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EX-21.1 - EXHIBIT 21.1 - Southern Concepts Restaurant Group, Inc.ex21x1.htm
EX-10.4 - LEASE AGREEMENT FOR SH DENVER - Southern Concepts Restaurant Group, Inc.ex10x4.htm
EX-10.1.4 - EXHIBIT 10.1.4 - Southern Concepts Restaurant Group, Inc.ex10x1x4.htm
EX-10.1.3 - EXHIBIT 10.1.3 - Southern Concepts Restaurant Group, Inc.ex10x1x3.htm
EX-31.2 - EXHIBIT 31.2 - Southern Concepts Restaurant Group, Inc.ex31x2.htm
EX-10.8 - EXHIBIT 10.8 - Southern Concepts Restaurant Group, Inc.ex10x8.htm
EX-32.1 - Southern Concepts Restaurant Group, Inc.ex32x1.htm
EX-31.1 - EXHIBIT 31.1 - Southern Concepts Restaurant Group, Inc.ex31x1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

  FORM 10-K

R   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended:  December 31, 2014

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

For the transition period from ____ to ____

Commission file number: 000-538-53
 
BOURBON BROTHERS HOLDING CORPORATION
 (Exact name of the registrant as specified in its charter)
 
 Colorado
 80-0182193
 (State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
 
2 N. Cascade Avenue, Suite 1400
Colorado Springs, CO 80903
(Address of principal executive offices)

719-265-5821
Telephone number, including
Area code

Securities registered under Section 12(b) of the Exchange Act: None

Title of Each Class
 
Name of Each Exchange on Which Registered
NONE
 
NONE

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, no par value
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes o No R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes o No R

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.
Yes R 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).
Yes R   No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes No R 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

Large accelerated filer        Accelerated filer        Non-accelerated filer        Smaller reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

There were 49,174,654 shares of the issuer's common stock, no par value, outstanding as of February 28, 2015.
 
The aggregate market value of common stock held by non-affiliates of the Registrant as of June 30, 2014, computed by reference to the closing sales price on that date was approximately $17,038,100.  


 

 
BOURBON BROTHERS HOLDING CORPORATION
FORM 10-K
FOR THE PERIOD ENDED DECEMBER 31, 2014
 
CONTENTS
 
PART I
 1
 
 
Item 1.  Business
 1
 
 
Item 1A. Risk Factors
 4
 
 
Item 2.  Properties
 10
 
 
Item 3. Legal Proceedings
 10
 
 
Item 4. Mine Safety Disclosures 
 10
 
 
PART II 
 11
 
 
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 
 11
 
 
Item 6. Selected Financial Data
 12
 
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 12
 
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 17
 
 
Item 8. Financial Statements and Supplementary Data
 17
 
 
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 17
 
 
Item 9A. Controls and Procedures 
 18
 
 
Item 9B. Other Information
 19
 
 
PART III
 20
 
 
Item 10.  Directors, Executive Officers and Corporate Governance
 20
 
 
Item 11. Executive Compensation 
 24
 
 
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters  
 28
 
 
Item 13. Certain Relationships and Related Transactions, and Director Independence  
 31
 
 
Item 14. Principal Accountant Fees and Services
 31
 
 
Item 15. Exhibits, Financial Statement Schedules
 33
 
 
Signatures
 34
 
 
 
Cautionary Statement about Forward-Looking Statements
 
This Form 10-K contains forward-looking statements regarding future events and the Company’s future results that are subject to the safe harbors created under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the Company’s management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of the Company’s future financial performance, the continuing development of the Company’s business plan operations, the Company’s anticipated growth and potentials in its business, the financial performance and/or gains by companies in which the Company holds a position, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified elsewhere herein, including under “Risk Factors.” Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.
 
The Company is under no duty to update any of these forward-looking statements after the date of this report. You should not place undue reliance on these forward-looking statements.
 
i

PART I
Item 1. BUSINESS.

General Discussion

Bourbon Brothers Holding Corporation (“BBHC” or the “Company”) is a Colorado corporation that was formed on January 29, 2008. The Company, on January 22, 2014, with approval of a majority of the Company’s shareholders, changed its name from Smokin Concepts Development Corporation to Bourbon Brothers Holding Corporation.

The Company’s wholly-owned subsidiary, SH Franchisee & Licensing Corp. f/k/a Southern Hospitality Franchisee Holding Corporation (“SH”) entered into a franchise agreement and area development agreement with SH Franchising & Licensing LLC, dba Southern Hospitality BBQ (the “Franchisor”) in November 2011. In May 2012, SH formed Southern Hospitality Denver Holdings, LLC (“SHDH”), a wholly-owned subsidiary, and Southern Hospitality Denver, LLC (“SHD”).  In July of 2014, Southern Hospitality Lone Tree, LLC f/k/a as 53 Peaks Lonetree, LLC (“SHLT”) was formed, a wholly-owned subsidiary of the Company. SHD was formed for the purpose of owning and operating the Company’s first franchised restaurant in Denver, Colorado. As of December 31, 2013, SHD is 51% owned by SHDH and 49% owned by non-controlling interest holder, Southern Hospitality Denver Investments, LLC, a related party. On September 23, 2013, the Company amended the Franchise Agreement (“FA”) with the Franchisor. The amendment to the FA resulted in a substantial reduction in the royalty fees for the Company’s Denver restaurant to be paid to the Franchisor beginning January 1, 2014. The Company, at the same time, terminated the Area Developer Agreement (“ADA”) with the Franchisor for the exclusive rights for the first 10 cities identified in the ADA, subject to customary conditions and exceptions, and for the ownership and operation of up to 30 Southern Hospitality restaurants in the United States. Any new potential locations will be reviewed with the Franchisor on a case by case basis.  On December 30, 2014, SHD entered into a Fifth Amendment to its FA with the Franchisor in connection with the opening of a new Southern Hospitality restaurant in Lone Tree, Colorado, SHLT. Under the FA, SHD partially assigned its rights to SHLT to use the Franchisor’s marks, business methods, proprietary products, confidential information and intellectual property to operate a Southern Hospitality restaurant. In addition, pursuant to the FA, the Franchisor waived certain initial fees in connection with SHLT opening a restaurant in Lone Tree, Colorado.

On November 13, 2012, the Company, f/k/a Art Dimensions, Inc. (“ADI”), entered into an Agreement and Plan of Merger and Reorganization with SH whereby the Company acquired SH in a reverse triangular merger (the “SH Acquisition”). On November 13, 2012, the parties closed the SH Acquisition, and a Statement of Merger was filed and effective with the Colorado Secretary of State on that day. Upon closing the SH Acquisition, the Company issued a total number of common shares to the SH shareholders in exchange for all of their ownership interests in SH such that they owned approximately 89% of the Company on the date of the SH Acquisition. The shareholders of the Company prior to the SH Acquisition owned approximately 11% of the Company after the closing of the SH Acquisition. On November 13, 2012, the Company and SH closed the SH Acquisition, and the Company’s wholly owned subsidiary, ADI Merger Corp., was merged with and into SH. An aggregate of 5,259,029 Company shares were issued in the SH Acquisition.  The number of ADI common shares received by SH’s shareholder depended on the number of shares each held and that were outstanding at the closing of the SH Acquisition.  Additionally, upon the effective date of the SH Acquisition all outstanding SH warrants, options and outstanding promissory notes were exchanged for options, warrants and promissory notes to acquire ADI common stock on equivalent terms.  Pursuant to the SH Acquisition, on November 13, 2012, the Company changed its name from Art Dimensions, Inc. to Southern Hospitality Development Corporation. The Registrant was a public shell company (as defined in Rule 12b-2 of the Exchange Act) at the date of the SH Acquisition. Therefore, the SH Acquisition was accounted for as a reverse acquisition and recapitalization.

The Company, on May 3, 2013, with approval of a majority of the Company’s shareholders, changed its name from Southern Hospitality Development Corporation to Smokin Concepts Development Corporation.

