development of our smoked food products, we entered into an Amended and Restated Processing Agreement dated July 1, 2006 with Specialty Foods, which agreement was further modified by a Second Amended and Restated Processing Agreement dated October 30, 2009.
Pursuant to the processing agreement, Specialty Foods has agreed to process the smoked meats for our business in return for a processing fee based on its actual costs of production, labor costs, packaging materials costs, allocated overhead costs, and a set amount of profit based on the amount of packaged products produced. We agreed that Specialty Foods would be our exclusive processor for meat products, subject to certain limitations. The agreement is based upon a single oven capable of producing at least 100,000 pounds of smoked meat and/or fish per month or more depending upon the production item mix, and we have the option to construct an addition building adjacent to Specialty Foods’ processing facility to install additional smoker-oven systems. The term of the agreement is ten years from October 30, 2009, with an option to extend the agreement for three additional 10-year periods (subject to early termination in the event of default).
With respect to meat, fish and other raw materials used to make our products, we require that all of our raw beef, pork, lamb and poultry be raised without growth hormones, steroids and antibiotics, and our salmon is farmed naturally in “open-pen” ocean waters. Market prices for meat, fish and other food items are subject to constant fluctuation and frequent shortages of item availability, which we expect to mitigate through economies-of-scale from increased production.
Kosher Line
We have created the Smoky Kosher brand for production and marketing of a line of fully-certified kosher smoked foods, which will be distributed wholesale to commercial end-users and grocery retailers, and retail to consumers over the Internet. To produce our kosher line, we intend to affiliate with an established USDA processor of kosher foods and install an oven for contract production in principally the same manner as we are doing with Specialty Foods.
Co-Pack Production
We plan to use co-packing affiliates to produce a selection of specialty gourmet items, including one-dish meals of smoked meat/fish pasta, casseroles, quiches, and soup. We have not entered into agreements with any co-packing facilities, but have entered into discussions with several and believe that suitable arrangements can be reached when we are ready to commence such operations. Our plan is to cause Specialty Foods to bulk-ship smoked meat and fish ingredients to the co-packers. There, the various menu items will be packaged, and shipped to our planned regional distribution centers.
Process & Price Value
Our wood-smoking process is expensive. Costs include obtaining freshly cut timber, labor associated with the smoking process, and having to absorb a 25% to 30% cook shrinkage loss in the process. Consequently, Smoky Market brand smoked foods cost more to produce and have higher price points than many competing smoked food products. However, the existence of a market for higher-priced organic foods and other prepared foods that are advertised as 100% natural, low-sodium and/or free of additives suggests that customers will pay more for products they know to be of premium quality, especially prepared foods that are nutritionally wholesome, tasty, and convenient. Based upon our review of the nutritional labels of our competitors, we believe that the absence of any preservatives, brining solutions, liquid smoke and similar additives in Smoky Market brand smoked meats foods distinguishes our product from smoked meat products currently on the market.
Smoked Food Products
Below is our line of smoked foods that we expect to produce and market under the Smoky Market brand, with certain of these items intended to also be produced and sold under our Smoky Kosher brand, and featured in our SmokeChef restaurant concept.
Our line of wood-smoked foods presently includes the following:
Entrée Items (Individual serving portions that are ready to “heat’n serve”)
● Pork Loin Baby Back Ribs
● Pork Country-Style Ribs & Loin Chops
● Beef Spare Ribs
● Carved Boneless Chicken Breast
● Cornish Game Hen
● Turkey Breast, Thigh & Leg
● Rack Of Lamb & Lamb Chops
● Duck
● Salmon & other fish
Sliced, Pulled or Cut Smoked Foods (Sliced, pulled or cut from the bone and packaged in portion servings for sandwiches, or to add to salads, tacos, casseroles & soups)
● Beef Sirloin Tri-Tip & Brisket
● Pork Loin & Shoulder Roast
● Carved Chicken Strips
● Turkey Breast
Side Order Foods
● Hickory Smoke-BakedTM Beans
● Creamy-Garlic Coleslaw Dressing & Veggie Dip
● Southern-Style Barbecue Dipping Sauce
Marketing & Operations
We have completed a re-branding design of the Smoky Market logo, which depicts a more contemporary, gourmet quality appeal to the brand image. Our website, at www.smokymarket.com, while now only featuring general product and company information, is expected to become live for on-line ordering of certain of our smoked foods for both our wholesale and retail customers in January 2015.
We believe the achievement of approximately 30% usage of our existing smoker-oven’s production capacity will enable us to attain a positive cash flow and we plan to market our Smoke-Baked salmon as our primary introductory product to demonstrate our brand quality given what we perceive to be the uniqueness of this product in the smoked fish marketplace. Entering 2015, we plan to produce other meat and poultry items to extend our line of distribution. Since we are producing “portion-packaged” product for commercial end-users, we can very easily and efficiently integrate precise packaging into the distribution of our foods through wholesale channels for grocery retail sales and for direct consumer sales over the Internet.
Strategic Development Agreement
On July 1, 2014 we entered into a Business Development License Agreement (the “Agreement”) with Specialty Foods. Pursuant to the terms of the Agreement, we granted Specialty Foods (a) an exclusive right to develop, manufacture, label, package, store, and distribute, under the Company’s trademarks and trade names (the “Marks”), the Company’s meat and fish products, and to process orders and collect sales; and (b) a non-exclusive, non-transferable license to the Marks. Specialty Foods also agreed to (a) generate sales for our products, with the billing of such sales to be invoiced and proceeds collected solely by Specialty Foods; and (b) provide a minimum of $650,000 of financing for inventory and receivables for the Company to be able to grow sales of our products. Specialty Foods will retain a portion of sales proceeds as compensation for its processing (cost of raw product, materials, labor & profit), financing and brokerage services, and remit the remaining proceeds to us, which represents our margin of gross profit. As additional consideration, we agreed to issue to Specialty Foods and its designees 5,000,000 shares of the Company’s common stock. The Agreement has a one-year term, which will renew automatically each year for an additional period of one year unless either party provides written notice of non-renewal.
Specialty Foods has begun to produce and sell product under the terms of the Agreement and we expect sales of our smoked foods to grow through the efforts of Specialty Foods’ marketing organization as they introduce our smoked salmon to their existing customers.
Regional Sales & Fulfillment Operations
In addition to sales of our products to be generated through the efforts of Specialty Foods under our development agreement, we intend to establish regional sales and fulfillment operations that will enable us to have dedicated sales agents in concentrated market areas that only sell Smoky Market brand products. These regional operations will be a combination of company-operated facilities and facilities that are operated under contract with an established food sales organization. We have determined that the greatest level and speed of national market penetration of our brand lines can be achieved by directly selling to commercial end-users, and that our most competitive pricing structure can be realized by shipping wholesale product orders for next-day ground delivery by UPS from these regional facilities. We expect this sales and distribution model to be considerably cost-efficient and the most effective application for our capital and human resource.
In connection with our development agreement with Specialty Foods and the capital they are providing for inventory and receivable financing, and with additional capital we intend to raise, we plan to begin our direct selling and fulfillment operations in January 2015 from our facility in Webster City, IA, which will enable sales and provide next-day ground delivery to commercial end-users and grocery retailers within a surrounding territory of seven Mid-West states. Additionally, we are currently negotiating with food sales contractors for regional facility operations in the Pacific Northeast, central California, Florida and the Northeast. We foresee the success of our regionalized sales and fulfillment platform becoming a viable revenue- and income-generating model that may be duplicated for continued entrepreneurial market launch operations in regional territories across the country.
General Information
Intellectual Property
We own the recipes for substantially all of our products, certain registered and unregistered trademarks and tradenames, including Smoky Market®, Smoke-Baked™, Smoky Kosher™, and SmokeChef™, along with design features related to the ovens used for smoking our products. We have not registered any patents, but we expect to be able to secure certain patent rights for the diffusing system attached to our smoker-oven from the firebox.
