XOTC:SMKY Smoky Market Foods Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2012

 

OR

 

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

For the transition period from _________________ TO _________________

 

Commission file number: 000-52158

 

Smoky Market Foods, Inc.
(Exact name of registrant as specified in its charter)

 

Nevada   20-4748589
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)

 

1511 E. 2nd St.
Webster City, IA 50595
(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code: (866) 851-7787

 

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

[X]Yes [ ] No

 

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

[X]Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b02 of the Exchange Act. (Check one):

 

Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]

 

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

[ ] Yes [X] No

 

As of August 13, 2012, the registrant had 108,292,789 shares of common stock outstanding.

 

 

  

 
 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  3
Item 3. Quantitative and Qualitative Disclosures About Market Risk  14
Item 4. Controls and Procedures  14

 

PART II — OTHER INFORMATION

 

Item 1A. Risk Factors 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  15
Item 3. Defaults Upon Senior Securities  16
Item 4. Submission of Matters to a Vote of Security Holders  16
Item 5. Other Information  16
Item 6. Exhibits  16

 

2
 

   

PART I - FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

  

SMOKY MARKET FOODS, INC.

Balance Sheets

(unaudited)

 

   June 30, 2012   December 31, 2011 
ASSETS:          
Current Assets          
Cash  $4,098   $17,614 
Accounts receivable   -    - 
Inventory   15,256    16,816 
Total Current Assets   19,354    34,430 
Property and Equipment, net of depreciation   2,666    2,844 
Total Assets  $22,020   $37,274 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):          
Current Liabilities          
Accounts payable  $522,990   $524,338 
Accounts payable - related parties   170,976    145,933 
Accrued payroll costs   699,889    602,489 
Short-term advances   100,600    94,700 
Convertible debt, including accrued interest, less amortized discount   69,409    48,708 
Total Current Liabilities   1,563,864    1,416,168 
Long-term Liabilities          
Convertible debt to a related party, less amortized discount   198,416    196,384 
Promissory notes payable to a related party, including accrued interest, less amortized discount   2,608,330    2,452,196 
Total Liabilities   4,370,610    4,064,748 
           
Stockholders' Equity (Deficit)          
Preferred Stock, par value $.001, 10,000,000 shares authorized; no shares issued and outstanding   -    - 
Common Stock, par value $.001, 200,000,000 shares authorized: issued and outstanding 108,292,789 and 104,213,527 at June 30, 2012 and December 31, 2011, respectively   108,293    104,214 
Deferred Stock-Based Compensation   (15,243)   (28,571)
Other paid-in capital   7,525,618    7,335,079 
Accumulated deficit   (11,967,258)   (11,438,196)
Total Stockholders' Equity (Deficit)   (4,348,590)   (4,027,474)
Total Liabilities and Stockholders' Equity (Deficit)  $22,020   $37,274 

 

The accompanying notes are an integral part of these financial statements. 

 

F-1
 

  

SMOKY MARKET FOODS, INC.

Statements of Operations

(unaudited)

 

   For the Three Months Ended June 30:   For the Six Months Ended June 30: 
   2012   2011   2012   2011 
Sales                    
Wholesale  $2,188        $7,378   $- 
Internet   152         709    - 
Total Sales   2,340    -    8,087    - 
                     
Cost of Sales                    
Wholesale and internet   1,422         1,560    - 
Total Cost of Sales   1,422    -    1,560    - 
                     
Gross Profit (loss)   918    -    6,527    - 
                     
General & Administrative Expenses                    
Salaries, wages & benefits   60,958    49,170    122,748    98,340 
Professional fees   37,511    2,143    90,801    2,393 
Marketing   2,973    5,559    6,486    5,559 
Depreciation and amortization   46,243    13,844    79,198    27,689 
Rent   3,116    1,560    5,043    2,820 
Stock based compensation                    
Salaries, wages & benefits - related parties   6,664    6,664    13,328    30,540 
Financing   47,497    322,106    47,797    339,158 
Other   17,964    10,904    37,412    17,594 
Total General and Administrative Expenses   222,926    411,950    402,813    524,093 
                     
Operating Loss   (222,008)   (411,950)   (396,286)   (524,093)
                     
Other Income (Expense)                    
Other income (loss)   -    1,603    -    1,697 
Loss on conversion of related party debt   -    (70,000)   -    (79,825)
Interest expense to related parties   (64,418)   (65,045)   (128,445)   (129,795)
Interest expense   (2,171)   -    (4,331)   - 
                     
Other Expense - Net   (66,589)   (133,442)   (132,776)   (207,923)
                     
Loss before Income Taxes   (288,597)   (545,392)   (529,062)   (732,016)
                     
Income Taxes   -    -    -    - 
                     
Net (Loss)  $(288,597)  $(545,392)  $(529,062)  $(732,016)
                     
(Loss) per Share:                    
Basic and Diluted  $(0.00)  $(0.01)  $(0.01)  $(0.01)
                     
Weighted Average                    
Number of Shares   104,701,944    101,043,913    104,500,278    99,143,913 

 

The accompanying notes are an integral part of these financial statements. 

 

F-2
 

  

SMOKY MARKET FOODS, INC.