1

On September 30, 2013, the Company entered into an Acquisition Agreement with Bourbon Brothers Holding Company, LLC (“BBHCLLC”) to acquire all of the equity interests in BBHCLLC (the “BB Transaction”) and its subsidiaries. BBHCLLC is a Colorado limited liability company (“LLC”) formed in May 2013, for the purpose of developing and managing all aspects of operating units related to a recently developed “Bourbon Brothers” brand.  As of December 31, 2013, BBHCLLC was a development stage company. BBHCLLC’s subsidiaries (all LLCs formed in April 2013) include Bourbon Brothers Restaurant Group, LLC (“BBRG”), Bourbon Brothers Franchise, LLC (“BBF”) and Bourbon Brothers Brand, LLC (“BBB”). BBRG is to own the stores that will encompass several Bourbon Brothers brands, and owns 51% of Southern Hospitality Southern Kitchen Colorado Springs, LLC (“SHSK”) f/k/a Bourbon Brothers Southern Kitchen Colorado Springs, LLC, which opened its first restaurant in January 2014. BBB manages all aspects of the Bourbon Brothers brand and anticipates establishing licensing and royalty agreements with producers of bourbon, spices, cigars and other products that fit the Company’s core brand.

On November 8, 2013, the Company and BBHCLLC amended the Acquisition Agreement by entering into a First Amendment to Acquisition Agreement.  On January 22, 2014, the parties entered into a Second Amendment to Acquisition Agreement, identifying the final common share conversion ratio of 1.82427.  The Second Amendment identified the number of shares to be issued in the BB Transaction as 20,274,201 shares of common stock to BBHCLLC Class B Non-Voting members and 18,242,687 shares of Series A Convertible Preferred Stock to BBHCLLC Class A Voting members.  These shares were issued at the closing of the BB Transaction.  All outstanding options and warrants to acquire BBHCLLC units were assumed by the Company, applying the conversion ratio to the number of units and strike price.

The Company operates and manages all aspects of Southern Hospitality branded restaurants and property in the state of Colorado.  At this time, the Company oversees the operations of SHD and will soon introduce another full service location in Lone Tree, Colorado as SHLT.  The Company also operates and manages its first unit of Southern Hospitality Southern Kitchen in Colorado Springs, Colorado, which is in the process of being re-branded from Bourbon Brothers Southern Kitchen to Southern Hospitality Southern Kitchen, which is to be finalized in the second quarter of 2015.  Additionally, the Company has begun to develop a fast casual Southern Hospitality-branded restaurant concept which the Company plans to open one to two units during 2015.

The Company entered into a Master License Agreement (“MLA”) with SH Franchising and Licensing, LLC (SHFL) on February 8, 2015. The MLA grants the Company the right to license up to five Southern Hospitality-branded fast casual restaurants (SHQ) in the Denver and Colorado Springs markets over the next 18 months. The Company has agreed to a royalty of two and one half percent (2.5%) of gross sales on each of the new SHQ locations. The agreement pertains exclusively to Company’s right to develop SHQ and does not restrict the Company from developing a similar, competitive brand in the future. Finally, in developing the SHQ concept, the Company will retain joint ownership in the System, which pertains to the functionality of the restaurant.

The Company executed a sixth amendment to the Master Franchise Agreement on February 12, 2015. The Master Franchise Agreement was originally signed November 4, 2011 by Southern Hospitality Franchise and Licensing, LLC (“SHFL”), the franchisor and licensor of the Southern Hospitality brand, and the Company, granting the Company the right to franchise full service Southern Hospitality restaurants in selected markets around the country. The sixth amendment specifically grants the Company the right to develop two new full service Southern Hospitality restaurants during 2015, the locations of which were named in the document to be Lone Tree, Colorado and downtown Colorado Springs, Colorado. Additionally, the sixth amendment grants the Company the right to rebrand its Bourbon Brothers Southern Kitchen restaurant in northern Colorado Springs into a Southern Hospitality-branded full service franchised restaurant operating under the trade name Southern Hospitality Southern Kitchen, a differentiated and slightly more upscale concept to that of the original concept.

Competition
We have a limited operating history, and therefore, anticipate that we will compete with national and regional casual and upscale casual dining restaurants. Our competition may also include a variety of locally owned restaurants and several major store chains. The number, size and strength of competitors vary by region, market and even restaurant. Competitors to our restaurants compete based on a number of factors, including taste, quality, speed of service, price and value, name recognition, location, customer service and the ambience and condition of the competitor.
 
2

Restaurant Site Selection
We believe that site selection is critical to our success and thus we devote substantial effort to evaluating potential locations. Our site selection process includes the use of external real estate brokers with expertise in specific markets. Locations proposed by real estate managers are reviewed on site by an executive of the Company. We study the surrounding trade area, demographic and business information within that area, and available information on competitors.
 Employees
As of December 31, 2014, the Company had 118 employees, of which 19 are full-time employees. 
Additional Information
 
The Company files reports with the Securities and Exchange Commission (the “SEC”) as required by Section 13(a) of the Exchange Act. The public may read and copy materials filed by the Company with the SEC at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

 
3

  
Item 1A.RISK FACTORS
 
Our future performance is subject to a variety of risks and uncertainties. Although the risks described below are the risks that we believe are material, there may also be risks of which we are currently unaware, or that we currently regard as immaterial based upon the information available to us that later may prove to be material. The Company’s securities are highly speculative and involve a high degree of risk, including among other items the risk factors described below.

RISKS RELATED TO OUR BUSINESS

General Company Risks

The Company has a limited operating history.  The Company did not begin active business operations until late February 2013.  Therefore the Company is subject to many risks common to enterprises with limited or no operating history, including potential under-capitalization, limitations with respect to personnel, financial and other resources, and limited customers and revenue sources.  Our ability to successfully generate sufficient revenues from operations is dependent on a number of factors, including availability of funds to fund our current and anticipated operations, and to commercialize our business concept.  There can be no assurance that we will not encounter setbacks with the on-going development and implementation of our business plan.  In addition, our assumptions and projections may not prove to be accurate, and unexpected capital needs may arise. If such needs arise our inability to raise additional funds, either through equity or debt financing, will materially impair our ability to implement our business plan and generate revenues.  Further, as a result of a general tightening of lending standards, and a general decrease in equity financing and similar type transactions it could be difficult for us to obtain funding to allow us to continue to develop our business operations.
We likely will need additional capital in the future and it may not be available on acceptable terms.  The development of our business model will likely require significant additional capital in the future to, among other things, fund our operations and growth strategy.  We may rely on bank financing and also may seek access to the debt and/or equity capital markets.  There can be no assurance, however, that these sources of financing will be available on reasonable terms, or at all.  Our ability to obtain additional financing will be subject to a number of factors, including market/economic conditions, our operating performance, and investor sentiment.  These factors may make the timing, amount, terms and conditions of additional financings unattractive to us.  If we are unable to raise additional capital, our growth could be significantly impeded and/or we may be unable to execute upon our business model.
New or less mature restaurants, once opened, may vary in profitability and levels of operating revenue for six months or more and may under perform compared to existing or established restaurants.   New and less mature restaurants typically experience higher operating costs in both dollars and percentage of revenue initially when compared to restaurants in the comparable restaurant base.  Further, restaurants located in one city or location may not perform as well as restaurants in another city or location.  We expect that our restaurants may take up to one or more years to reach normalized operating levels due to inefficiencies typically associated with new restaurants.  These include operating costs, which are often significantly greater during the first year or two of operation.
The restaurant industry is highly competitive and subject to changes in consumer preferences.  The Company’s business is to own and operate southern-food themed restaurants in several cities in the United States.  Competition in the restaurant industry is increasingly intense. Our competitors include a large and diverse group of restaurant chains and individual restaurants that range from independent local operators that have opened restaurants to well-capitalized national restaurant companies. Many of our competitors are well established and some of our competitors have substantially greater financial, marketing, and other resources than do we. Accordingly, they may be better equipped than us to increase marketing or to take other measures to maintain their competitive position.

Moreover, the bar and restaurant industry is characterized by the continual introduction of new concepts and is subject to rapidly changing consumer preferences, tastes and habits.  Our success depends on the popularity of Southern U.S. based foods and drinks, and shifts in consumer preferences away from this cuisine and style would likely have a material adverse effect on our future profitability.