On July 1, 2014, Smoky Market Foods, Inc. (the “Company”) entered into a Business Development License Agreement (the “Agreement”) with Mary Ann’s Specialty Foods, Inc. (“Mary Ann’s”). Pursuant to the terms of the Agreement, the Company granted to Mary Ann’s (a) an exclusive right to develop, manufacture, label, package, store, and distribute, under the Company’s trademarks and trade names (the “Marks”), the Company’s meat and fish products, and to process orders and collect sales; and (b) a non-exclusive, non-transferable license to the Marks.
Government Regulation
As a distributor of food products and planned restaurant operator, we are subject to regulation by the U.S. Food and Drug Administration, or FDA, the U.S. Department of Agriculture, or USDA, and to licensing and regulation by state and local health, sanitation, building, zoning, safety, fire and other authorities. In addition, the operations of our food processor are subject to regulation under the Federal Food, Drug and Cosmetic Act, the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable Agricultural Commodities Act, the Nutrition Labeling and Education Act of 1990, and the rules issued under these laws. The FDA regulates standards of identity for specified foods and prescribes the format and content of information on food product labels. The USDA imposes standards for product quality and sanitation including the inspection, labeling and compliance of meat and poultry products and the grading and commercial acceptance of shipments from our suppliers.
Costs of compliance with such laws and regulations are presently insignificant. If we or our food processor were to be found to be out of compliance with such laws, particularly those related to the production, labeling and handling of food, we could be subject to significant fines and forced to discontinue our operations until all material violations were addressed. Were our relationship with our food processor to terminate, we would have to find another USDA-approved meat processor or qualify as such ourselves. There are a limited number of USDA-approved meat processors and barriers to entry are significant (with an estimated start-up cost of not less than $2 million dollars and required time of at least one year for qualification).
Environmental Laws
We are not required to obtain any environmental permits and do not use any hazardous materials in connection with the operation of our business. Accordingly, we have not incurred, and do not expect to incur, any material expenses associated with environmental compliance.
Competition
In the retail packaged food segment, we expect our competitors will include the hundreds of established companies selling their smoked foods over the Internet and in supermarkets. Our food will compete on the basis of price, flavor, healthfulness and brand recognition. We believe that our food will compete favorable with competing products in terms of flavor and healthfulness. With respect to price, we expect our prices to be competitive with those of specialty stores and Internet sellers, but slightly above that of major retail chains that sell typical smoked meats with high concentrations of sodium, sugar and additives. Many of our competitors will have stronger brand recognition than we do.
Research and Development
We do not have any historical research and development expenses. We plan to add products to our lines as our business develops and expect that research, developing and testing of new or improved recipes and products will be an ongoing part of our business.
Employees
We currently have two paid full-time employees that include Edward Feintech, our CEO and a controller, and three paid part-time people who are officers including Shane Campbell, CPA, our Chief Financial Officer, Dennis Harrison, PhD, our Chief Information Officer, and Marli Craig, our Secretary, who provide services on a part-time basis as consultants for which they are paid in cash and/or stock.
We believe the execution of our business plan set forth above will require the hiring of approximately 30 to 50 people over the next three years to staff our corporate and field management team. The actual number of employees we will hire in the next 12 months depends upon our success in obtaining capital and how rapidly we can expand our operations.
Item 1A.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. In addition to historical information, the information in this prospectus contains forward-looking statements about our future business and performance. Our actual operating results and financial performance may be different from what we expect as of the date of this prospectus. The risks described in this prospectus represent the risks that management has identified and determined to be material to our company. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also materially harm our business operations and financial condition.
We have generated only a nominal amount of revenue and may be unable to generate significant revenue in the future.
We were incorporated in April 2006 and remain in the process of commencing sustainable revenue-generating operations. As a result, we have generated only a nominal amount of revenue, and all of our plans are speculative. We may be unable to generate or expand revenue at the rate anticipated. If we do not generate significant revenue in the future, or if costs of expansion and operation exceed revenues, we will not be profitable. We may be unable to execute our business plan, generate significant revenue or be profitable.
The inexperience of our key management, and our limited operating history and evolving business plan, make it difficult to evaluate our performance and forecast our future.
Our key management individuals have experience in the restaurant industry, but have limited or no experience in internet retailing, establishing a national food service business (directly or through franchise arrangements) or operating a reporting issuer. Our limited operating history and limited experience make it difficult to evaluate our ability to generate revenues, manage growth, obtain necessary capital, manage costs, create profits, and generate cash from operations. Specifically, our ability to do the following may be impaired:
● implement our business plan (which may be based upon faulty assumptions and expectations arising from our limited experience);
● obtain capital necessary to continue operations and implement our business plan;
● comply with SEC rules and regulations and manage market expectations;
● differentiate ourselves from our competitors; and
● establish a significant retail and restaurant customer base.
If we fail to successfully manage these risks, we may never expand our business or become profitable and our business may fail.
We will be unable to implement our business plan if we cannot raise sufficient capital and may be required to pay a high price for capital.
As of December 31, 2013, we had $1,128 in cash and cash equivalents. We need to obtain a significant amount of additional capital to implement our business plan and meet our financial obligations as they become due. We may not be able to raise the additional capital needed or may be required to pay a high price for capital. Factors affecting the availability and price of capital may include the following:
● the availability and cost of capital generally;
● our financial results, including our liquidity situation;
● the market price of our common stock;
● the experience and reputation of our management team;
● market interest, or lack of interest, in our industry and business plan;
● the trading volume of, and volatility in, the market for our common stock;
● our ongoing success, or failure, in executing our business plan;
● the amount of our capital needs; and
● the amount of debt, options, warrants and convertible securities we have outstanding.
We may be unable to meet our current or future obligations or to adequately exploit existing or future opportunities if we cannot raise sufficient capital. If we are unable to obtain capital for an extended period of time, we may be forced to discontinue operations.
Our auditors have included an explanatory paragraph in our financial statements regarding our status as a going concern.
Our audited financial statements included in this prospectus were prepared on the assumption that we will continue as a going concern. Our independent registered public accounting firm has stated that it substantially doubts our ability to continue as a going concern in a report dated October 30, 2014. This doubt is based on the fact that we have had minimal revenues, have had negative working capital at December 31, 2012 and 2013, have incurred recurring losses and recurring negative cash flow from operating activities, and have an accumulated deficit.
The packaged food market is competitive, and we may be unable to successfully capture retail customers.
The market for packaged meat products, and competing packaged products, is highly competitive. We propose to sell packaged meat products over the Internet and at retail locations. We may be unable to differentiate ourselves in the marketplace and compete successfully against existing or future competitors of our business. In order to succeed, we will be required to take customers away from established smoked meat and fish brands and alternative food products sold over the Internet or at retail stores. Our retail products will be sold at higher prices than some of our competitor’s products, and consumers may not differentiate the quality of our products or may not be willing to pay higher prices. If we fail to establish customers for our packaged food business, it is unlikely that we will generate significant revenue or become profitable, and in the long run our business will likely fail.
The risk of product contamination and recall may harm our public image and result in decreased revenues and harm to our business.
There is a risk that our food processor could produce contaminated meat or other products that we would ship or serve at our restaurant-markets or kiosks. If such an event occurs, we may be required to recall our products from retail stores, affiliate warehouses and from the restaurant outlets being served. A product recall would increase costs, result in lost revenues and harm our public relations image, in addition to exposing us to liability for any personal injury resulting from such contamination.
The availability of raw meat, fish and other food products may change without notice, and the fluctuating cost of these products may unexpectedly increase our operating costs and harm our business.
The costs of obtaining the meat, fish and other food products required for our products are subject to constant fluctuations and frequent shortages of item availability. Adequate supplies of raw meat, fish and other food products may not always be available, and the price of raw meat, fish and other food products may rise unexpectedly, resulting in increased operating costs, potential interruptions in our supply chain, and harm to our business.
Adverse publicity regarding fish, poultry or beef could negatively impact our business.
Our business can be adversely affected by reports regarding mad cow disease, Asian bird flu, meat contamination within the U.S. generally or food contamination generally. In addition, concerns regarding hormones, steroids and antibiotics may cause consumers to reduce or avoid consumption of fish, poultry, or beef. Any reduction in consumption of fish, poultry, or beef by consumers, would harm our revenues, financial condition and results of operations.