Statement of Stockholder's Equity

(unaudited)

 

           Deferred   Other         
   Common Stock   Stock-Based   Paid-in   Accumulated   Total 
   Shares   Amount   Compensation   Capital   Deficit   (Deficit) 
                         
Balance, January 1, 2011   93,977,246   $93,978   $(55,228)  $6,232,009   $(9,523,300)  $(3,252,541)
Common stock issued for:                              
Cash   3,000,000    3,000         139,300         142,300 
Settlement of advances   4,650,000    4,650         98,425         103,075 
Employee compensation   1,750,000    1,750         12,250         14,000 
Professional services   560,000    560         108,940         109,500 
Financing   255,000    255         21,995         22,250 
Settlement of accounts payable balances   21,281    21         7,427         7,448 
Convertible debt financing                  38,750         38,750 
Warrants issued for:                              
Employee compensation                  147,218         147,218 
Professional services                  214,723         214,723 
Financing                  273,394         273,394 
Convertible debt financing                  40,648         40,648 
Amortization of stock-based compensation             26,657              26,657 
Net (Loss) for the Year Ended December 31, 2011                       (1,914,896)   (1,914,896)
Balance, December 31, 2011   104,213,527   $104,214   $(28,571)  $7,335,079   $(11,438,196)  $(4,027,474)
Common stock issued for:                              
Settlement of accounts payable balances   260,084    260         17,431         17,691 
Conversion of debt to common stock   3,074,178    3,074         53,586         56,660 
Cash   745,000    745         25,755         26,500 
Convertible debt financing                  46,269         46,269 
Warrants issued for financing services                  47,498         47,498 
Amortization of stock-based compensation             13,328              13,328 
Net (Loss) for the Six Months Ended June 30, 2012                       (529,062)   (529,062)
Balance, June 30, 2012   108,292,789   $108,293   $(15,243)  $7,525,618   $(11,967,258)  $(4,348,590)

 

The accompanying notes are an integral part of these financial statements. 

 

F-3
 

 

SMOKY MARKET FOODS, INC.

Statements of Cash Flows

(unaudited)

 

   For the Six Months Ended June 30: 
   2012   2011 
Cash Flows from Operating Activities          
Net Income (Loss)  $(529,062)  $(732,016)
Loss on conversion of related party debt   -    79,825 
Stock-based financing and compensation costs   60,825    369,699 
Depreciation and amortization   79,198    27,690 
Current year interest capitalized as debt   132,777    129,500 
Adjustments to reconcile net loss to cash used          
in operating activities:          
(Increase) decrease in inventory   1,560    - 
(Increase) decrease in accounts receivable   -    - 
Increase (decrease) in accounts payable   41,386    (14,108)
Increase (decrease) in accrued commissions   -      
Increase (decrease) in bank overdraft   -      
Increase (decrease) in due to employees   97,400    98,975 
           
Net Cash Provided (Used) by Operating Activities   (115,916)   (40,435)
           
Cash Flows from Investing Activities          
(Deposits) refunds   -    183 
           
Net Cash Provided (Used) by Investing Activities   -    183 
           
Cash Flows from Financing Activities          
Proceeds from issuance of convertible debt   70,000      
Proceeds from issuance of common stock   26,500    26,500 
Proceeds from (payments on) short term advances - net   5,900    14,900 
           
Net Cash Provided (Used) by Financing Activities   102,400    41,400 
           
Net Increase (Decrease) in Cash   (13,516)   1,148 
           
Cash, Beginning of Period   17,614    10 
           
Cash, End of Period  $4,098   $1,158 
           
Supplemental Information:          
Interest paid  $-   $- 
Income taxes paid  $-   $- 

 

The interest disclosed in the cash flow from operating activities section above was interest accrued but unpaid on promissory notes as more fully disclosed in the notes to the financial statements. The accrued but unpaid interest is added to the principal balance of the promissory notes. This non-cash expense is added back in the cash flows from operating activities section above in order to arrive at cash flows from operating activities.

 

The accompanying notes are an integral part of these financial statements. 

 

F-4
 

  

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Smoky Market Foods, Inc, (the “Company”) was incorporated on April 18, 2006 under the laws of the State of Nevada.

 

The Company engages in the manufacture and sale of smoked meat products using a proprietary cooking technology which enables preservative-free production. Sales and distribution are presently accommodated through retail (internet) and wholesale distribution strategies intended to exploit the Smoky Market brand. The Company also intends to create a chain of franchised restaurants that also utilize the branded Smoky Market products.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. On an ongoing basis, management reviews those estimates, including those related to allowances for loss contingencies for litigation, income taxes, and projection of future cash flows used to assess the recoverability of long-lived assets.

 

Cash and Cash Equivalents

 

For purposes of balance sheet classification and the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

Accounts Receivable

 

Management monitors the liquidity and creditworthiness of accounts receivable due from customers on an ongoing basis, considering industry and economic conditions and other factors. These factors form the basis for calculating and recording an allowance for doubtful accounts, which is an estimate of future credit losses. The Company writes off individual accounts receivable against the bad debt allowance when the Company determines a balance is uncollectible. Management has determined that the bad debt allowance is appropriately established at $-0- as of both June 30, 2012 and December 31, 2011.

 

Inventory

 

Inventory consists of Smoky Market food items and branded packaging. It is valued at the lower of cost or market using the average cost method. Inventory was as follows at:

 

   June 30,   December 31, 
   2012   2011 
Raw materials   -    - 
Finished goods   15,256    16,816 
   $15,256   $16,816 

 

F-5
 

  

Property and Equipment

 

Property and equipment are stated at cost and are being depreciated using the straight-line method over the assets’ estimated economic lives, which range from 3 to 25 years. Property and equipment were as follows as of:

 

   June 30,   December 31, 
   2012   2011 
Transportation Equipment   3,200    3,200 
Accumulated depreciation   534    356 
   $2,666   $2,844 

 

Leasehold improvements are capitalized and amortized over the remaining term of the leased facility. The Company recorded $89 and $-0- in depreciation expense relating to the assets above for the three months ended June 30, 2012 and 2011, respectively. The Company recorded $178 and $-0- in depreciation expense relating to the assets above for the six months ended June 30, 2012 and 2011, respectively.