4

Our operating results will likely experience significant fluctuations. Our operating results may fluctuate significantly due to various risks and unexpected circumstances, increases in costs, seasonality, weather, and other factors outside our control.  The restaurant and bar business is subject to a number of significant risks such as: general economic conditions; extended periods of inclement weather which may affect guest visits as well as limit the availability of key commodities and items that are important ingredients in our products; increases in energy costs, costs of food, supplies, maintenance, labor and benefits, as well as other operating costs; and unanticipated expenses such as repairs to damaged or lost property. Moreover, our business may be subject to seasonal fluctuations. Accordingly, our results of operations from any given period may not necessarily be indicative of results to be expected for any particular future period.

Our expansion into new markets may present increased risks due to our unfamiliarity with those areas.  Our expansion strategy also entails opening restaurants in markets in which we have little or no operating experience. These new markets may have different competitive conditions, consumer tastes and discretionary spending patterns. In addition, our new restaurants will typically take several months to reach budgeted operating levels due to problems associated with new restaurants, including lack of market awareness, inability to hire sufficient staff and other factors. Restaurants opened in new markets may never reach expected sales and profit levels, thereby affecting our overall profitability. Although we have attempted to mitigate these factors by paying careful attention to training and staffing needs, there can be no assurance that we will be successful in operating new restaurants on a profitable basis.

Our ability to open new restaurants on schedule in accordance with our targeted capacity growth rate may be adversely affected by delays or problems associated with securing suitable restaurant locations and leases and by other factors, some of which are beyond our control and the timing of which is difficult to forecast accurately. Our objective is to grow our business and increase shareholder value primarily by (i) establishing and then expanding our base of restaurants that are profitable; and (ii) once established, increasing sales at existing restaurants.  Due in part to the unique nature of each proposed restaurant location, we cannot predict the timing or ultimate success of our site selection process or these lease negotiations. Delays encountered in negotiating, or our inability to finalize to our satisfaction, the terms of a restaurant lease may delay our actual rate of new restaurant growth and cause a significant variance from our targeted capacity growth rate. In addition, our scheduled rate of new restaurant openings may be adversely affected by other factors, some of which are beyond our control, including the following:

 
 
the availability and cost of suitable restaurant locations for development;
 
 
our ability to compete successfully for suitable restaurant locations;
 
 
the availability of adequate financing;
 
 
the timing of delivery of leased premises from our landlords so we can commence our build-out construction activities;
 
 
construction and development costs;
 
 
labor shortages or disputes experienced by our landlords or outside contractors, including their ability to manage union activities such as picketing or hand billing which could delay construction and which could create adverse publicity for our business and operations;
 
 
any unforeseen engineering or environmental problems with the leased premises;
 
 
our ability to hire, train and retain additional management and restaurant personnel;
 
 
our ability to secure governmental approvals and permits, including liquor licenses;
 
 
our ability to successfully promote our new restaurants and compete in the markets in which our new restaurants are located;
 
 
weather conditions or natural disasters; and,
 
 
general economic conditions.
As a franchisee and licensee we have obligations to our Franchisor.  We are obligated to pay the Franchisor royalties on gross sales from all Southern Hospitality restaurants, including those under the Master License Agreement that we entered into with the Franchisor.  These fees will require that the Company devote a substantial amount of its financial resources to paying such fees, which could negatively affect the Company’s results of operations and liquidity.
 
5

Our success depends on our ability to protect intellectual property used in our business operations. We rely on trade secrets and proprietary know-how in operating our restaurants, and we expect to employ various methods to protect those trade secrets and that proprietary know-how. However, such methods may not afford adequate protection and others could independently develop similar know-how or obtain access to our know-how, concepts and recipes.  We cannot offer any assurance that third parties will not claim that the trademarks or menu offerings we utilize infringe upon their proprietary rights. Any such claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause delays in introducing new menu items in the future or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our business, results of operations, financial condition or liquidity.
If we fail to manage our growth effectively, it could harm our business. Failure to manage our growth effectively could harm our business.  Our business model anticipates that we will open multiple restaurants in various cities across the United States.  Our restaurant management systems, financial and management controls and information systems may not be adequate to support our planned expansion. Our ability to manage our growth effectively will require us to develop and enhance these systems, procedures and controls and to locate, hire, train and retain management and operating personnel. We cannot offer any assure that we will be able to respond on a timely basis to all of the changing demands that our planned expansion will impose on management and on our infrastructure. If we are unable to manage our growth effectively, our business and operating results could be materially adversely impacted.
Our operations will be susceptible to the changes in cost and availability of food which could adversely affect our operating results. Our profitability will depend in part on our ability to anticipate and react to changes in food costs. Various factors beyond our control, including adverse weather conditions, governmental regulation, production, availability, recalls of food products, and seasonality, as well as the impact of the current macroeconomic environment on our suppliers, may affect our food costs or cause a disruption in our supply chain. Changes in the price or availability of commodities for which we do not have fixed price contracts could materially adversely affect our profitability. Expiring contracts with our food suppliers could also result in unfavorable renewal terms and therefore increase costs associated with these suppliers or may even necessitate negotiations with alternate suppliers. We cannot predict whether we will be able to anticipate and react to changing food costs by negotiating more favorable contract terms with suppliers or by adjusting our purchasing practices and menu prices, and a failure to do so could adversely affect our operating results. In addition, the ability of our suppliers to meet our supply requirements upon favorable terms, if at all, may be impacted by the economic recovery.

The restaurant business is subject to a significant amount of regulation and licensing requirements. Our proposed business is subject to various federal, state, and local government regulations, including those relating to the food safety and disclosure, alcoholic beverage sale and control, public accommodations, and public health and safety. These regulations are subject to continual changes and updating. Difficulties or failures in obtaining or maintaining the required licenses and approvals or maintaining compliance with existing or newly enacted requirements could delay the opening or affect the continued operation and profitability of one or more restaurants in a particular area.
We are also subject to "dram shop" statutes in certain states, such as Colorado.  These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Failure to comply with alcoholic beverage control or dram shop regulations could subject the Company to liability and could adversely affect our business.
Various federal and state employment laws will govern our relationship with our team members and affect operating costs.  These laws govern minimum wage requirements, overtime pay, meal and rest breaks, unemployment tax rates, workers' compensation rates, citizenship or residency requirements, labor relations, child labor regulations, and discriminatory conduct. Additional government-imposed increases in federal and state minimum wages, overtime pay, paid leaves of absence, and mandated health benefits, increased tax reporting and tax payment requirements for team members who receive tips or a reduction in the number of states that allow tips to be credited toward minimum wage requirements could harm our operating results.
 
6

The food service industry is affected by litigation and publicity concerning food quality, health and other issues, which can cause guests to avoid our restaurants and result in significant liabilities or litigation costs.  Food service businesses can be adversely affected by litigation and complaints from guests, consumer groups or government authorities resulting from food quality, illness, injury or other health concerns or operating issues stemming from one restaurant or a limited number of restaurants. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging guests from eating at our restaurants. We could also incur significant liabilities if a lawsuit or claim results in a decision against us or litigation costs regardless of the result.
Health concerns relating to the consumption of certain food products could affect consumer preferences and could negatively impact our results of operations.   Like other restaurants, consumer preferences could be affected by health concerns about the consumption of certain food products (such as beef or chicken), or negative publicity concerning food quality, illness and injury in general. In recent years there has been negative publicity concerning e-coli, hepatitis A, "mad cow," "foot-and-mouth" disease and "bird flu." The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their guests, resulting in legislation in some jurisdictions which require nutritional information to be disclosed to guests. Nutritional labeling could be enacted in many additional states, counties or cities as well as on a federal level. Nutritional labeling requirements and negative publicity concerning any of the food products we serve may adversely affect demand for our food and could result in a decrease in guest traffic to our restaurants. If we react to the labeling requirements or negative publicity by changing our concept or our menu offerings or their ingredients, we may lose guests who do not prefer the new concept or products, and we may not be able to attract sufficient new guests to produce the revenue needed to make our restaurants profitable. In addition, we may have different or additional competitors for our intended guests as a result of a change in our concept and may not be able to compete successfully against those competitors. A decrease in guest traffic to our restaurants as a result of these health concerns or negative publicity or as a result of a change in our menu or concept could materially harm our business.
Uncertainty regarding the economic recovery may negatively affect consumer spending and has adversely impacted our revenues and our results of operations and may continue to do so in the future.   Current uncertainty regarding economic conditions and the existence and rate of any economic recovery may have an adverse effect on the businesses, results of operations and financial condition of the Company and its customers, distributors and suppliers. These conditions include continued unemployment, weakness and lack of consistent improvement in the housing markets; downtrend or delays in residential or commercial real estate development; volatility in financial markets; inflationary pressures and reduced consumer confidence. As a result, our customers may continue to remain apprehensive about the economy and maintain or further reduce their already lowered level of discretionary spending. This could impact the frequency with which our customers choose to dine out or the amount they spend on meals while dining out, thereby decreasing our revenues and potentially negatively affecting our operating results. We believe there is a risk that prolonged negative economic conditions might cause consumers to make long-lasting changes to their discretionary spending behavior, including dining out less frequently on a more permanent basis, which would have an adverse effect on our business.
We expect to rely heavily on information technology, and any material failure, weakness or interruption could prevent us from effectively operating our business.  The restaurant industry relies heavily on information systems, including point-of-sale processing in restaurants, payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures. Our ability to efficiently and effectively manage our business will in part depend on the reliability and capacity of these systems.  The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms could result in delays in guest service and reduce efficiency in our operations.  Remediation of such problems could result in significant, unplanned capital investments.
 