Our supply chain may be subject to shipping losses, various accidents, or spoilage, which would decrease revenues and potentially lead to a loss of customers.
We have contracted with a food processor that will be responsible for shipping our processed products, restaurant-stores or consumers to distribution centers or marketing affiliates. Shipping losses, various accidents and product spoilage during this process may lead to decreased sales, potentially disgruntled commercial customers and possible shortages at our distribution centers and retail locations. Repeated or extensive problems of this nature would harm our reputation and revenues.
We may lose our processor affiliation or experience a breakdown in our single processing oven system, substantially harming our ability to generate revenues until another processor is located.
We are completely dependent upon Mary Ann’s Specialty Foods, Inc., and upon a single oven-system located at their facility, to produce our smoked foods in order to operate the business and generate revenue. If our oven system breaks down, becomes contaminated or is removed from Specialty Foods’ facility, we would experience an interruption in our ability to supply products to customers. This would harm our relationships with our customers and Internet affiliates, and harm our revenues in the short run. Any long-term interruptions in our ability to produce smoked foods would significantly limit our ability to continue operations.
We have entered into a sale/leaseback transaction with respect to our smoker-oven, which creates risk of loss if we default and may inhibit our cash flow.
In July 2011, we entered into a Purchase and Lease Agreement with SMKY Asset Fund LLC, or the Lessor, related to our smoker-oven system. Pursuant to this Purchase and Lease Agreement we sold the smoker-oven system to the Lessor and are required to pay rent equal of $0.20 per pound of product produced using the smoker-oven up to a maximum amount of annual rent equal to a 30% return on the sum of the purchase price and $5,000. This rent will diminish our cash flow as we begin to generate revenue, and there is some risk that we may default under the lease and forfeit any right to use the smoker-ovens, which is the foundation of our business.
We cannot repurchase the smoker-oven system until the first date after July 25, 2014 that the market price of our common stock has remained at $0.50 for thirty trading days. The repurchase price is a number of shares of common stock with a fair market value equal to 20 times the sum of the purchase price ($240,000) , plus (b) $5,000. If our market price does not exceed $0.50 for thirty trading days we will be unable to repurchase our smoker-oven system (and will be required to continue to pay rent). Any repurchase of the smoker-oven system will be dilutive to our shareholders.
We are dependent upon key personnel to manage business and the loss of such personnel could significantly impair our ability to implement our business plan.
We are highly dependent upon the efforts of management, particularly Edward C. Feintech, our Chairman, President and Chief Executive Officer. The number of qualified managers in the smoked-food industry is limited. As our business grows, we will need to recruit executive and regional managers who are capable of implementing our business plan. The e-commerce and restaurant industries are highly competitive, and we may be unable to attract qualified management personnel. If we are unsuccessful in retaining or attracting such employees, our ability to grow and service capacity will be harmed.
Labor disputes affecting common carriers and foodservice distributors may hamper our ability to deliver our product to customers and harm our business.
We will be dependent upon UPS and other package delivery contractors and foodservice distributors to ship internet orders to customers and products to our foodservice concept outlets. Labor disputes involving package delivery contractors, or other events creating delays, unpredictability or lost increases in the express delivery market may significantly damage our shipping and delivery capability. This would increase our costs, likely cause us to fail to comply with delivery commitments to our customers, and eventually harm our ability to generate revenues.
Our business may be affected by increased compensation and benefits costs.
We expect labor costs to be a significant expense for our business. We may be negatively affected by increases in workers’ wages and costs associated with providing benefits, particularly healthcare costs. Such increases can occur unexpectedly and without regard to our efforts to limit them. If such increases occur, we may be unable to pass them along to the consumer through product price increases, resulting in decreased operating results.
Changes in general economic and political conditions affect consumer spending and may harm our revenues and operating results.
Our country’s economic condition affects our customers’ levels of discretionary spending. A decrease in discretionary spending due to a recession or decreases in consumer confidence in the economy could affect the frequency with which our customers choose to purchase smoked-foods or dine out or the amount they spend on smoked-food or meals while dining out. This would likely decrease our revenues and operating results.
Compliance with existing and new regulations of corporate governance and public disclosure may result in additional expenses.
Compliance with changing laws, regulations, and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and other SEC regulations, requires large amounts of management attention and external resources. This may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
Our directors, executive officers and principal stockholders have effective control of the company, preventing non-affiliate stockholders from significantly influencing our direction and future.
Our directors, officers, and 5% stockholders and their affiliates control a significant percentage of our outstanding shares of common stock and are expected to continue to control a significant percentage of our outstanding common stock following any financing transactions projected for the foreseeable future. These directors, officers, 5% stockholders and affiliates effectively control all matters requiring approval by the stockholders, including any determination with respect to the acquisition or disposition of assets, future issuances of securities, declarations of dividends and the election of directors. This concentration of ownership may also delay, defer, or prevent a change in control and otherwise prevent stockholders other than our affiliates from influencing our direction and future.
There is a public market for our stock, but it is thin and subject to manipulation.
	The volume of trading in our common stock is limited and can be dominated by a few individuals. The limited volume can make the price of our common stock subject to manipulation by one or more stockholders and will significantly limit the number of shares that one can purchase or sell in a short period of time. An investor may find it difficult to dispose of shares of our common stock or obtain a fair price for our common stock in the market.
The market price of our common stock may be harmed by our need to raise capital.
We need to raise additional capital in order to roll out our business plan and expect to raise such capital through the issuance of preferred stock, common stock and/or convertible debt. Because securities in private placements and other transactions by a company are often sold at a discount to market prices, this need to raise additional capital may harm the market price of our common stock. In addition, the re-sale of securities issued in such capital-raising transactions, whether under Rule 144 or a re-sale registration statement, may harm the market price of our common stock.
The market price for our common stock is volatile and may change dramatically at any time.
The market price of our common stock, like that of the securities of other early-stage companies, is highly volatile. Our stock price may change dramatically as the result of announcements of our quarterly results, the rate of our expansion, significant litigation or other factors or events that would be expected to affect our business or financial condition, results of operations and other factors specific to our business and future prospects. In addition, the market price for our common stock may be affected by various factors not directly related to our business, including the following:
● intentional manipulation of our stock price by existing or future stockholders;
● short selling of our common stock or related derivative securities;
● a single acquisition or disposition, or several related acquisitions or dispositions, of a large number of our shares;
● the interest, or lack of interest, of the market in our business sector, without regard to our financial condition or results of operations;
● the adoption of governmental regulations and similar developments in the United States or abroad that may affect our ability to offer our products and services or affect our cost structure;
● developments in the businesses of companies that purchase our products; or
● economic and other external market factors, such as a general decline in market prices due to poor economic indicators or investor distrust.
Our ability to issue preferred stock and common stock may significantly dilute ownership and voting power, negatively affect the price of our common stock and inhibit hostile takeovers.
Under our Articles of Incorporation, as amended, we are authorized to issue up to 10 million shares of preferred stock and 200 million shares of common stock without seeking stockholder approval. Our board of directors has the authority to create various series of preferred stock with such voting and other rights superior to those of our common stock and to issue such stock without stockholder approval. Any issuance of such preferred stock or common stock would dilute the ownership and voting power of existing holders of our common stock and may have a negative effect on the price of our common stock. The issuance of preferred stock without stockholder approval may also be used by management to stop or delay a change of control, or might discourage third parties from seeking a change of control of our company, even though some stockholders or potential investors may view possible takeover attempts as potentially beneficial to our stockholders.
We are unlikely to pay dividends on our common stock in the foreseeable future.
We have never declared or paid dividends on our stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business. We do not anticipate paying any cash dividends in the foreseeable future, and it is unlikely that investors will derive any current income from ownership of our stock. This means that your potential for economic gain from ownership of our stock depends on appreciation of our stock price and will only be realized by a sale of the stock at a price higher than your purchase price.
Our common stock is a “low-priced stock” and subject to regulation that limits or restricts the potential market for our stock.