 

Advances

 

As of June 30, 2012 and December 31, 2011, the Company was indebted to several individuals for non-interest bearing, unsecured advances in the amounts of $100,600 and $94,700, respectively. $82,500 of the advances were past due and in default as of June 30, 2012 and December 31, 2011, respectively. 2,035,000 shares of common stock and 150,000 warrants to purchase common stock were issued to the individuals as part of the advances still outstanding at June 30, 2012. Management intends to repay the advances upon the realization of future debt or equity financing. Accordingly, the advances have been classified as current obligations.

 

Financial Instruments

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2012 and December 31, 2011. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable and accounts payable. Fair values are assumed to approximate carrying values for these financial instruments because they are short term in nature, or are receivable or payable on demand, and their carrying amounts approximate fair value.

 

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 and indication of collectability such as a purchase order or other evidence which establishes the validity of the transaction.

 

Shipping and Handling (Internet Sales)

 

Shipping and handling charged to customers can vary depending on pricing strategies, market conditions, etc., and is not necessarily based on the recovery of cost. Accordingly, shipping and handling charges are recorded as a component of sales while the corresponding shipping and handling costs are reflected as a component of cost of goods sold.

 

Advertising Costs

 

All advertising costs are charged to expense as incurred or the first time the advertising takes place, unless it is direct-response advertising that results in probable future economic benefits. Advertising expenses were $159 and $-0- for the three months ended June 30, 2012 and 2011, respectively. Advertising expenses were $159 and $200 for the six months ended June 30, 2012 and 2011, respectively.

 

F-6
 

  

Segment Information

 

Certain information is disclosed based on the way management organizes financial information for making operating decisions and assessing performance. The Company currently operates in one business segment and will evaluate additional segment disclosure requirements if it expands operations.

 

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. 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.

 

Recent Accounting Pronouncements

 

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

 

F-7
 

  

NOTE 2. GOING CONCERN

 

Management believes that there is substantial doubt about the company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is contingent upon its ability to commence profitable operations or to obtain additional debt or capital financing. Management is attempting to obtain additional financing with various parties, but the eventual success of such efforts cannot be assured.

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern.

 

The Company has experienced $11,967,258 in losses since inception. The Company has had minimal revenue generating operations since inception.

 

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

NOTE 3. NOTE PAYABLE TO RELATED PARTY

 

The Company is obligated under a promissory note payable to an LLC. The LLC has acquired over 10% of the common stock of the Company, and is therefore now deemed a related party. However, the LLC does not have management control of the Company. The note accrues interest at a 10% annual rate until repaid on or before its maturity date of August 18, 2020.

 

The net promissory note obligation was as follows as of:

 

   June 30,   December 31, 
   2012   2011 
Face amount of note  $2,568,900   $2,568,900 
Accrued interest   482,448    354,003 
Less unamortized loan discount   (443,018)   (470,707)
   $2,608,330   $2,452,196 

 

As discussed above, the LLC is considered a related party. Related party expenses relative to this loan were as follows for the six months ended:

 

   June 30,   June 30, 
   2012   2011 
           
Interest expense  $128,445   $64,750 
Amortization of loan discount  $27,689   $13,844 

 

NOTE 4. CONVERTIBLE DEBT – RELATED PARTY

 

The Company entered into a Purchase and Lease Agreement in June 2011 with SMKY Asset Fund LLC (the “Lender,” a related party) relating to the Company’s smoker-oven system. The substance of the transaction more closely resembles a convertible debt instrument and for that reason the Company has recorded this transaction as a convertible debt borrowing. Pursuant to the agreement, the Company received $210,000 in the third quarter of 2011, subject to increase prior to January 25, 2012, with a maximum borrowing of $500,000. The final purchase amount for the smoker-oven system was $235,000.

 

F-8
 

  

In addition, Smoky Market was required to issue warrants to the Lender to purchase a share of common stock for each $1.00 in debt provided. The warrants have an exercise price of $0.50 per share, a five-year term and include net exercise provisions. The warrants were valued using the Black-Scholes method assuming a risk-free annual rate of return of .02%, volatility of 317%, an exercise price of $.50 and a current stock price of $.24. The resulting value is reflected in the financial statements as a discount on the convertible debt and is being amortized over the ten-year life of the debt. Payments due on the debt are equal to the lesser of (a) $0.20 per pound of product produced using the smoker-oven, or (b) the amount necessary to generate a 30% return on the sum of the purchase price and $5,000.

 

The Purchase and Lease Agreement has a 10-year term, provided that the Company must repay the debt at any time after July 25, 2014 that the market price for the Company’s 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 sum of (a) the purchase price, plus (b) $5,000. The conversion feature of the note was valued based on the same criteria as the warrant described above, and resulted in a calculation of $2,063,114. Since the conversion is contingent, the conversion feature was not recognized in the calculation of the debt discount.

 

The debt was as follows at:

 

   June 30,   December 31, 
   2012   2011 
Face amount of debt  $235,000   $235,000 
Less unamortized loan discount   (36,584)   (38,616)
   $198,416   $196,384 

 

As discussed above, the Lender is considered a related party. Related party expenses relative to this loan were as follows for the six months ended:

 

   June 30,   June 30, 
   2012   2011 
           
Amortization of loan discount  $2,032   $- 

 

NOTE 5. CONVERTIBLE DEBT – UNRELATED PARTY

 

The Company has entered into four convertible debt arrangements with an unrelated financier (“Financier”). The promissory notes carry interest at an 8% annual rate and are due nine months from the transaction date. The first note was in the principal amount of $42,500 and is due July 11, 2012. The second note was in the principal amount of $35,000 and is due September 15, 2012. The third note was in the principal amount of $37,500 and is due on November 4, 2012. The fourth note was in the principal amount of $32,500 and is due on February 4, 2013. All notes have a conversion option which allows the Financier to convert the principal and accrued interest into common shares based on the average of the lowest three closing prices of the Companies stock over the prior ten to fifteen days. That price is then discounted by 45% to arrive at the conversion price. The Company has the right to repurchase the notes during the first 180 days at a price which includes accrued interest plus the original principal amount multiplied by 150%.