7

We identified material weaknesses in our disclosure controls and procedures and our Internal Controls Over Financial Reporting.  Section 404 of the Sarbanes-Oxley Act of 2002 requires management to assess our internal controls over financial reporting (“ICFR”) pursuant to a defined framework.  In making that assessment, management identified a material weakness in our disclosure controls as a result of several material weaknesses identified in our ICFR as described in Item 9A below.  There are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective ICFR can provide only reasonable assurance with respect of financial statement preparation and may not prevent or detect misstatements.  Material weaknesses make it more likely that a material misstatement of annual or interim financial statements will not be prevented or detected.  In addition, effective ICFR at any point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.

We have signed leases under long-term non-cancelable terms for which we may remain obligated to perform under even after a restaurant closes, and we may be unable to renew leases at the end of their terms. Our current SHD lease for our first Denver restaurant is a non-cancelable ten-year lease with an option to renew for two five year terms. Our current Colorado Springs lease is a non-cancelable ten-year lease with an option to renew for a ten-year term.  Our current Lone Tree lease is a non-cancelable ten-year lease with an option to renew for two five-year terms.  If we were to close or fail to open a restaurant at a location we lease, we would generally remain committed to perform our obligations under the applicable lease, which could include, among other things, payment of the base rent for the balance of the lease term. Our obligation to continue making rental payments and fulfilling other lease obligations in respect of leases for closed or unopened restaurants could have a material adverse effect on our business and results of operations. Alternatively, at the end of the lease term and any renewal period for a restaurant, we may be unable to renew the lease without substantial additional cost, if at all. If we cannot renew such a lease we may be forced to close or relocate a restaurant, which could subject us to construction and other costs and risks.

The Company is significantly leveraged and has significant debt service requirements.  The Company has a significant amount of indebtedness which could limit the Company’s ability to incur additional indebtedness for capital raising purposes, securing a line of credit, or otherwise. The Company’s indebtedness could adversely affect the Company’s operations, including among other things its ability to obtain additional financing if necessary, and a significant portion of the Company’s cash flow from operations could be dedicated to the repayment of interest and principal on the debts which would reduce the amount of funds available for other corporate purposes.  The Company’s ability to meet its debt service obligations and reduce its indebtedness will be dependent upon the Company’s future performance, which will be subject to the success of its business strategy, general economic conditions, and other factors affecting the Company’s operations, many of which are beyond the Company’s control.

The Company is not required to establish a sinking fund (or any similar type of segregated accounts) for the repayment of its debt. There can be no assurance that the Company’s business operations will generate sufficient cash flow from operations to meet its debt service requirements and the potential payment of principal in cash when due, and if the Company is unable to do so, it may be required to liquidate assets, to refinance all or a portion of the indebtedness or seek to obtain additional financing.
 
RISKS RELATED TO OUR SECURITIES
 
The Company does not intend to declare any dividends in the foreseeable future.  The Company intends to retain any of its profits to fund the Company’s business operations.  Investors who require income from dividends should not purchase our common stock.
 
 As our stock is not listed on a national securities exchange, trading in our shares will be subject to rules governing "penny stocks," which will impair trading activity in our shares.   Our stock is not on a national securities exchange. Therefore, our stock is subject to rules adopted by the SEC regulating broker dealer practices in connection with transactions in "penny stocks." Those disclosure rules applicable to "penny stocks" require a broker dealer, prior to a transaction in a "penny stock" not otherwise exempt from the rules, to deliver a standardized list disclosure document prepared by the SEC. That disclosure document advises an investor that investment in "penny stocks" can be very risky and that the investor's salesperson or broker is not an impartial advisor but rather paid to sell the shares. The disclosure contains further warnings for the investor to exercise caution in connection with an investment in "penny stocks," to independently investigate the security, as well as the salesperson with whom the investor is working and to understand the risky nature of an investment in this security. The broker dealer must also provide the customer with certain other information and must make a special written determination that the "penny stock" is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. Further, the rules require that, following the proposed transaction, the broker provide the customer with monthly account statements containing market information about the prices of the securities.
 
8

These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for our common stock. Many brokers may be unwilling to engage in transactions in our common stock because of the added disclosure requirements, thereby making it more difficult for shareholders to dispose of their shares. You will also find it difficult to obtain accurate information about, and/or quotations as to the price of, our common stock.  In general, buying low-priced penny stocks is very risky and speculative.  The Company’s common stock is currently defined as a penny stock under the Securities and Exchange Act of 1934, and rules thereunder.   You may not be able to sell your shares when you want to do so, if at all.  The penny stock rules may affect the ability of broker-dealers to make a market in or trade our common stock and may also affect your ability to resell any shares you may purchase in the public markets.
 
The over-the-counter market for stock such as ours is subject to extreme price and volume fluctuations. You may not be able to resell your shares at or above the public sale price. The securities of companies such as ours have historically experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations and other factors, such as new product developments and trends in the our industry and in the investment markets generally, as well as economic conditions and quarterly variations in our operational results, may have a negative effect on the market price of our common stock.
 
As a company with a class of securities registered pursuant to the Exchange Act the Company has significant obligations under the Exchange Act. Having a class of securities registered under the Exchange Act is a time consuming and expensive process and subjects the Company to increased regulatory scrutiny and extensive and complex regulation.  Complying with these regulations is expensive and requires a significant amount of management’s time.  For example, public companies are obligated to institute and maintain financial accounting controls and for the accuracy and completeness of their books and records.  These requirements could necessitate additional corporate spending on procedures and personnel requiring us to reallocate funds from other business objectives.

We are a holding company and depend on the cash flow of our subsidiaries. We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations and own substantially all of our assets. Consequently, our cash flow and our ability to meet our obligations depends upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries directly or indirectly to us in the form of dividends, distributions and other payments. Any inability on the part of our subsidiaries to make payments to us could have a material adverse effect on our business, financial condition and results of operations.

There may be future sales or other dilution of our equity which may adversely affect the market price of our common stock. We are not restricted from issuing additional common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. Our Board of Directors is authorized to issue additional shares of common stock and additional classes or series of preferred stock without any action on the part of the stockholders. Our Board of Directors also has the discretion, without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, rights and preferences with respect to dividends or upon the liquidation, or winding up of our business and other terms. Currently, our Series A Preferred shareholders hold a substantial block of voting power. If we issue additional preferred shares in the future that have a preference over our common stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, or if we issue additional preferred shares with voting rights that dilute the voting power of our common stock, the rights of our common stockholders or the market price of our common stock could be adversely affected.