Shares of our common stock are “low-priced” or “penny stock,” resulting in increased risks to our investors and certain requirements being imposed on some brokers who execute transactions in our common stock. In general, a low-priced stock is an equity security that:
● Is priced under five dollars;
● Is not traded on a national stock exchange;
● Is issued by a company that has less than $5 million in net tangible assets (if it has been in business less than three years) or has less than $2 million in net tangible assets (if it has been in business for at least three years); and
● Is issued by a company that has average revenues of less than $6 million for the past three years.
We believe that our common stock is presently a “penny stock.” At any time the common stock qualifies as a penny stock, the following requirements, among others, will generally apply:
● Certain broker-dealers who recommend penny stock to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to a transaction prior to sale.
● Prior to executing any transaction involving a penny stock, certain broker-dealers must deliver to certain purchasers a disclosure schedule explaining the risks involved in owning penny stock, the broker-dealer’s duties to the customer, a toll-free telephone number for inquiries about the broker-dealer’s disciplinary history and the customer’s rights and remedies in case of fraud or abuse in the sale.
● In connection with the execution of any transaction involving a penny stock, certain broker-dealers must deliver to certain purchasers the following:
● bid and offer price quotes and volume information;
● the broker-dealer’s compensation for the trade;
● the compensation received by certain salespersons for the trade;
● monthly accounts statements; and
● a written statement of the customer’s financial situation and investment goals.
Item 1B.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Item 2. Properties.
We use office and cold storage warehouse space in the facility of Specialty Foods for free. We have no lease with respect to such space, and our informal arrangement could be terminated at any time.
Pursuant to an Option Agreement dated October 30, 2009, we have an option to purchase from Specialty Foods an approximately 15-acre parcel of real estate on which Specialty Foods is located in Webster City, Iowa during an approximately seven-year term at a purchase price equal to the greater of $3,000,000 (plus the cost of additional improvements) and the appraised value of property at the time the option is exercised. If we exercise the option, we would be required to lease back to Specialty Foods the buildings in which it conducts its operations in exchange for rent of $10,000 per month, subject to certain adjustments.
In January 2008, we entered into an agreement relating to the 29 East Main Cafe, located at 29 East Main Street, Los Gatos, California 95030. Under the terms of the purchase agreement, we acquired the existing leasehold improvements and equipment and assumed the existing lease. We remodeled this location and opened it as a Smoky Market restaurant, but in March 2010 we closed the restaurant. We have since ceased paying the rent payments on this property. We understand that the property was subsequently leased out by the fee owner effective February 2011. A liability for the remaining lease payments due under the lease agreement has been recorded in the financial statements as part of the impairment loss described below.
Item 3.
Item 3. Legal Proceedings.
We are not engaged in any legal proceedings, nor are we aware of any pending or threatened legal proceedings that, singly or in the aggregate, would reasonably be expected to have a material adverse effect on our business, financial condition or results of operations.
Item 4.
Item 4. Mine Safety Disclosures
This item is not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Price
The table below sets forth the high and low bid quotations for our common stock as reported on the Pink Sheets for the periods indicated.
The quotations set forth above reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Outstanding Shares and Number of Stockholders
As of November 15, 2014, there were 191,233,345 shares of common stock issued and outstanding, which were held by approximately 300 holders of record and no shares of preferred stock outstanding.
Dividends
We have never declared or paid dividends on any class of equity securities, and we currently intend to retain any future earnings for use in our business and do not anticipate paying any dividends on our outstanding common stock in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information with respect to compensation plans (including individual compensation arrangements) under which equity securities of the company are authorized for issuance as of December 31, 2013:
Recent Sales of Unregistered Securities
Other than transactions previously reported, the Company offered and sold the following securities without being registered under the Securities Act.
In March 2013, in exchange for conversion of existing debt, we offered and sold to an entity a total of 35,660,568 shares of common stock with a fair market value of $35,660.57 (or $0.001 per share). The offer and sale of such shares of our common stock were effected in reliance upon the exemptions for sales of securities not involving a public offering, as set forth in Section 4(2) of the Securities Act, based upon the following: (a) each investor confirmed to us that the investor was an “accredited investor,” as defined in Rule 501 of Regulation D promulgated under the Securities Act and had such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities; (b) there was no public offering or general solicitation with respect to each offering; (c) the investors were provided with certain disclosure materials and all other information requested with respect to our company; (d) the investors acknowledged that all securities being purchased were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act; and (e) a legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.
Item 6.
Item 6. Selected Financial Data.
Because we are a smaller reporting company, we are not required to provide the information called for by this item.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and notes thereto. This section may include projections and other forward-looking statements regarding management’s expectations regarding our performance. You should not place undue reliance on such projections and forward looking statements, and, when considering such projections and forward-looking statements, you should keep in mind the risk factors noted throughout this prospectus. You should also keep in mind that all projections and forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. See “Item 1A. Risk Factors.”
Overview
We use proprietary, custom-engineered, USDA-approved wood-burning oven technology to produce a complete line of fully-cooked Smoke-BakedTM fish and meat, and special recipe dishes. From a 15-acre food production campus located in central Iowa and owned by our exclusive meat processor, Mary Ann’s Specialty Foods, Inc. (“Specialty Foods”), we plan to sell our line of smoked foods through multiple channels of distribution under the Smoky Market brand.
Within the value-added, prepared food marketplace, we see a significant lack of artisan smoked fish and meat products that are truly wholesome, naturally wood-smoked by burning wood, and free of additives and chemical preservatives. We believe this specialized marketplace to be virtually untapped and without any major smoked food brand comparable in quality. We believe our two packaged food brand concepts, “Smoky Market” and “Smoky Kosher”, will enable us to penetrate national markets for sales to wholesale and retail customers in the value-added packaged food sector. We believe our business model to be a niche market opportunity to produce and distribute artisan quality smoked foods, at competitive prices, within a highly processed, commercial prepared food marketplace.
We produce our smoked foods under an agreement with Specialty Foods, a commercial meat processor in whose USDA facility we placed out first wood-burning oven system, which is capable of producing approximately 100,000 pounds of our smoked salmon per month and a slightly lesser amount of smoked meat items.
We have generated net losses in each fiscal year since our inception in the development of our business model. In October 2009, we generated a small amount of revenue from food sales at a prototype Los Gatos, CA restaurant where we were testing our foodservice system, but subsequently closed the restaurant due principally to poor economic conditions in the area. As discussed in “Liquidity and Capital Resources” below, in June 2009 we received $1.5 million in capital financing, which we used toward debt repayment, the opening of the Los Gatos restaurant to test our foodservice system, and for our website to launch a test with Internet sales. We estimate that we will need a minimum of $500,000 of additional financing in order to accomplish the initial launch of our regional sales and fulfillment plan. Because of the $650,000 of inventory and receivable financing being provided by Specialty Foods in connection with our development agreement, we believe a minimum of $500,000 will enable us to grow our sales revenue to a point where we generating a positive cash flow. We expect such proceeds to be provided through a private transaction of sales of either our available common or preferred stock.
Liquidity and Capital Resources
As of December 31, 2013, we had cash and cash equivalents of $1,128 and a working capital deficit of $2,078,266, as compared to cash and cash equivalents of $380 and a working capital deficit of $2,165,847 as of December 31, 2012.
To finance the expansion of our wholesale, distribution, and Internet retail operations, we intend to seek additional financing in 2014. Given that we are not yet in a positive cash flow or earnings position, the options available to us are fewer than to a positive cash flow company and generally do not include bank financing. To raise additional capital, we expect to issue equity securities, including preferred stock, common stock, warrants and/or convertible securities. We do not have any commitments from any party to provide required capital and may, or may not, be able to obtain such capital on reasonable terms or at all.
In a March 2010 transaction with 70 Limited LLC, we received $150,000 in cash for a promissory note in the amount of $150,000 together with a warrant to purchase up to 450,000 shares of our common stock. Under the terms of the promissory note, we were obligated to make payment on the full principal amount, plus interest accruing at 10% per year, by March 5, 2011, and we could prepay any amount of principal or interest at any time without penalty.