 

The Company has recorded the conversion options as loan discounts. Since the number of shares is variable, the calculation of the discount assumed the conversion stock price as of the transaction date as the base for calculations.

 

The outstanding combined debt was as follows at:

 

   June 30,   December 31, 
   2012   2011 
Face amount of debt  $93,000   $77,500 
Accrued interest   3,101    930 
Less unamortized loan discount   (26,692)   (29,722)
   $69,409   $48,708 

  

F-9
 

 

 

Based on the average of the lowest three closing prices for the Company’s common stock over the last ten trading days of the three-month period ended June 30, 2012, the convertible debt holder would have been able to convert the above described loan principal in exchange for 4,675,325 shares of common stock. The Company had sufficient shares of common stock available to satisfy such a conversion as of June 30, 2012.

 

NOTE 6. CAPITAL STOCK

 

Common Stock

 

On April 18, 2006, the State of Nevada authorized the Company to issue a maximum of 200,000,000 shares of the Company’s common stock. The assigned par value was $.001. On the same day, the Company issued 40,000,000 common shares to Smoky Systems, LLC, a Nevada LLC and related party, in exchange for certain assets.

 

Preferred Stock

 

In June 2006, the State of Nevada authorized the Company to issue a maximum of 10,000,000 shares of the Company’s preferred stock with a $.001 par value. Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors. Each series shall be distinctly designated. All shares of any one series of the Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends thereon, if any, shall be cumulative, if made cumulative. The powers, preferences and relative, participating, optional and other rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. No preferred shares had been issued as of June 30, 2012.

 

Stock Transactions:

 

The Company has engaged in numerous transactions whereby shares of common stock (description above) were issued in exchange for cash and/or services. The Statement of Stockholders’ Equity provides a summary of such transactions.

 

NOTE 7. RELATED PARTY TRANSACTIONS

 

As of June 30, 2012 the Company owed $170,976 to the Company’s Chief Financial Officer, a related party, for professional services. As of December 31, 2011, the Company owed $133,244 to the Company’s Chief Financial Officer for professional services and $12,689 to a supplier who is also a shareholder and related party, for a total balance of $145,933 in related party liabilities. Such debt was reflected as related party trade payables on the balance sheets, bears no interest and has no formal repayment terms.

 

NOTE 8. COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitment

 

The Company has defaulted on a long-term operating lease of real property previously used as a restaurant operation in Los Gatos, California. All amounts due under the lease have been recognized as a liability and included in accounts payable. The liability is reflected at $187,307 as of both June 30, 2012 and December 31, 2011.

 

Employment Contracts

 

Chief Executive Officer

 

Effective May 1, 2007, the Company entered into a three-year employment contract with the Chief Executive Officer (“CEO”). Terms of the agreement included annual compensation of $175,000, a potential 80% bonus, a stock award of 1,500,000 common shares, 425,000 options to purchase common stock at $.10 per share, and an additional contingent 1,000,000 shares assuming that certain operating performance metrics are achieved. The employment contract expired and has not yet been renewed as of the date of these financial statements. The CEO and the Company have continued the same compensation structure subsequent to the expiration of the employment contract.

 

F-10
 

  

Real Estate Option and Consulting Agreement

 

The Company entered into an agreement with Mary Anne’s Specialty Foods, Inc. (“Supplier”) in October 2009. Under the terms of the agreement, the Company issued the Supplier 1,500,000 warrants to purchase the Company’s common stock at a $.15 exercise price, expiring in five years, in exchange for certain real property rights to purchase and build production facilities located on property presently owned by the Supplier. The transaction was valued at $75,000 using the Black-Scholes Method. The Company also issued 1,000,000 common shares to the Supplier in exchange for a three-year real estate related consulting contract that the Company may require in subsequent years in order to build the new facility described above. The transaction was valued at $50,000, based on the $.05 per share fair value of the Company’s common shares on the date of the agreement. The values of the assets were considered impaired by Management and written off as an impairment loss at December 31, 2010.

 

Dispute with Contractor

 

Smoky Market previously retained the services of an independent financial consultant contractor (the “Contractor”). The Contractor was terminated in 2009 and Company Management believes that a settlement was agreed to between the parties. The Contractor now disputes the agreement, claiming additional amounts are owed. The Company plans to contest the Contractor’s claim, but has recognized and recorded a liability in these financial statements equal to the full amount claimed by the Contractor. The amount in dispute is $123,720 as of both June 30, 2012 and December 31, 2011.

 

NOTE 9. COMMON STOCK OPTIONS AND WARRANTS

 

Common Stock Option Plan

 

The Company has reserved 6,500,000 common shares for the exercise of stock options to be issued pursuant to the 2006 Stock Option Plan. Information relating to options issued under this plan is as follows:

 

           Weighted 
   Options and       Average 
   Stock Awards       Option 
   Available   Number of   Exercise 
   for Grant   Shares   Price 
Outstanding as of January 1, 2012   742,500    5,757,500   $0.10 
Shares reserved   -    -    - 
Options granted   -    -    - 
Stock awards granted   -    -    n/a 
Options exercised   -    -    - 
Options canceled   -    -    - 
Outstanding as of June 30, 2012   742,500    5,757,500   $0.10 

 

The following table summarizes information about stock options outstanding and exercisable at June 30, 2012:

 

F-11
 

 

Stock Warrants Outstanding 
    Average     
Number of   Remaining     
Warrants   Contractual     
Outstanding   Life in Years   Exercise Price 
 1,887,500    1.07   $0.10 

  

Stock Warrants Exercisable 
    Average     
Number of   Remaining     
Warrants   Contractual     
Outstanding   Life in Years   Exercise Price 
 1,887,500    1.07   $0.10 

 

The assumuptions used in computing fair value of options is as follows:

 