 
9

 
Item 2. PROPERTIES
 
The Company’s principal executive office, for all operations, is located at 2 North Cascade Avenue, Suite 1400, Colorado Springs, CO 80903.  The Company does not own any real property.  The following table provides certain information regarding our businesses leased as of December 31, 2014:
 
 
 
 
 
 
Operating
 
 
 
 
Principal
Lease
 
Square
 
 
Location
 
Uses
Commenced
 
Feet
 
Interest
Denver, Colorado
 
Restaurant
2012
   
7,464
 
Leased (a)
Colorado Springs, Colorado
 
Corporate Office
2013
   
4,450
 
Leased (b)
Colorado Springs, Colorado
 
Restaurant
2013
   
9,191
 
Leased (c)
Lone Tree, Colorado
 
Restaurant
2014
   
5,513
 
Leased (d)
 
(a)
(b)
Occupied under the terms of a 124.5 month lease with an unaffiliated party.  We pay $15,550 per month escalating up to $20,289 per month in year 10.
Occupied under the terms of a 78 month lease with an unaffiliated party.  We pay approximately $5,800 per month escalating up to $6,000 per month in year 6.
(c)
Occupied under the terms of a 120 month lease with a related party.  We pay $33,424 per month escalating by approximately 10% every 60 months.
(d)
Occupied under the terms of a 120 month lease with an unaffiliated party.  We pay approximately $8,960 per month escalating up to $9,855 in year 10.
 
Item 3. LEGAL PROCEEDINGS

None.

Item 4.  MINE SAFETY DISCLOSURES

None.
 
10

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Our common stock is currently quoted on the OTCQB under the symbol “RIBS”. The table below sets forth the high and low bid prices of the Company’s common stock during the periods indicated as reported on Yahoo Finance (http://finance.yahoo.com).  The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not reflect actual transactions.
 
Quarter Ended
 
High
   
Low
 
December 31, 2014
 
$
0.81
   
$
0.15
 
September 30, 2014
   
0.67
     
0.30
 
June 30, 2014
   
0.97
     
0.31
 
March 31, 2014
   
1.01
     
0.34
 
December 31, 2013
 
$
1.30
   
$
0.30
 
September 30, 2013
   
1.50
     
1.05
 
June 30, 2013
   
2.85
     
0.51
 
March 31, 2013
   
3.00
     
1.92
 
                 

The closing sales price of the Company’s common stock as reported on February 25, 2015, was $0.31 per share, which was last reported trade of the Company’s common stock on the OTCQB.
 
Holders
 
As of December 31, 2014, there were 255 holders of record of the Company’s common stock and 6 holders of record of our Series A preferred stock. This does not include persons who hold our common stock in brokerage accounts and otherwise in “street name.”
 
Dividends
 
Since its inception, the Company has not declared or paid cash or other dividends on its common stock.  The Company has no plans to pay any dividends, although it may do so if its’ financial position changes.  There are no restrictions in the Registrant’s articles of incorporation or bylaws that restrict it from declaring dividends.  
 
Equity Compensation Plan Information
 
The Company has adopted one equity compensation plan being its 2012 Stock Option Plan (the “Plan”).   The Company’s shareholders approved the adoption of the Plan on November 14, 2012.  A total of 1,500,000 shares of Company common stock were reserved for issuance under the Plan as of December 31, 2013. That amount was increased to 3,000,000 on January 22, 2014, with approval of the Company’s shareholders.
 
Under the Plan, the Company may grant stock options, restricted and other equity awards to any employee, consultant, independent contractor, director or officer of the Company.    The purpose of the Plan is to provide financial incentives for selected employees, advisors, consultants and directors of the Company, thereby promoting the long-term growth and financial success of the Company.
 
11

 
The following table gives information about the Company’s common stock that may be issued upon the exercise of options, warrants and rights under the Company’s compensation plans as of December 31, 2014.

 
Plan Category
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
 
Weighted average exercise
price of outstanding
options, warrants and rights
 
Number of securities
remaining available for
future issuance
 
 
 
 
 
Equity compensation plans approved by security holders
   
2,637,039
   
$0.29
   
362,961
 
 
                   
 
Recent Sales of Unregistered Securities
 
All sales of unregistered equity securities that occurred during the period covered by this report, and through February 28, 2015, have been previously reported as required in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

As of February 28, 2015, the Company sold 91,291 shares of its common stock at $0.30 for total gross proceeds of $27,387 and 300,000 shares of its common stock at $0.20 per share for total gross proceeds of $60,000.  The Company relied on the exemptions from registration under Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506(b) promulgated thereunder.  No commission or other remuneration were paid on the sales.

Repurchases of Equity Securities
 
The Company did not repurchase any shares of the Company’s common stock during the year ended December 31, 2014.  
 
Item 6. SELECTED FINANCIAL DATA

Not applicable.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
In this Management’s Discussion and Analysis, we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect our future results, including:
 
·
Key events and recent developments within our Company;

·
Our results of operations for the years ended 2014 and 2013;

·
Our liquidity and capital resources;

·
Any off balance sheet arrangements we utilize;

·
Any contractual obligations to which we are committed;

·
Our critical accounting estimates;

·
The inflation and seasonality of our business; and
 
·
New accounting standards that affect our company.
 
The review of Management’s Discussion and Analysis should be made in conjunction with our consolidated financial statements, related notes and other financial information included elsewhere in this annual report.
 

 
12

 
Results of Operations – Years ended December 31, 2014 and 2013

Revenues

The Company opened its first restaurant in Denver, Colorado on February 21, 2013 (the “SHD” restaurant.  The Company’s second restaurant opened in Colorado Springs, CO on January 27, 2014 (the “SHSK” restaurant). The Company recognized $5,144,500 and $2,099,000 in revenues from January 1, 2014 through December 31, 2014 and February 21, 2013 through December 31, 2013, respectively.  The primary increase in 2014 over 2013 was due to the additional store opening in 2014.

Operating Expenses

For the years ended December 31, 2014 and 2013, the Company’s operating expenses were $8,776,000 and $4,465,000, respectively. The operating expenses in 2014 included organization and merger costs of BBHC and its subsidiaries and opening the SHSK restaurant. The operating expenses in 2013 were primarily for operating the SHD restaurant. The largest expense in 2014 and 2013 was the restaurant operating costs totaling approximately $5,490,000 and $2,321,800, respectively. The Company’s next largest operating expenses during its 2014 and 2013 fiscal years were its general and administrative expenses totaling approximately $2,405,000 and $1,214,000, respectively. These expenses primarily included recurring corporate costs (such as payroll and related expenses), costs incurred related to the initiation and organization of the corporate business component. General and administrative and selling and marketing expenses for the years ended December 31, 2014 and 2013 also included approximately $574,900 and $461,740 of (non-cash) stock-based compensation. Additionally, the Company incurred approximately $444,400 and $19,000 in selling and marketing expenses during the years ended December 31, 2014 and 2013, respectively. The Company expects to incur general and administrative expenses going forward as it grows its operations. The Company anticipates that the net loss may continue in the foreseeable future due to the overall expansion of the Company and its subsidiaries.

Other Income (Expense)

For the years ended December 31, 2014and 2013, the Company recognized other expense of approximately $137,400 and $515,700, of which all was attributable to interest expense. The decrease in 2014 over 2013 was primarily due to the additional expense incurred in 2013 as a result of promissory notes being converted to common stock in 2013 resulting in additional accretion of interests relating to beneficial conversion feature.

Liquidity and Capital Resources

As of December 31, 2014, the Company had working capital of approximately $525,000 and had $1,182,100 of cash, which represents a $1,168,500 increase in cash from December 31, 2013. The Company’s total assets and current assets also increased as of December 31, 2014, when compared to December 31, 2013 primarily due to the increase in prepaid expenses, property and equipment, and cash. As noted above, the Company had a net loss during the years ended December 31, 2014 and 2013. Further, as of December 31, 2014, the Company had an accumulated deficit of approximately $8,692,000. Although the Company believes its revenues will increase in 2015, for at least the near term, the Company expects to continue to in part rely on outside sources of capital to fund its current and planned operations.

The Company may continue to seek additional capital to help fund its operations in the near term. However, there can be no assurance that additional financing will be available to the Company on reasonable terms, if at all. The Company’s ability to continue to pursue its plan of operations is dependent upon its ability to increase revenues and/or raise the capital necessary to meet its financial requirements on a continuing basis.

The Company believes that the proceeds from the issuance of its equity securities and notes, coupled with its cash on hand and projected revenues, will be sufficient to cover its costs and expenses through 2015. However, estimates for expenses may change, in which case the Company’s capital would not be sufficient for this time period. As noted above, the Company may need to raise additional capital to fund its projected business expenditures and operations. There can be no assurance that additional financing will be available to the Company on reasonable terms, if at all.