In August 2010, the Company and 70 Limited LLC agreed to refinance the note. Pursuant to the agreement, both loans were combined, along with accrued interest, forming a new loan with a maturity date of August 18, 2020. The note will accrue interest at a 10% annual rate until repaid. Prior warrants were revised to allow for exercise at $.05 per warrant as opposed to the previous $.15. The new warrants were valued based on the Black-Scholes method using a risk-free rate of return of .15% and volatility of 347%.
In July 2011, we entered into a Purchase and Lease Agreement (the “Sale/Lease Agreement”) with SMKY Asset Fund LLC (the “Lessor”) related to our smoker-oven system. Pursuant to the Sale/Lease Agreement, we sold the smoker-oven system to the Lessor for a purchase price equal of $240,000 (the “Sale Price”). In addition, we are required to issue to Lessor a warrant to purchase a share of common stock for each $1.00 of the Lease Price. The warrants have an exercise price of $0.50 per share, a five-year term and include net exercise provisions. We leased back the smoker-oven system for rent equal to $0.20 per pound of product produced using the smoker-oven up to a maximum annual return of 30% on the sum of the Sale Price ($240,000) or $72,000. The Sale/Lease Agreement has a 10-year term and includes a provision that we must repurchase the smoker-oven system at any time after July 25, 2014 providing that the market price for our common stock has exceeded $0.50 for thirty trading days. The repurchase price is a number of shares of common stock with a fair market value equal to 20 times the Sale Price, plus $5,000.
The Company received funding from Asher Enterprises, Inc. in return for promissory notes. Aggregate principal outstanding on the notes was $57,800 and $115,000 as of December 31, 2013 and 2012, respectively The notes accrue interest at an annual rate of 8% until repaid and are due 180 days after inception. The notes are convertible into shares of our common stock at conversion prices equal to a discount of 45% to the then current market price. As of December 31, 2013, two of the notes, aggregating $68,695 in principal and accrued interest, were in default as they had not been converted nor retired before coming due and therefore began accruing interest at 22%. Both of these remaining notes were retired in the third quarter of 2014 and the total amount of accrued interest was waived and not paid.
During 2013, principal uses of cash were approximately $15,000 to finance operations.
There are no major expected capital expenditures during the 2014.
Assuming the success of our wholesale foodservice distribution and development of our retail channels through display merchandising and Internet operations, which are expected to utilize a substantial portion of our existing production capacity, we anticipate the need to invest as much as $1,500,000 to create additional production capacity at Specialty Food’s production facility to support our expanded marketing operations. This will most likely require the construction of an additional building adjacent to Specialty Food’s existing production space for more ovens and packaging equipment. We have entered into agreements with Specialty Foods under which we were granted an option to construct an up to 80 thousand square foot building on its property to accommodate additional smoker ovens and equipment and an option to purchase the 15-acre campus on which Specialty Foods operates if needed to accommodate growth of the Company’s business (subject to an obligation to lease back to Specialty Foods its processing facility). We anticipate that the financing to pay for the proposed building addition will be generated from a combination of our sales and additional financing transactions involving debt or equity securities. If we are unable to obtain financing to construct the building addition as planned, we will be forced to significantly curtail our proposed expansion, and our ability to grow revenue will be halted until increased capacity can be created.
Results of Operations
Our revenues from operations and our operating expenses decreased in 2013. The revenue decrease was due primarily to a less revenue generated from wholesale and internet activities in 2013 than revenue generated from restaurant and internet activities in 2012. The operating expense decrease was due primarily to lower costs associated with wholesale and internet activities in 2013 (as compared to restaurant costs in 2012) and to decreases in general and administrative expenses, as discuss below.
Revenues and Expenses. Our operating results for the years ended December 31, 2010 and 2009 are summarized as follows:
Sales decreased by $14,797, from $18,019 in 2012 to $3,222 in 2013, and costs of sales decreased by $17,459, from $17,459 in 2012 to $0. The decrease in costs of sales was due primarily to the write-off of inventory in 2012 as impaired due to slow sales, as compared to 2013 in which we were able to sell a minor amount of impaired inventory with no associated cost of sales as such inventory had already been written off. Our general and administrative expenses decreased by $454,595, from $771,801 in 2012 to $317,206 in 2013. Our operating loss decreased by $457,257, from $771,241 in 2012 to $317,206 in 2013.
The decrease in general and administrative expenses was due primarily to decreases in salaries, wages and benefits, depreciation and amortization, professional fees, expenses relating to stock based compensation for financing activities, expenses relating to stock based compensation for salaries, wages and benefits for related parties, and other expenses. Fees relating to salaries, wages and benefits decreased by $66,487, from $250,487 in 2012 to $184,000 in 2013, due primarily to the curtailing of operations during 2013. Depreciation and amortization expenses decreased by $78,051, from $170,074 in 2012 to $92,023 in 2013, due primarily to the full amortization of loan discounts during 2013, causing amortization to diminish. Professional fees decreased by $131,435, from $143,468 in 2012 to $12,033 in 2013, primarily due to the absence of public filings, which could not be completed due to the lack of cash. Expenses related to stock based compensation for financing activities decreased by $65,705, from $66,508 in 2012 to $803 in 2013, due primarily to less stock-based compensation given due to diminished financing activities. Expenses related to stock based compensation for salaries, wages and benefits for related parties decreased by 23,577, from $26,657 in 2012 to $3,080 in 2013, due primarily to diminished operations whereby less stock-based compensation was provided to employees. Other general and administrative expenses decreased by $62,141, from $79,692 in 2012 to $17,551 in 2013, due primarily to diminished operations. The foregoing decreases were not offset by increases in any other general and administrative expenses.
Our other income decreased by $871,646, from $888,995 in 2012 to $17,349 in 2013. This decrease in other income was due primarily to a decrease of $874,129 in our gains on derivatives, from $1,157,832 in 2012 to $283,703. This decrease in gains on derivatives is due primarily to the retirement of convertible debt securities, which previously led to the recording of derivative liabilities.
In the opinion of our management, inflation has not and will not have a material effect on our operations in the immediate future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.
Working Capital. Our working capital for the years ended December 31, 2013 and 2012 is summarized in the table below. For the categories of current assets and current liabilities, the line items included in the table below represent selected components of each category that are material to an understanding of our working capital deficiency. For a complete listing of all components of each category please refer to the financial statements accompanying this Report.
Our working capital deficiency decreased by $87,581, from $2,165,847 in 2012 to $2,078,266 in 2013. The decrease in our working capital deficiency was primarily due to a decrease in derivative liabilities of $283,703, from $484,973 in 2012 to $201,270 in 2013. The decrease in derivative liabilities is due primarily to the retirement of convertible debt securities, which previously led to the recording of derivative liabilities. The decrease in derivative liabilities was partially offset by an increase in accrued payroll costs of $184,000, from $791,309 in 2012 to $975,309 in 2013. The increase in accrued payroll costs is due primarily to the recording of payroll liabilities owing to corporate officers, which could not be paid during the year due to a lack of cash.
Cash Flows. Our cash flows for the years ended December 31, 2013 and 2012 are summarized as follows:
In 2013, we used $15,207 in cash in our operating activities, primarily relating to the financing of operations; and we generated $15,955 in cash from financing activities, primarily due to advances from individuals and additional borrowing under the SMKY Asset Fund agreement.
Critical Accounting Policies and Estimates
	Our discussion and analysis of our financial condition and results of operations are based upon financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates, including those related to long-lived assets, share-based compensation, revenue recognition, overhead allocation, allowance for doubtful accounts, inventory, and deferred income tax. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. These judgments and estimates affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting periods. Changes to these judgments and estimates could adversely affect the Company’s future results of operations and cash flows.
Impairment of Long-Lived Assets
The Company periodically reviews the carrying amount of property and equipment and its identifiable intangible assets to determine whether current events or circumstances warrant adjustments to such carrying amounts. If an impairment adjustment is deemed necessary, such loss is measured by the amount that the carrying value of such assets exceeds their fair value. Considerable management judgment is necessary to estimate the fair value of assets; accordingly, actual results could vary significantly from such estimates.