Expected stock price volatility   186.0%
Risk-free interest rate   4.7%
Expected term (years)   7.00 
Weighted-average fair value of stock options granted  $0.099 

 

Common Stock Warrants

 

The following is a summary of the status of all the Company's stock warrants as of June 30, 2012:

 

       Weighted 
   Number   Average 
   of   Exercise 
    Warrants    Price 
Outstanding, January 1, 2012   18,949,334   $0.10 
Granted   1,630,000    0.15 
Exercised   -    - 
Cancelled   -    - 
Outstanding, June 30, 2012   20,579,334   $0.10 

  

F-12
 

  

The following table summarizes information about stock warrants outstanding and exercisable at June 30, 2012:

  

Stock Warrants Outstanding  
    Average     
Number of   Remaining     
Warrants   Contractual     
Outstanding   Life in Years   Exercise Price 
 210,000    4.25   $0.50 
 1,771,834    3.84   $0.25 
 5,145,000    1.41   $0.15 
 13,452,500    4.00   $0.05 
 20,579,334           

 

Stock Warrants Exercisable  
    Average     
Number of   Remaining     
Warrants   Contractual     
Outstanding   Life in Years   Exercise Price 
 210,000    4.25   $0.50 
 1,771,834    3.84   $0.25 
 5,145,000    1.41   $0.15 
 13,452,500    4.00   $0.05 
 20,579,334           

 

Warrants were valued and recorded pursuant to the Black-Scholes Method. Assumptions used were an average risk-free rate of return of .12% to .15%, average expected stock price volatility of 347%, weighted average expected term of 6.01 years, and a weighted average fair value of $.01 per warrant.

 

NOTE 10. SUBSEQUENT EVENTS

 

Management has evaluated the period subsequent to June 30, 2012 up to and including the date of the issuance of the financial statements for material subsequent events to disclose, and has determined that no such subsequent events exist.

 

F-13
 

  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

This Quarterly Report on Form 10-Q (this “Report”) contains various forward-looking statements. Such statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “likely,” “believe,” “intend,” “expect,” “will” or similar words. These statements discuss future expectations, contain projections regarding future developments, operations, or financial conditions, or state other forward-looking information. When considering such forward-looking statements, you should keep in mind the risk factors noted in Part II – Other Information, “Item 1A. Risk Factors” and other cautionary statements throughout this Report and our other filings with the Securities and Exchange Commission. You should also keep in mind that all 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. If one or more risks identified in this Report or any other applicable filings materializes, or any other underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected, or intended.

 

Overview

 

We use proprietary, custom-engineered, USDA-approved wood-burning oven technology to produce a complete line of fully-cooked Smoke-BakedTM meat and fish, 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 are presently producing a very limited amount of our smoked food (specifically our smoked salmon) for distribution through SYSCO-Iowa and over the Internet, but intend to expand our production of additional items and grow sales into multiple channels of foodservice and retail grocery distribution principally under the Smoky Market brand. Additionally, we intend to produce certified kosher smoked foods and to distribute this line of products under the “Smoky Kosher” brand through the same marketing channels. In the future, we intend to develop a national chain of fast-casual barbecue restaurants under the name “BarBQ Diner” that would operate without having to handle and cook raw product on site.

 

Our focus of operations at this time is the expansion of our wholesale foodservice distribution through SYSCO and other large and specialty foodservice distributors, and to develop initial retail distribution through selected grocery chains in a limited number of regional markets. Once revenues from our primary distribution channels have gained traction, we intend to pursue development of the BarBQ Diner restaurant concept. We expect that operating dual distribution channels for our smoked foods will enable us to maximize the operating and financial efficiencies of our production capacity.

 

We produce our smoked foods under an agreement with Specialty Foods, a commercial meat processor in whose USDA facility we placed our first wood-burning oven system, which is capable of producing a minimum of approximately 100,000 pounds of smoked meat and fish per month. It is our intention to acquire the business and property of our processor affiliate so that we can create certain economies-of-scale relative to raw product supply cost and operating efficiencies that would result in lowering our product cost, and to create additional production space to develop our kosher food production.

 

We have generated net losses in each fiscal year since our inception in the development and refinements of our business model. 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 a restaurant concept to test our foodservice system, and for our website to establish capability for Internet business. We are presently seeking private equity financing in the amount of $3.5 million to expand Smoky Market foodservice distribution and to begin sales in retail grocery sales in selected market venues. Additionally, we hope to raise at least $25 million from private financing sources of equity and debt to finance the acquisition of our Iowa processor (and possibly other acquisitions for fish processing) and to build the additions on the property for expanded production of regular and kosher food processing, and to finance a national expansion of market openings for our retail brand grocery distribution.

 

Liquidity and Capital Resources

 

As of June 30, 2012, we had cash and cash equivalents of $4,098 and a working capital deficit of $1,544,510, as compared to cash and cash equivalents of $17,614 and a working capital deficit of $1,381,738 as of December 31, 2011.

 

3
 

  

Given that we are not yet in a positive cash flow or earnings position, the options available to us in our efforts to secure the financing structures we propose 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 term for exercising the warrants was adjusted to ten years as opposed to five years on the cancelled warrants. 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. In addition, we are required to issue to Lessor a warrant to purchase a share of common stock for each $1.00 in purchase price paid. The warrant has an exercise price of $0.50 per share, a five-year term and includes net exercise provisions. We leased back the smoker-oven system for rent equal to the lesser of (a) $0.20 per pound of product produced using the smoker-oven, or (b) the amount necessary to generate a 30% return on the sum of the purchase price and $5,000. The Sale/Lease Agreement has a 10-year term, provided that we may repurchase the smoker-oven system at any time after July 25, 2014 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 sum of (a) the purchase price, plus (b) $5,000.