13

The Company will continue to seek additional capital to help fund its operations in the near term. However, there can be no assurance that additional financing will be available to the Company on reasonable terms, if at all. As a result of the Company’s losses from operations and limited capital resources, the Company’s independent registered public accounting firm’s report in the Company’s financial statements as of, and for the year ended, December 31, 2014, includes an explanatory paragraph discussing that these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue to pursue its plan of operations is dependent upon its ability to increase revenues and/or raise the capital necessary to meet its financial requirements on a continuing basis.
 
Current Liabilities

The Company’s current liability for convertible and other notes payable and accrued interest as of December 31, 2014 and 2013, is $465,900 and $476,500. Accounts payable as of December 31, 2014, is $91,800 compared to $81,000 as of December 31, 2013. Accrued expenses as of December 31, 2014, were $229,500 compared to $78,600 as of December 31, 2013.  The increase in accrued expenses and accounts payable is due to operating an additional restaurant location in 2014 over 2013.

Operating Activities

Net cash used in operating activities was approximately $2,355,100 in 2014, as compared to net cash used in operating activities of approximately $1,689,300 in 2013. The increase in net cash used in operating activities in 2014 (compared to 2013) was primarily due to the increase in net loss for the 2014 period, as compared to the 2013 period.

Investing Activities

Net cash provided by investing activities in 2014 was approximately $493,800, as compared to net cash used in investing activities of approximately $1,238,300 for the period of 2013. Net cash used in investing activities in 2014 and 2013 were primarily the result of cash used for purchases of property and equipment. Cash from investing activites in 2014 included $869,900 of cash acquired in the BBHC business acquisition.

Financing Activities

Net cash provided by financing activities in 2014 was approximately $3,030,000, compared to approximately $1,979,000 in 2013. Approximately $1,255,000 of cash was provided in 2014 from the issuance of common stock compared $1,368,000. Additionally, the net cash included in financing activities in 2014 included cash of $1,774,800 in exchange for promissory notes, compared to $404,800 of cash for promissory notes in 2013.  The non-controlling interest holders contributed $225,980 in 2013 compared to $0 for the year ended December 31, 2014. 

14

Off Balance Sheet Arrangements

We have no 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 our shareholders.
 
Critical Accounting Policies
 
The preparation of financial statements in conformity with U. S. generally accepted accounting principles requires management to make a variety of estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and (ii) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements.
 
Our management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increase, these judgments become even more subjective and complex. Although we believe that our estimates and assumptions are reasonable, actual results may differ significantly from these estimates. Changes in estimates and assumptions based upon actual results may have a material impact on our results of operation and/or financial condition. Our significant accounting policies are disclosed in Note 2 to the Financial Statements included in this Form 10-K.  Our critical accounting policies are outlined below.
 
Intangible Assets

The intangible asset at December 31, 2014 and 2013, represents franchise license costs for SHD. These costs are amortized over the ten-year term of the franchise agreement using the straight line method. The Company assesses potential impairment to intangible assets when there is evidence that events or changes in circumstances indicate that the recovery of the assets’ carrying value is not recoverable.

Property and Equipment

Management reviews property and equipment, including leasehold improvements, for impairment when events or circumstances indicate these assets might be impaired. The Company's management considers, or will consider, such factors as the Company's history of losses and the disruptions in the overall economy in preparing an analysis of its property, including leasehold improvements, to determine if events or circumstances have caused these assets to be impaired. Management bases this assessment upon the carrying value versus the fair value of the asset and whether or not that difference is recoverable. Such assessment is performed on a restaurant-by-restaurant basis and includes other relevant facts and circumstances including the physical condition of the asset. If management determines the carrying value of the restaurant assets exceeds the projected future undiscounted cash flows, an impairment charge would be recorded to reduce the carrying value of the restaurant assets to their fair value.

Leasehold improvements, property and equipment are stated at cost. Internal costs directly associated with the acquisition, development and construction of a restaurant are capitalized. Expenditures for minor replacements, maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, and leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Construction in process (leasehold improvements in process) and other property and equipment are not depreciated/amortized until placed in service. Upon retirement or disposal of assets, the accounts are relieved of cost and accumulated depreciation and the related gain or loss is reflected in earnings.

The estimated useful lives are as follows:

Leasehold improvements 10 years
Furniture and fixtures 3-10 years
Equipment 3-7 years

15

Leases and Deferred Rent

The Company intends to lease substantially all of its restaurant properties. For leases that contain rent escalation clauses, the Company records the total rent payable during the lease term and recognizes expense on a straight-line basis over the initial lease term, including the "build-out" or "rent-holiday" period where no rent payments are typically due under the terms of the lease. Any difference between minimum rent and straight-line rent is recorded as deferred rent. Additionally, contingent rent expense based on a percentage of revenue is accrued and recorded to the extent it is expected to exceed minimum base rent per the lease agreement based on estimates of probable levels of revenue during the contingency period. Deferred rent also includes tenant improvement allowances the Company may receive, which is amortized as a reduction of rent expense, also on a straight-line basis over the initial term of the lease.

Convertible Debt and Warrants

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards. Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption.

In addition, the Company has issued warrants to purchase common shares of the Company; in some instances along with debt.  Warrants are valued using a fair value based method, whereby the fair value of the warrant is determined at the warrant issue date using a market-based option valuation model based on factors including an evaluation of the Company’s value as of the date of the issuance, consideration of the Company’s limited liquid resources and business prospects, the market price of the Company’s stock in its mostly inactive public market and the historical valuations and purchases of the Company’s warrants.  When warrants are issued in combination with debt or equity securities, the warrants are valued and accounted for based on the relative fair value of the warrants in relation to the total value assigned to the debt or equity securities and warrants combined.

Revenue Recognition

As of February 21, 2013, the Company began revenue generating activities through SHD. At such time the Company generates revenue through it restaurant operations, it intends to do so pursuant to Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, and applicable related guidance.

Revenue is derived from the sale of prepared food and beverage and select retail items. Revenue is recognized at the time of sale and is to be reported on the Company's consolidated statements of operations net of sales taxes collected. The amount of sales tax collected is to be included in accrued expenses until the taxes are remitted to the appropriate taxing authorities.
 
Stock-Based Compensation

The Company accounts for stock-based compensation under Accounting Standards Codification (“ASC”) 718, Share-Based Payment. ASC 718 requires the recognition of the cost of services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. ASC 718 also requires the stock-based compensation expense to be recognized over the period of service in exchange for the award (generally the vesting period). The Company estimates the fair value of each stock option at the grant date by using an option pricing model, typically the Black-Scholes model.

16

Income Taxes

Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for tax loss and credit carry-forwards. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized. The Company determines its income tax expense in each of the jurisdictions in which it operates. The income tax expense includes an estimate of the current income tax expense, as well as deferred income tax expense, which results from the determination of temporary differences arising from the different treatment of items for book and tax purposes. The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions. Many of the Company’s subsidiaries  are limited liability companies (“LLCs”) and treated for tax purposes as pass-through entities. As a result, any taxes are the responsibility of the respective members. The Company assesses the likelihood of the financial statement effect of a tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date. Management does not believe that there are any uncertain tax positions that would result in an asset or liability for taxes being recognized in the accompanying financial statements. The Company recognizes tax-related interest and penalties, if any, as a component of income tax expense. 
 
Recently Issued and Adopted Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern: Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued.  An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.  The guidance is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early application permitted.  The Company is currently evaluating this new standard and the potential impact this standard may have upon adoption.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts from Customers, which supersedes the revenue recognition in Revenue Recognition (Topic 605), and requires entities to recognize revenue in a way that depicts the transfer of potential goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.  ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early adoption not permitted.  The Company is currently evaluating this new standard and the potential impact this standard may have upon adoption.

Management has not identified any other recently issued accounting standards that it believes may have a significant impact on the Company’s consolidated financial statements. 
 
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Financial Statements following the signature page of this Form 10-K.
  
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
 
None.
 
17

Item 9A. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
As required by Rule 13a-15(e) under the Exchange Act, as of December 31, 2014, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.  This evaluation was carried out under the supervision and with the participation of our President (the person who performs the functions of our principal executive officer) and our Chief Financial Officer (the person who performs the functions of our principal financial officer). Based upon that evaluation, our President (the person who performs the functions of our principal executive officer) and Chief Financial Officer (the person who performs the functions of our principal financial officer) concluded that because of the material weaknesses in our internal control over financial reporting, described below, that our disclosure controls and procedures were not effective as of December 31, 2014.  A material weakness is a deficiency or a combination of deficiencies in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Management Report on Internal Control Over Financial Reporting.
 