Revenue Recognition
Sales are recognized upon shipment.
Net (Loss) Per Common Share
Basic earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares, outstanding stock options, and the equivalent number of common shares that would have been outstanding had the convertible debt holders converted their debt instruments to common stock. All potential dilutive securities have been excluded from the computation, as their effect is anti-dilutive.
Stock-Based Compensation
The Company has issued its common shares as compensation to directors, officers, and non-employees (“recipients”). The Company measures the amount of stock-based compensation based on the fair value of the equity instrument issued or the services or goods provided as of the earlier of (1) the date at which an agreement is reached with the recipient as to the number of shares to be issued for performance, or (2) the date at which the recipient’s performance is complete.
Occasionally, the Company sells shares below market value to raise cash to fund operations. The discounts from market are treated as compensation for officers and directors. For non-officers and directors, the discounts are netted against proceeds as a “cost of issue.”
Income Taxes
Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
Uncertainty in income taxes is recognized in the Company’s financial statements. Specifically, the accounting policy determines (a) a consistent recognition threshold and (b) a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides related guidance on derecognition, classification, interest and penalties, accounting interim periods, disclosure and transition. To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income taxes, such amounts would be accrued and classified as a component of income tax expenses on the consolidated statement of operations. The Company has evaluated the presence of any such tax uncertainties and determined that they do not have a material impact on the financial statements.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Because we are a smaller reporting company, we are not required to provide the information called for by this item.
Item 8.
Item 8. Financial Statements.
Our financial statements and associated notes are set forth following the signature page beginning on Page.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
The information required by this Item was previously reported.
Item 9A.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 as of December 31, 2013. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are not effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. This conclusion is based in part on the fact that the Company did not complete certain reports within required time periods.
Internal Controls
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that the records of the Company accurately and fairly reflect the transactions and dispositions of the Company’s assets; assets are safeguarded against loss from unauthorized use or disposition; and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with United States generally accepted accounting principles. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. Our management has concluded that, as of December 31, 2013, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles. Our management’s finding of ineffective internal control over financial reporting results primarily from the fact that the Company has only two full time employees, which is not a sufficient number to implement industry-standard internal controls. Subject to the Company’s ability to obtain financing and hire additional employees, the Company expects to be able to design and implement effective internal controls in the near future.
Changes in Internal Controls
During the last fiscal quarter ended December 31, 2013, there has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
Identification of Directors and Executive Officers
Certain information regarding our executive officers and directors is set forth below. Our executive officers are appointed by, and continue to serve at the will of, our board of directors. Our directors are elected or appointed for terms that continue, absent resignation, death or removal by our stockholders, until the later of the next annual meeting of stockholders or until a replacement is duly appointed or elected and qualified. Among our officers, Edward C. Feintech devotes substantially all of his time to our business, Shane A. Campbell devotes approximately 10% of his time to our business, and Dennis Harrison currently devotes less than 5% of his time to our business.
Name
Age
Position
Edward C. Feintech
Founder, Promoter, President, Chief Executive Officer and Chairman of the Board
Scott L. Bargfrede
Director
Shane A. Campbell
Director and Chief Financial Officer*
Dennis A. Harrison
Chief Information Officer*
* Such officer is not a full time employee of our company.
Edward C. Feintech has been the Chairman of our Board of Directors, and our President and Chief Executive Officer since our incorporation in April 2006. Mr. Feintech operated full-service barbecue restaurants and tested quick-service barbecue operations in Des Moines, Iowa (1977-1984) before closing his enterprise and moving on toward development of our custom-engineered, USDA-approved wood-burning oven system technology. Since organizing Smoky Systems, LLC, in December 2000, Mr. Feintech has been its manager and directed the development phase of the intellectual property that we license from Smoky Systems.
Mr. Feintech has been appointed as a director in light of his experience in the smoked-meat and restaurant industries, his role as our Chief Executive Office and his company-specific knowledge.
Scott L. Bargfrede has served as a director of our company since May 2006. Mr. Bargfrede has been the President and CEO of First American Bank in Webster City, Iowa since October 18, 1999. First American Bank is our primary bank. Mr. Bargfrede graduated from the University of Minnesota in 1979 with a Bachelor of Arts degree in Ag-Business Finance. In 1992, he graduated from the University of Wisconsin Graduate School of Banking.
Mr. Bargfrede has been appointed as a director in light of his experience in financial and banking industry.
Shane A. Campbell has been our Chief Financial Officer (acting as a consultant) since our incorporation in April 2006. Mr. Campbell has served as a business advisor to numerous small and medium sized businesses over his twenty-two years of public and private practice. From April 2004 through the present, Mr. Campbell has functioned as the chief financial officer of Smoky Systems, LLC, and other small companies as chief financial officer on a consultant contract basis consultant contractor. Mr. Campbell worked from January 2001 to April 2004 as chief financial officer for MarketLive, Inc. (previously Multimedia Live, Inc.), an e-commerce software company located in Petaluma, California. Prior to that time, from January 1990 through January 2002, Mr. Campbell was an employee and then a partner at Jones, Schiller & Company, LLC, an accounting firm located in San Francisco. Mr. Campbell earned a Bachelor of Science degree from California State University, Chico in December 1981.
Mr. Campbell has been appointed as a director in light of his experience in financial, auditing and related business matters and his company-specific knowledge.
Dennis A. Harrison, PhD, has been our Chief Information Officer (acting as a consultant) since our inception in April 2006; however, he is expected to become a full-time employee when and as our financial situation permits. Since January 2000, Dr. Harrison has held senior level management positions as vice president of business development for CSF-Telequest from 2000 to 2003, vice president of business development for CallTech Communications from April 2003 to April 2004, and vice president of business development for Effective Teleservices from April 2004 to present. Dr. Harrison received a Bachelor of Arts degree in Philosophy & Classical Languages from the Seminary of St. Pius X, an affiliate of Catholic University, a Master of Arts degree in Counseling from Loyola College, and a Doctor of Philosophy degree in Human Development from the University of Maryland.
Audit Committee
Our entire board of directors presently serves as our audit committee. None of the members of the audit committee satisfy the independence requirements applicable to audit committees of listed companies. In addition, the board of directors has determined that the audit committee does not have a member qualifying as an audit committee financial expert, as defined in Item 401(d)(5) of Regulation S-K. To save limited capital over the last several years, we have chosen not to expand the size of our Board of Directors or to offer cash compensation to our directors. The absence of cash compensation makes recruiting persons who are not otherwise interested in our company more difficult. For these reasons, we do not have on our board of directors a person who would qualify as an audit committee financial expert.
We do not presently have a standing nominating committee or compensation committee, and we do not have a nominating committee charter or a compensation committee charter.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s officers and directors to file reports concerning their ownership of Common Shares with the SEC and to furnish the Company with copies of such reports. Based solely upon the Company’s review of the reports required by Section 16 and amendments thereto furnished to the Company, the Company believes that all reports required to be filed pursuant to Section 16(a) of the Exchange Act during 2010, were filed with the SEC on a timely basis.
Code of Ethics
We have not adopted a code of ethics. Although we expect to adopt a code of ethics during 2011, we have not done so to date because we believe that, in light of our limited capital and operations, expending the resources on developing a formal code of ethics would not be in the best interest of shareholders. As we obtain the capital to establish more significant operations, we expect to begin developing more comprehensive policies and procedures appropriate to our size and stage.
Item 11.
Item 11. Executive Compensation.
Summary Compensation Table
The following table summarizes the compensation for the fiscal years ended December 31, 2013 and December 31, 2012 paid or accrued by us to or on behalf of our Chief Executive Officer, as well as our two most highly compensated executive officers, if any, whose aggregate compensation for fiscal years 2012 or 2013 exceeded $100,000 (collectively, the “Named Executive Officers”).
(1) Mr. Campbell is currently serving as a part-time Chief Financial Officer/Consultant; his services are provided on an as-needed basis. Compensation is accrued and then paid as cash becomes available.