 

In October and December 2011, the Company received an aggregate of $77,500 in cash from Asher Enterprises, Inc. in return for two promissory notes in the amounts of $42,500 and $35,000, respectively. The notes accrue interest at an annual rate of 8% until repaid and carry a maturity date of July 11, 2012 and September 15, 2012, respectively. 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.

 

During 2011, principal uses of cash were approximately $340,000 to finance operating losses and approximately $3,200 for equipment.

 

There are no expected capital expenditures during the second half of 2012.

 

Assuming the success of our wholesale foodservice and retail grocery distribution operations, which are expected to fully utilize our existing production capacity, we anticipate the need to invest as much as $5 million to create additional production capacity, which would be accomplished through our acquisition of Specialty Foods as intended. This will require the construction of an additional building adjacent to Specialty Food’s existing production space for more ovens and packaging equipment, as well as the remodeling of a second building on site to create space for kosher food production. We currently have an agreement with Specialty Foods under which we are granted the option to acquire its 15-acre campus property and make the required building additions (subject to an obligation to lease back to Specialty Foods its processing facility). We anticipate that the financing to pay for the proposed acquisition and property improvements will be generated from a combination of financing transactions involving equity and debt 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.

 

4
 

  

Results of Operations

 

We experienced decreases in general and administrative expenses during the three-month period ending June 30, 2012 as compared to the comparable period ending June 30, 2011. We experienced sales and operating costs during the three-month period ending June 30, 2012, whereas we experienced no sales and operating costs during the same period in 2011. Additionally, we experienced decreases in general and administrative expenses during the six-month period ending June 30, 2011 as compared to the same period in 2010. We experienced sales and operating costs during the six-month period ending June 30, 2012, whereas we experienced no sales and operating costs during the same period in 2011. The changes in revenues and expenses are summarized and discussed in the table below and in the discussion that follows.

 

Revenues and Expenses. Our operating results for the three-month and six-month periods ended June 30, 2012 and the comparable periods in 2011 are summarized as follows:

 

   For the three-month period ended   For the six-month period ended 
   June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011 
Sales  $2,340    -   $8,087    - 
Cost of Sales  $1,422    -   $1,560    - 
Gross Profit (Loss)  $918    -   $6,527    - 
General & Administrative Expenses                    
Salaries, Wages & Benefits  $60,958   $49,170   $122,748   $98,340 
Professional Fees  $37,511   $2,143   $90,801   $2,393 
Marketing  $2,973   $5,559   $6,486   $5,559 
Depreciation/amortization  $46,243   $13,844   $79,198   $27,689 
Rent  $3,116   $1,560   $5,043   $2,820 
Stock based compensation                    
Salaries, Wages & Benefits – related parties  $6,664   $6,664   $13,328   $30,540 
Financing  $47,497   $322,106   $47,797   $339,158 
Other  $17,964   $10,904   $37,412   $17,594 
Operating Loss  $(222,008)  $(411,950)  $(396,286)  $(524,093)
Other (Expense)  $(66,589)  $(133,442)  $(132,776)  $(207,923)
Net (Loss)  $(288,597)  $(545,392)  $(529,062)  $(732,016)

 

THREE-MONTH PERIODS ENDED JUNE 30, 2012 AND JUNE 30, 2011

 

We had no sales or costs or sales for the three-month periods ended June 30, 2011. Consequently, we had no operating loss during these periods. We had sales of $2,340 and cost of sales of $1,422 during the quarterly period ended June 30, 2012. Consequently, we had gross profit of $918 during that period.

 

Our total general and administrative expenses decreased by $189,024, from $411,950 in the three-month period ended June 30, 2011 to $222,008 in the same period in 2012. The decrease in general and administrative expenses was due primarily to a decrease stock-based compensation related to financing activities, as described below.

 

Stock-based compensation related to financing activities decreased by $274,609, from $322,106 in the three-month period ended June 30, 2011 to $47,497 in the same period in 2012, due primarily to warrants given to individuals who had advanced money to the Company in order for the Company to pay essential obligations in the three-month period ended June 30, 2011, with fewer advances occurring in the same period in 2012.

 

The decreases in stock-based compensation related to financing activities described in the previous paragraph were partially offset by increases in expenses relating to salaries, wages and benefits, in professional fees, and in depreciation and amortization expenses. Expenses relating to salaries, wages and benefits increased by $11,788, from $49,170 in the three-month period ended June 30, 2011 to $60,958 in the same period in 2012, due primarily to the Company resuming operations and paying production staff. Professional fees increased by $35,368, from $2,143 in the three-month period ended June 30, 2011 to $37,511 in the same period in 2012, due primarily to the Company incurring government reporting and compliance costs whereas such no such costs were incurred in the same period in 2011. Depreciation and amortization expenses increased by $32,399, from $13,844 in the three-month period ended June 30, 2011 to $46,243 in the same period in 2012, due primarily to the amortization of loan discounts on loans incurred in late 2011 and in the first half of 2012. Overall, the increases in expenses relating to salaries, wages and benefits, professional fees, and depreciation and amortization expenses were not as great as the decrease in the general and administrative expenses described in the previous paragraph.

 

5
 

  

SIX-MONTH PERIODS ENDED JUNE 30, 2012 AND JUNE 30, 2011

 

We had no sales or costs of sales for the six-month period ended June 30, 2011. Consequently, we had no operating loss during that period. For the six-month period ended June 30, 2011, we had $8,087 in sales and $709 in costs of sales. Consequently, our gross profit for the six-month period ended June 30, 2012 was $6,527.

 

Our total general and administrative expenses decreased by $121,280, from $524,093 in the six-month period ended June 30, 2011 to $402,813 in the same period in 2012. The decrease in general and administrative expenses was due primarily to decreases in stock-based compensation related to salaries, wages and benefits and stock-based compensation related to financing activities, as described below.