Management of the Company is also responsible for establishing and maintaining  internal control over financial reporting as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act.
 
The Company’s internal controls over financial reporting are intended to be designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal controls over financial reporting are expected to include those policies and procedures that management believes are necessary that:
 
(i)   
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii)   
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(iii)   
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
As of December 31, 2014, management assessed the effectiveness of the Company's internal control over financial reporting (ICFR) based on the criteria for effective ICFR established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and SEC guidance on conducting such assessments by smaller reporting companies and non-accelerated filers.
 
 
18

 
Based on that assessment, management concluded that, during the period covered by this report, such internal controls and procedures were not effective as of December 31, 2014 and that material weaknesses in ICFR existed as more fully described below.
 
Management identified the following control deficiencies that represent material weaknesses as of December 31, 2014:
 
(1)
Lack of an independent audit committee or audit committee financial expert.  We have not identified an audit committee financial expert on our board of directors.  These factors are counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management.
 
(2)
Limited staffing within our accounting operations.  The relatively small number of personnel who are responsible for accounting functions prevents us from fully segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews which may result in a failure to detect errors in spreadsheets, calculations, or assumptions used to prepare the financial statements and related disclosures as filed with the SEC. Additionally, we did not maintain a sufficient number of financial and accounting staff with the appropriate level of knowledge and experience to ensure that accurate and reliable financial statement of the Company are prepared and reviewed timely in accordance with accounting principles generally accepted in the United States.

Our management determined that these deficiencies constituted material weaknesses.
 
Due to a lack of financial and personnel resources, we likely will not take any immediate action to remediate these material weaknesses.  However, we expect to implement further controls as circumstances and working capital permit.  Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements contained in this Annual Report on Form 10-K for the fiscal year ended December 31, 2014, fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.
 
We are committed to improving our financial organization. As part of this commitment, we will (when funds and/or additional resources are available to the Company) consider taking the following actions: (1) appoint outside directors to our Board of Directors and utilize an independent audit committee of the Board of Directors who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; (2) create a position to segregate duties consistent with control objectives and will increase our personnel resources; and (3) hire independent third parties to perform expert advice.  We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
 
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to the permanent exemption from such requirement for smaller reporting companies.


Item 9B. OTHER INFORMATION
 
Not applicable.
 
19

 
PART III
 
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Identification of Directors and Executive Officers
 
The table below sets forth the names, titles, and ages of the members of the Company’s Board of Directors, director nominees and its executive officers.   Executive officers of the Company are appointed by the Board of Directors and serve for a term of one year and until their successors have been elected and qualified or until their earlier resignation or removal by the Board of Directors.  Mitchell R. Roth, who is President and acting principal executive officer of the Company, is the son of JW Roth, who is Chairman of the Board of Directors of the Company.  There was no agreement or understanding between the Company and any director, director nominee or executive officer pursuant to whom he was selected as an officer or director.  The Company expects to hold its annual meeting on March 9, 2014 and has filed a proxy statement with the SEC identifying the slate of board nominees for election at the meeting. Persons identified below as director nominees are those included in the slate, but do not currently serve on the Board.
 
Name
 
Position
 
Age
 
Year Appointed as Officer or Director
Robert B. Mudd
 
Director, Former Interim CFO
 
44
 
2013
   
Former President & CEO
     
2014
JW Roth
 
Former Director & Chairman of the Board
 
51
 
2012
   
Director & Chairman of the Board
     
2014
David Lavigne
 
Director
 
53
 
2014
Richard D. Steward
 
Director
 
71
 
2014
James J. Fenlason
 
Director
 
54
 
2014
Robert L. Cohen
 
Director
 
53
 
2014
Brent B. Wood
 
Director
 
46
 
2014
Jane Norton
 
Director Nominee
 
60
 
2014
Mitchell Roth
 
President and Director Nominee
 
25
 
2014
Heather Atkinson
 
Chief Financial Officer, Secretary and Treasurer
 
37
 
2014
Shawn Owen
 
Chief Operating Officer
 
35
 
2014
             
Robert B. Mudd, age 44, served as a Director and the interim Chairman of the Board, interim Chief Executive Officer and interim Chief Financial Officer from June 2013 through January 22, 2014.  Mr. Mudd served as President, CEO, and Director from January 22, 2014 through June 1, 2014.  Mr. Mudd has over 20 years of business management experience and has served in a number of executive roles, ranging from COO to CEO. His first 15 years were spent in the technology and telecommunications industry. Mr. Mudd holds outside business interests where, most recently, he was the COO of Children’s HopeChest from January 2009 through November 2012 and COO of Accredited Members, Inc. from November 2012 through June 2013. He is a co-founder of Bourbon Brothers Holding Company, LLC (which the Company acquired in January 2014) and is a member and former manager of several of its related parties including Bourbon Brothers, LLC and Bourbon Brothers #14, LLC.  He is also the co-founder and CEO of the Story Company from January 2011 through today.  He has a bachelor’s degree in Education from the University of Louisville.

JW Roth, age 51, served as the Company’s Chairman of the Board from inception through May 17, 2013 and from January 22, 2014 to present.  Mr. Roth was actively involved in all phases of the Company’s development. He is the founder of Bourbon Brothers Holding Company, LLC (which the Company acquired in January 2014) and several of its related party entities including Bourbon Brothers, LLC, Bourbon Brothers #14, LLC, Cathedral Peaks Capital, LLC and Roth Development Company, LLC.  Mr. Roth was Co-Chairman and CEO of Accredited Members Acquisition Corporation through July 2013 and was a founding member of Accredited Members, Inc. Mr. Roth served as a director of Disaboom, Inc. from its inception through May 2009. Since 1997 Mr. Roth has served as the as the President of JW Roth & Company, Inc., a consulting company.  Prior to founding JW Roth & Company, Mr. Roth worked in the financial sales industry for American National Insurance Company and the Prudential Insurance Company.  Additionally, Mr. Roth has worked for, and been associated with, the business development of several companies such as Fear Creek Ranches, IMI Global, Inc., CattleNetwork, Inc., Front Porch Direct, and AspenBio Pharma, Inc.

20

David Lavigne, age 53, was appointed as a member of the Board of Directors of the Company on March 5, 2014.  Mr. Lavigne is also currently a member and manager of Cathedral Peaks Capital, LLC, a privately-owned Colorado LLC and was a founder of Bourbon Brothers Holding Company, LLC in 2013 before being acquired by Bourbon Brothers Holding Corporation in January 2014. Mr. Lavigne co-founded Accredited Members Acquisition Corporation, a privately-owned Colorado LLC in 2012 and founded EdgeWater Research Partners, LLC in 2002, the predecessor of Accredited Members, Inc.  Mr. Lavigne has spent almost 30 years in the financial and investment industries, primarily employed by small, regional sell-side broker-dealers involved in the provisioning of both investment banking and retail investment services.  Mr. Lavigne has served in those organizations as a CEO, a National Sales Manager and Head of Equity Research.  His responsibilities in those positions included sales development, financial reporting, and a host of other management related functions, as well as creating research and analysis for retail and institutional clients, and corporate finance departments of his respective employers.  Mr. Lavigne graduated from the University of Idaho in 1984 with a Bachelor of Science in Finance.

Richard D. Steward, age 71, was appointed a member of the Board of Directors of the Company on March 5, 2014.  In addition to being a Director of the Company, Mr. Steward currently sits on the boards of BCI Construction Inc., a privately-held corporation based in Colorado Springs, and Pikes Peak Range Rider Foundation, a Colorado non-profit corporation.  Mr. Steward has previously sat on the boards for the Colorado Springs Chamber of Commerce, Pikes Peak or Bust Rodeo (associated with the Pikes Peak Ranger Rider Foundation), Ride for the Brand Championship Ranch Rodeo based in Colorado Springs, and Sheet Metal Air Conditioning National Association (SMACNA).  In 1995, Mr. Steward served as the National President of SMACNA.  Mr. Steward is also currently a Trustee for the Sheet Metal Worker’s National Pension Fund.  In 1971, Mr. Steward joined Heating and Plumbing Engineers Inc. and retired as its owner in 2004.  From 1965 to 1971, Mr. Steward worked at Alcoa Aluminum, where he helped develop aluminum beer cans and pull-tabs.  Mr. Steward graduated from Colorado School of Mines where he received a Bachelor of Science in Metallurgical Engineering in 1965.