On May 10, 2007, Mr. Feintech signed an executive employment agreement. The agreement is for a three-year term and calls for him to receive a minimum base salary of $175,000 per year. The employment agreement also grants to him: (i) a one-time stock issuance of 1,500,000 shares of common stock upon execution of the agreement; (ii) an award of non-statutory stock options of 425,000 shares of common stock at an exercise price of $0.10 per share; and (iii) a bonus equal to an additional 1,000,000 shares of common stock upon the achievement of each incremental level of $50,000,000 in revenue, provided that cumulative net after-tax income is being maintained at a level not less than 7.5% on total revenue.
In addition, in May 2006, Mr. Feintech was issued 50,000 shares of common stock in exchange for the assignment of any intellectual property rights related to our business and granted an option to purchase 325,000 shares of common stock pursuant to our stock incentive plan at an exercise price of $0.10 at any time prior to May 13, 2013. The options vested 25% on May 31, 2007 and have continued to vest 1/48th each month thereafter until fully vested.
On June 21, 2010, Mr. Feintech was granted 2,250,000 shares of common stock as additional compensation. Such shares were valued at $0.14, for total compensation of $31,500.
On February 11, 2011, Mr. Feintech was granted 1,750,000 shares of common stock as additional compensation. Such shares were valued at $0.008, for total compensation of $14,000.
On February 13, 2011, Mr. Feintech was granted 400,000 warrants to purchase common stock at a strike price of $0.05. The warrant term extends five years through February 12, 2016. The warrants were valued at $3,212 using the Black-Scholes method, assuming a risk-free rate of return of 0.13% and volatility of 347%.
On September 30, 2011, Mr. Feintech was granted 500,000 warrants to purchase common stock at a strike price of $0.25. The warrant term extends five years through September 29, 2016. The warrants were valued at $119,984 using the Black-Scholes method, assuming a risk-free rate of return of 0.02% and volatility of 317%.
On May 17, 2010, Mr. Campbell was granted 1,500,000 warrants to purchase common stock at a strike price of $0.05. The fair value per common share was $0.02. The warrant term extends five years through May 16, 2015. The warrants were valued at $30,027 using the Black-Scholes method, assuming a risk-free rate of return of .12% to .15% and a volatility of 347%.
On September 30, 2011, Mr. Campbell was granted 250,000 warrants to purchase common stock at a strike price of $0.25. The warrant term extends five years through September 29, 2016. The warrants were valued at $60,008 using the Black-Scholes method, assuming a risk-free rate of return of 0.02% and volatility of 317%.
On December 20, 2012, Mr. Campbell was granted 350,000 warrants to purchase common stock at a strike price of $.05. The warrant term extends three years through December 20, 2015. The warrants were valued at $2,334 using the Black-Scholes method, assuming a risk-free rate of return of .02% and volatility of 310%.
On December 31, 2013, Mr. Campbell was granted 350,000 warrants to purchase common stock at a strike price of $.05. The warrant term extends three years to December 31, 2016. The warrants were valued at $607 using the Black-Scholes method, assuming a risk-free rate of return of .78% and volatility of 307%.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information regarding equity awards held by the Named Executive Officers as of December 31, 2013:
(1) Options vested 25% on May 31, 2007 and 1/48th each month thereafter until fully vested.
Compensation of Directors
Directors who are not officers of the Company do not receive any regular compensation for their service on the board of directors but are entitled to reimbursement of any actual expenses associated with the attendance of board meeting and other activities and to receive options and other awards under the Company’s stock incentive plan. Directors are entitled to receive compensation for services unrelated to their service as a director to the extent that they provide such unrelated services to the Company.
Information with respect to the compensation of Edward C. Feintech, our Chief Executive Officer and President, is set forth in the tables above.
Executive Employment Agreements, Termination of Employment and Change of Control Arrangements
Except as described in following paragraph, we have not entered into employment agreements with any of our executive officers and, other than provisions in our stock incentive plan that permit acceleration of vesting of awards in connection with a change of control, have no arrangements or plans which provide benefits in connection with retirement, resignation, termination or a change of control.
Pursuant to his executive employment agreement dated May 10, 2007, Edward C. Feintech is entitled to receive, as severance and following execution of a release of liabilities in favor of the Company, (i) if the termination was by the Company without cause or by the employee with good reason (except in connection with a change of control), base salary and medical benefits (plus any pro-rated bonus for which he otherwise qualified) for a period of 12-months following the termination, or (ii) if the termination was by the Company without cause or by the employee with good reason and occurred 90 days prior to or within one year after a change of control, base salary and medical benefits for a period of 24 months and acceleration of the vesting of any stock options granted under the employment agreement. Mr. Feintech is not entitled to such severance benefits if the termination is either by the Company for cause, by Mr. Feintech without good reason, or after May 10, 2010. A change of control includes (a) any capital reorganization, reclassification of the capital stock of Company, consolidation or merger of Company with another corporation in which Company is not the survivor (other than a transaction effective solely for the purpose of changing the jurisdiction of incorporation of Company), (b) the sale, transfer or other disposition of all or substantially all of the Company’s assets to another entity, and (c) the acquisition by a single person (or two or more persons acting as a group, as a group is defined for purposes of Section 13(d)(3) under the Exchange Act of 1934, as amended) of more than 40% of the outstanding shares of common stock of the Company.
Compensation Committee Interlocks and Insider Participation
The Company has no compensation committee or other board committee performing equivalent functions. Edward C. Feintech, an officer of the Company as well as chairman of the board of directors, participated in deliberations of the Company’s board of directors concerning executive officer compensation during 2011.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information with respect to the beneficial ownership of our common stock as of November, 15, 2014 and as adjusted to reflect the sale of the shares of our common stock offered hereby, by:
●all persons known by us to beneficially own more than 5% of our common stock;
●each of our named executive officers;
●each of our directors; and
●all directors and executive officers as a group.
Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, and includes options and warrants that are currently exercisable or exercisable within 60 days. Except as indicated by footnote, and subject to community property laws where applicable, we believe the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
* Represents less than 1% of the outstanding shares of common stock.
(1)The percentages set forth above have been computed assuming the number of shares of common stock outstanding equals the sum of (a) 191,233,345, which is the number of shares of common stock actually outstanding on November 15, 2014, and (b) shares of common stock subject to options, warrants, convertible notes and similar securities exercisable or convertible for common stock within 60 days of such date held by the person with respect to percentage is computed (but not by any other person).
(2)Includes, in addition to outstanding shares held by Mr. Feintech, 425,000 shares issuable upon exercise of non-statutory stock options. Also includes 257,521 shares of common stock held of record by Cheryl Feintech.
(3)Includes 425,000 shares issuable upon the exercise of non-statutory stock options.
(4)Based on the Company’s internal records reflecting the stock ownership of 70 Limited, LLC. Includes 2,602,500 shares issuable upon the exercise of warrants. Tertia Dvorchak is the manager of 70 Limited, LLC and, as such, has voting and investment control over these securities. Tertia Dvorchak disclaims beneficial ownership of the securities held by 70 Limited, LLC.
(5)Based on the Company’s internal records reflecting the stock ownership of Jason Zandri. Includes 800,000 shares issuable upon conversion of Units owned in SMKY Asset Fund LLC and 420,000 shares issuable upon the exercise of warrants.
Securities Authorized for Issuance under Equity Compensation Plans
The information set forth above in Item 5 under “Securities Authorized for Issuance under Equity Compensation Plans” is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Arrangements with Officers, Directors and Promoters
Set forth below is a description of certain transactions entered into since January 1, 2013, or presently contemplated, with any officer, director, affiliate or other related person:
Our directors have set the initial salary or consulting fee of certain of our officers as follows (in each case pending availability of capital):
* Currently serving as a part-time Chief Financial Officer/Consultant; services are provided on an as-needed basis and salary is being accrued and then paid as cash becomes available.