 

Stock-based compensation related to salaries, wages and benefits decreased by $17,212, from $30,540 in the six-month period ended June 30, 2011 to $13,328 in the same period in 2012, due primarily to the issuance of 1,750,000 shares of common stock to the CEO in the 2011 period. Stock-based compensation related to financing activities decreased by $291,361, from $339,158 in the six-month period ended June 30, 2011 to $47,797 in the same period in 2012, due primarily to fewer warrants being issued as compensation for advances in the 2012 period.

 

The decreases in general and administrative expenses described in the previous paragraph were partially offset by increases in expenses related to salaries, wages and benefits, professional fees, depreciation and amortization expenses, and other expenses. Expenses relating to salaries, wages and benefits increased by $24,408, from $98,340 in the six-month period ended June 30, 2011 to $122,748 in the same period in 2012, due primarily to the Company resuming operations and paying production staff. Professional fees increased by $88,408, from $2,393 in the six-month period ended June 30, 2011 to $90,801 in the same period in 2012, due primarily to the Company incurring government reporting and compliance costs whereas such no such costs were incurred in the same period in 2011. Depreciation and amortization expenses increased by $51,509, from $27,689 in the six-month period ended June 30, 2012 to $79,198 in the same period in 2012, due primarily to the amortization of loan discounts on loans incurred in late 2011 and in the first half of 2012. Other expenses increased by $19,818, from $17,594 in the six-month period ended June 30, 2011 to $37,412 in the same period in 2012, due primarily to the resumption of operations in the 2012 period. Overall, these increases were not as great as the decreases in the general and administrative expenses described in the previous paragraph.

 

Working Capital. Our working capital as of June 30, 2012 and as of December 31, 2011 are summarized in the table below.

 

   As of 
   June 30, 2012   December 31, 2011 
Current Assets          
Cash  $4,098   $17,614 
Inventory  $15,256   $16,816 
Total Current Assets  $19,354   $34,430 
           
Current Liabilities          
Accounts payable  $522,990   $524,338 
Accounts payable – related parties  $170,976   $145,933 
Due to employees  $699,889   $602,489 
Short-term advances  $100,600   $94,700 
Convertible debt  $69,409   $48,708 
Total Current Liabilities  $1,5,63,864   $1,416,168 
           
Working Capital (Deficit)  $(1,544,510)  $(1,381,738)

 

Our working capital deficiency increased by $162,772, from $1,381,738 at fiscal-year end 2011 to $1,544,510 as of June 30, 2012. The increase in our working capital deficiency was primarily due to an increase of $25,043 in accounts payable to related parties, an increase of $97,400 in amounts due to employees, and an increase of $20,701 in convertible debt.

 

6
 

  

Cash Flows. Our cash flows for the six-month periods ended June 30, 2012 and the comparable period in 2011 are summarized as follows:

 

   For the Six-Month
Periods Ended
 
   June 30, 2012   June 30, 2011 
Net Cash Provided (Used) by Operating Activities  $(115,916)  $(40,435)
Net Cash Provided (Used) by Investing Activities   -   $183 
Net Cash Provided (Used) by Financing Activities  $102,400   $41,400 
Net Increase (Decrease) in Cash  $(13,516)  $1,148 
           
Cash, Beginning of Period  $17,614   $10 
Cash, End of Period  $4,098   $1,158 

 

We utilized more cash in our operating activities in the six-month period ended June 30, 2012, from $40,435 in the six-month period ended June 30, 2011 to $115,916 in the same period in 2012, primarily due to a larger loss from operations (after adding back non-cash expenses such as accrued interest and stock based compensation) in the 2012 period. Our investing activities provided $183 in cash during the six-month period ended June 30, 2011, compared to $0 in cash provided in the same period in 2012, primarily due to the refund of previous deposits in the six-month period ended June 30, 2011 with no corresponding activity in 2012. We generated more cash from financing activities, from $41,400 provided during the six-month period ended June 30, 2011 to $102,400 provided during the same period in 2012, primarily due to the receipt of $70,000 in convertible note proceeds in the 2012 period and no similar transaction in the 2011 period.

 

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 are in the process of commencing 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.

 

We were formed in April 2006. 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);

 

7
 

  

● 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 June 30, 2012, we had $4,098 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 April 16, 2012. This doubt is based on the fact that we have had losses since inception, have a stockholders’ deficit and have had no material revenue generating operations since inception.

 

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.

 

8
 

  

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 Specialty Foods, 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 to the lesser of (a) $0.20 per pound of product produced using the smoker-oven, or (b) the amount necessary to generate 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 will default under the lease and forfeit any right to use the smoker-ovens that are 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 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 sum of (a) the purchase price, 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), and 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. Due to our limited financial resources, in the short run, we expect to be unable to attract full-time qualified management personnel. Assuming our business expands, our ability to attract qualified personnel will be affected by our then-current financial situation and the limited number of qualified managers in the smoked-food industry. We may be unable to attract or retain qualified management personnel. If we are unsuccessful in retaining or attracting such employees, our ability to grow and service capacity will be harmed.

 

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We expect to be dependent on third party affiliates to provide design, advertising, foodservice operations management, and franchising assistance in relation to our BarBQ Diners and to assist in development of our general operating and marketing plan.

 

We intend to engage well-established consulting firms for design, advertising, operations management and franchising to assist us in the development and execution of our BarBQ Diner plan. If we are unable to engage and sustain long-term agreements with these operating affiliate firms, our ability to generate revenue will be delayed or reduced, and we may incur substantial costs in obtaining the necessary services to execute the roll out for our restaurants and kiosks.

 

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.

 

Failure to comply with governmental regulations could harm our business and our reputation.

 

We will be subject to regulation by federal agencies and regulation by state and local health, sanitation, building, zoning, safety, fire and other departments relating to the development and operation of our proposed BarBQ Diners. These regulations include matters relating to:

 

● the environment;

● building construction;

● zoning requirements;

● worker safety;

● the preparation and sale of food and alcoholic beverages; and

● employment.