Independence of Board of Directors and Committees
Our Board of Directors currently consists of Edward C. Feintech, our Chairman and Chief Executive Officer, Scott L. Bargfrede, and Shane A. Campbell, our Chief Financial Officer. The Board of Directors has determined that Mr. Bargfrede is independent, using the standards of independence applicable to companies listed on the NASDAQ Stock Market. We do not presently have a standing audit committee, nominating committee, or compensation committee, and we do not have a charter for any such committees. Our entire Board of Directors performs the functions generally performed by such committees. Mr. Bargfrede is independent using the standards of the NASDAQ Stock Market applicable to compensation and nominating committee but may not be independent for purposes of applicable audit committee standards because of the financial relationship disclosed below.
Item 14.
Item 14. Principal Accountant Fees and Services.
Audit Fees
The Company’s independent auditor for the first, second and third quarterly periods in 2012 was Silberstein Ungar, PLLC, and the aggregate fee for auditing in those periods was $2,500. The Company’s independent auditor for the fourth quarterly period in 2012 and for the year ended December 31, 2013 was Huckfeldt & Smith, PLC, and the aggregate fee for auditing in those periods was $22,000.
Audit Related Fees
The aggregate fees for professional services for assurance and other audit related services was $5,000 for the fiscal year ended December 31, 2012 and $0 for the fiscal year ended December 31, 2013.
Tax Fees
There were no fees paid to Silberstein Ungar, PLLC or to Huckfeldt & Smith, PLC, for tax-related professional services for the year ended December 31, 2012 or the fiscal year ended December 31, 2013.
All Other Fees
Neither Silberstein Ungar, PLLC nor Huckfeldt & Smith, PLC provided to the Company any other material services during the fiscal year ended December 31, 2012 or the fiscal year ended December 31, 2013.
Audit Committee Pre-Approval Policies
Under the pre-approval policies and procedures established by the Board of Directors, functioning as the Audit Committee, it would not permit engagement of accountants to render audit or non-audit services without prior approval of the Board of Directors, functioning as the Audit Committee. As a result, all engagements of the independent auditors to render audit or non-audit services were approved by the Board of Directors, functioning as the Audit Committee.
Item 15.
Item 15. Exhibits and Financial Statement Schedules.
Exhibit
No.
Exhibit
Incorporated by Reference/Filed
Herewith
3.1
Amended and Restated Articles of Incorporation
Incorporated by reference to Amendment No. 3 to Registration Statement on Form SB-2 filed on August 24, 2007, File No. 333-143008
3.2
Bylaws
Incorporated by reference to Amendment No. 3 to Registration Statement on Form SB-2 filed on August 24, 2007, File No. 333-143008
4.1
Form of Common Stock Certificate
Incorporated by reference to Amendment No. 3 to Registration Statement on Form SB-2 filed on August 24, 2007, File No. 333-143008
4.2
Series 2008A Warrant dated September 8, 2008
Incorporated by reference to the Current Report on 8-K filed on September 10, 2008, File No. 000-52158
4.3
Series 2009B Warrant dated May 29, 2009
Incorporated by reference to the Current Report on 8-K filed on June 4, 2009, File No. 000-52158
4.4
Series 2009C Warrant dated October 30, 2009
Incorporated by reference to the Current Report on 8-K filed on November 6, 2009, File No. 000-52158
4.5
Warrant dated March 5, 2010
Incorporated by reference to the Current Report on 8-K filed on March 19, 2010, File No. 000-52158
4.6
Series 2011C Warrant dated August 25, 2011
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 1, 2011, File No. 000-52158
10.1
Stock Incentive Plan
Incorporated by reference to Registration Statement on Form 10-SB filed on February 16, 2007, File No. 000-52158
10.2
Form of NonStatutory Stock Option Agreement
Incorporated by reference to Registration Statement on Form 10-SB filed on February 16, 2007, File No. 000-52158
Exhibit
No.
Exhibit
Incorporated by Reference/Filed
Herewith
10.3
Employment Agreement dated May 10, 2007 with Edward C. Feintech
Incorporated by reference to the Quarterly Report on Form 10-Q filed on May 14, 2007, File No. 000-52158
10.4
Consulting Agreement dated May 1, 2008 with International Monetary
Incorporated by reference to the Current Report on 8-K filed on May 8, 2008, File No. 000-52158
10.5
Promissory Note dated September 8, 2008
Incorporated by reference to the Current Report on 8-K filed on September 10, 2008, File No. 000-52158
10.6
Note and Share Purchase Agreement dated January 27, 2009 with 70 Limited LLC
Incorporated by reference to the Current Report on 8-K filed on February 2, 2009, File No. 000-52158
10.7
Note, Share and Warrant Purchase Agreement dated May 28, 2009 with 70 Limited LLC and The Jimma Lee Beam Revocable Trust
Incorporated by reference to the Current Report on 8-K filed on June 4, 2009, File No. 000-52158
10.8
Promissory Note dated May 29, 2009
Incorporated by reference to the Current Report on 8-K filed on June 4, 2009, File No. 000-52158
10.9
License Termination and Asset Transfer Agreement dated June 30, 2009 with Smoky Systems, LLC
Incorporated by reference to the Current Report on 8-K filed on July 7, 2009, File No. 000-52158
10.10
Option Agreement dated October 30, 2009 with Mary Ann’s Specialty Foods, Inc.
Incorporated by reference to the Current Report on 8-K filed on November 6, 2009, File No. 000-52158
10.11
Second Amended and Restated Processing Agreement dated October 30, 2009 with Mary Ann’s Specialty Foods, Inc.
Incorporated by reference to the Current Report on 8-K filed on November 6, 2009, File No. 000-52158
10.12
Consulting Agreement dated October 30, 2009 with William Korleski
Incorporated by reference to the Current Report on 8-K filed on November 6, 2009, File No. 000-52158
10.13
Note and Warrant Purchase Agreement dated March 5, 2010 with 70 Limited LLC
Incorporated by reference to the Current Report on 8-K filed on March 29, 2010, File No. 000-52158
Exhibit
No.
Exhibit
Incorporated by Reference/Filed
Herewith
10.14
Secured Promissory Note dated March 5, 2010
Incorporated by reference to the Current Report on 8-K filed on March 29, 2010, File No. 000-52158
10.15
Security Agreement dated March 5, 2010
Incorporated by reference to the Current Report on 8-K filed on March 29, 2010, File No. 000-52158
10.16
Executive Consulting Agreement dated March 25, 2010 with Harvey Hoffenberg
Incorporated by reference to the Annual Report on Form 10-K filed on April 15, 2010
10.17
Purchase and Lease Agreement dated July 25, 2011 with SMKY Asset Fund, LLC
Incorporated by reference to the Company’s Annual Report on Form 10-K filed on September 1, 2011, File No. 000-52158
10.18
Business Development and License Agreement
Incorporated by reference to the Current Report on 8-K filed on July 18, 2014, File No. 000-52158
23.1
Consent of Independent Registered Public
Accountants
Filed herewith
Power of Attorney
Included on the signature page hereof
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Filed herewith
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Filed herewith
32.1
Section 1350 Certification of Chief Executive Officer
Filed herewith
32.2
Section 1350 Certification of Chief Financial Officer
Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
POWER OF ATTORNEY AND ADDITIONAL SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person, whose signature to this Form 10-K appears below, hereby constitutes and appoints Eddie Feintech as his true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his behalf individually and in the capacity stated below and to perform any acts necessary to be done in order to file all amendments and post-effective amendments to this Form 10-K, and any and all instruments or documents filed as part of or in connection with this Form 10-K or the amendments thereto and each of the undersigned does hereby ratify and confirm all that said attorney-in-fact and agent, or his substitutes, shall do or cause to be done by virtue hereof.
Signature
Title
Date
/s/ Edward C. Feintech
Chief Executive Officer, President and Chairman
November 18, 2014
Edward C. Feintech
(Principal Executive Officer)
/s/ Shane Campbell
Director, Chief Financial Officer
November 18, 2014
Shane Campbell
(Principal Financial and Accounting Officer)
/s/ Scott L. Bargfrede
Director
November 18, 2014
Scott L. Bargfrede