 

Our facilities will need to be licensed and will be subject to regulation under state and local fire, health and safety codes. The construction of modular BarBQ Diners will be subject to compliance with applicable zoning, land use, and environmental regulations. We may not be able to obtain necessary licenses or other approvals on a cost-effective and timely basis in order to construct and develop modular BarBQ Diners in the future.

 

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If we elect to serve alcohol to our customers, we will be required to comply with the alcohol licensing requirements of the federal, state, and municipal governments having jurisdiction where our BarBQ Diners are located. Alcoholic beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of BarBQ Diners, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. If we fail to comply with federal, state, or local regulations, our licenses may be revoked and we may be forced to terminate the sale of alcoholic beverages at one or more of our BarBQ Diners.

 

The Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. We will likely be required to comply with the Americans with Disabilities Act and regulations relating to accommodating the needs of the disabled in connection with the construction of new facilities and with significant renovations of existing facilities.

 

Failure to comply with these and other regulations could increase our cost structure, slow our expansion and harm our reputation, any of which would harm our 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:

 

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● 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;

 

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● 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.

 

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 and indication of collectability such as a purchase order or other evidence which establishes the validity of the transaction.

 

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. 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.”

 

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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 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, the Company is not required to provide the information required by this Item, as per Item 305(e) of Regulation S-K promulgated under the Exchange Act of 1934.

 

Item 4. Controls and Procedures

 

(a) Under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2011. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are not effective in ensuring that information required to be disclosed by the Company in its reports that it files or submits under the Securities Exchange Act of 1934 (as amended) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. This conclusion is based in part on the fact that the Company has consistently not completed previous periodic reports and related audits within required time periods.

 

(b) There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

14
 

  

PART II

OTHER INFORMATION

 

Item 1A. Risk Factors

 

This item is not applicable to smaller issuers; however, please refer to the “Risk Factors” identified in the Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

Item 2. Unregistered sales of Equity Securities and Use of Proceeds

 

Other than as previously reported, the Company offered and sold the following securities in reliance upon exemptions from the registration requirements of the Securities Act:

 

We have entered into four convertible debt arrangements with an unrelated financier the (“Financier”). The promissory notes carry interest at an 8% annual rate and are due nine months from the transaction date. The first note was in the principal amount of $42,500 and is due July 11, 2012. The second note was in the principal amount of $35,000 and is due September 15, 2012. The third note was in the principal amount of $37,500 and is due on November 4, 2012. The fourth note was in the principal amount of $32,500 and is due on February 4, 2013. All notes have a conversion option which allows the Financier to convert the principal and accrued interest into common shares based on the average of the lowest three closing prices of our common stock over the prior ten to fifteen days. That price is then discounted by 45% to arrive at the conversion price. We have the right to repurchase the notes during the first 180 days at a price which includes accrued interest plus the original principal amount multiplied by 150%. In April 2012, (i) as full conversion of an outstanding note in favor of the Financier, we offered and sold to such party 2,407,511 shares of common stock at a conversion ratio based on the average of the lowest three closing prices of our common stock over the prior ten to fifteen days, which amount equaled $0.2333, which was then discounted by 45% to arrive at the conversion price; and (ii) as partial conversion of an outstanding note in favor of the Financier, we offered and sold to such party 666,667 shares of common stock at a conversion ratio based on the average of the lowest three closing prices of our common stock over the prior ten to fifteen days, which amount equaled $0.115, which was then discounted by 42% to arrive at the conversion price. The offer and sale of such shares of our common stock and warrants is being 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) the 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 investor was provided with certain disclosure materials and all other information requested with respect to our company; (d) the investor 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.

 

In May 2012, (i) in exchange for services, we offered and sold to an entity 175,000 shares of common stock with a fair market value of $3,000 (or $0.017 per share); (ii) in exchange for $2,000 in cash, we offered and sold to an entity 115,000 shares of common stock with a fair market value of $2,000 (or $0.017 per share); and (iii) in exchange for cash, we offered and sold to an individual warrants to purchase 1,000,000 shares of common stock at $0.15 per share, exercisable over three years. The offer and sale of such shares of our common stock and warrants is being 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) each investor was were provided with certain disclosure materials and all other information requested with respect to our company; (d) each investor 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.

 

15
 

  

In June 2012, (i) in exchange for $4,500 in cash, we offered and sold to an individual 150,000 shares of common stock with a fair market value of $4,500 (or $0.030 per share) and warrants to purchase 150,000 shares of common stock at $0.15 per share, exercisable over three years; and (ii) in exchange for $20,000 in cash, we offered and sold to an individual 480,000 shares of common stock with a fair market value of $20,000 (or $0.042 per share) and warrants to purchase 80,000 shares of common stock at $0.15 per share, exercisable over three years.. The offer and sale of such shares of our common stock and warrants is being 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) each investor was were provided with certain disclosure materials and all other information requested with respect to our company; (d) each investor 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 3. Defaults Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

None

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

See the Exhibit Index attached hereto following the signature page.

  

SIGNATURES

 

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

 

      Smoky Market Foods, Inc.
       
  August 15, 2012   By: /s/ Edward C. Feintech
  Date   Edward C. Feintech, President &
Chief Executive Officer
       
  August 15, 2012    By: /s/ Shane Campbell
  Date  

Shane Campbell

Chief Financial Officer

 

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EXHIBIT INDEX
         
Exhibit No.   Exhibit   Incorporated by Reference/
Filed Herewith
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

 

17
 

 

XOTC:SMKY Quarterly Report 10-Q Filling

XOTC:SMKY Stock - Get Quarterly Report SEC Filing of XOTC:SMKY stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

Content Partners
XOTC:SMKY Quarterly Report 10-Q Filing - 6/30/2012
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