James J. Fenlason, age 54, was appointed as a member of the Board of Directors of the Company on June 1, 2014. Mr. Fenlason is currently a Member of the Board of Directors of Rocky Mountain Bank & Trust, a privately owned Colorado bank and has held that position since 2013. Furthermore, Mr. Fenlason is an active entrepreneur in the Colorado Springs region with involvement in several successful ventures including: Advantage Marketing, Inc., which he founded and has served as President since 1993; The Home Advantage, LLC which he founded and has served as President since 2005; Deerfield Mobile Home Community, LLC which he founded and has served as President since 2008; Bigg City Holdings, LLC where he has served as CEO since 2010. In addition to his business ventures, Mr. Fenlason served on the board and was the board chairman of America’s Family, LLC a non-profit organization with financial programs and loans for the working poor and an annual Christmas event for 8,000 to 14,000 in Colorado Springs, Colorado. He currently serves on the advisory board of PastorServe in the Western United States.  Mr. Fenlason graduated from Liberty University in 1981 in Lynchburg, Virginia with a Bachelor of Science degree in Accounting.

Robert L. Cohen, age 53, was appointed as a member of the Board of Directors of the Company on September 15, 2014. Mr. Cohen is currently the Chairman and CEO of IMA Financial Group, Inc., a diversified financial services company specializing in retail insurance brokerage, wholesale insurance brokerage, and discretionary money management. IMA is consistently ranked amongst the top 20 independently owned brokers in the United States. Mr. Cohen has been with IMA Financial Group, Inc. since 1986, a member of their Board of Directors since 1994, and served in his current role for the last 15 years. Since 2004, Mr. Cohen has also served as a Co-Founder and Partner of Iron Gate Capital, LLC, a private equity firm created by proven operating executives to invest their capital in compelling growth opportunities. Some of their most successful portfolio companies in the restaurant and hospitality industries include Smashburger, a fast-casual restaurant concept, and CPX Lone Tree Hotel, LLLP, the operator of Hampton Inn and Suites in south Denver, CO, as well as numerous successful real estate investments nationwide. In addition, Mr. Cohen currently serves on the Boards of Atlas Advertising since 2001, Dovetail Solutions since 2007 and Commerce Bank since 2010.  Mr. Cohen graduated from University of Texas at Austin where he received a Bachelor degree in Risk Management and Finance.

21

Brent Wood, age 46, was appointed as a member of the Board of Directors of the Company on September 15, 2014. Mr. Wood currently serves as the General Manager and Operating Partner of Larry H. Miller Chrysler Dodge Jeep Ram 104th, an automotive dealership and service center in Thornton, CO. Mr. Wood is an active member of Denver community, where he is currently a Partner of Rocky Mountain USSSA (United States Specialty Sports Association), a sports marketing/management company, and a Partner of XL'N Bingo LLC. He also established Brent Wood, Inc., an investment company, where he has served as Director since 2008. Until March 2014, Mr. Wood served as the Co-Owner/Partner of Car Source Multimedia Advertising Group LLC, a company specializing in publications, web services, mobile media, and social media. Mr. Wood graduated from Baylor University where he received Bachelor of Business Administration degrees in Marketing and Management in 1991.

Jane Norton, age 60, is the founder and General Manager of Norton & Associates LLC consulting firm, established in 2012 to advise clients in areas such as government/public policy, non-profits, education, aerospace, emergency preparedness, healthcare and the military.  She served in the administrations of Presidents Reagan and Bush as Regional Director of the U.S. Department of Health and Human Services from 1988-1993; and in the cabinet of Governor Owens as Executive Director of the Colorado Department of Public Health and Environment from 1999-2002.  In 2002 she was elected Colorado’s 46th Lieutenant Governor and served until January of 2007.  Ms. Norton currently serves on the Valor Christian High School Board of Education since February 2013 through the present, Colorado Uplift Executive Committee since May 2013 through the present, John Templeton Foundation International Board of Advisors since July 2014 through the present, Citizen Advisor to the Colorado Emergency Preparedness Partnership since 2013 through the present, and is a Fellow with the Centennial Institute since 2011 through the present. Ms. Norton earned a Bachelor of Science degree with Distinction in Health Sciences from Colorado State University in 1976, a Master of Science degree in Management from Regis University, Denver, Colorado, in 1999 and was awarded an Honorary Doctorate of Humanities degree from Colorado Christian University in 2011.

Mitchell R. Roth, age 25, was appointed President for the Company on June 1, 2014.  Mr. Roth recently joined the Company in November 2013 and has been primarily responsible for corporate development to include capital raising, real estate development, and strategy. Prior to joining the Company, Mr. Roth worked at the investment-banking firm Laidlaw and Company, Ltd. in New York, NY from May 2013 through October 2013. Mr. Roth previously held summer internships at Accredited Members Acquisition Corporation, a Colorado corporation, in 2012 and 2013. Mr. Roth received a Bachelor of Science degree in May 2013 in Business Finance and Economics from Liberty University in Lynchburg, VA. Mr. Roth is licensed with FINRA and holds a Series 7/General Securities and Series 63 licenses.

Heather Atkinson, age 37, was appointed Chief Financial Officer effective January 22, 2014. Prior to joining the Company, Ms. Atkinson was the controller of Accredited Members Acquisition Corporation and subsidiaries and its predecessor, Accredited Members Holding Corporation, positions which she has held since 2010. Prior to these roles, Ms. Atkinson was a controller, along with other accounting staff roles, at Lee Hecht Harrison for over eight years.  Ms. Atkinson has over 15 years of accounting, finance and financial reporting experience in both public and private companies including consolidations, shareholder relations, SEC reporting, internal and external financial statement reporting, budgeting, cash forecasting, mergers and acquisitions, restructuring and international accounting while working closely with the outside audit and legal firms.  She is a licensed CPA and holds a Bachelor of Science degree in Accounting from Evangel University.

Shawn Owen, age 35, was appointed Chief Operating Officer for the Company on March 5, 2014.  Prior to joining the Company, Mr. Owen served as the General Manager at Southern Hospitality Denver from August 2012 through February 2014. Mr. Owen has spent his entire career in restaurant operations and management, as manager of restaurant operations at The Walnut Brewery in Boulder, Colorado from 2011 to 2012, at the New Berlin Entertainment Center in New Berlin, Wisconsin, from 2010 to 2011, and at Stonefire Pizza Co. in New Berlin, Wisconsin from 2006 through 2010.
 
22

Involvement in Certain Legal Proceedings
 
During the past ten years, none of the persons serving as executive officers and/or directors of the Company has been the subject matter of any of the following legal proceedings that are required to be disclosed pursuant to Item 401(f) of Regulation S-K including:  (a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (b) any criminal convictions; (c) any order, judgment, or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (d) any finding by a court, the SEC or the CFTC to have violated a federal or state securities or commodities law, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud; or (e) any sanction or order of any self-regulatory organization or registered entity or equivalent exchange, association or entity.  Further, no such legal proceedings are believed to be contemplated by governmental authorities against any director or executive officer.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the 1934 Act requires the Company’s directors and officers and any persons who own more than ten percent of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “SEC”).  All directors, officers and greater than ten-percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports files.  Based solely on our review of the copies of Forms 3, 4 and any amendments thereto furnished to us during the fiscal year completed December 31, 2014, and subsequently, all Forms 3 and Forms 4 were filed timely with the exception of the following: Mr. JW Roth inadvertently failed to file a report on a timely basis relating to a gift of shares on March 3, 2014. Mr. Lavigne inadvertently failed to file a report on a timely basis relating to a gift of shares on March 3, 2014; and Mr. Mudd inadvertently failed to file a report relating to one transaction involving a reduction in stock options in March 2014.
 
Code of Ethics
 
The Company adopted a code of ethics as of the BB Transaction date of January 22, 2014, and filed these with the Form 10-K for the period ended December 31, 2013, with the SEC on March 19, 2014.
 
No Audit Committee
 
The Company does not have a separately designated audit committee.  Instead, the entire Board as a whole acts as the Company’s audit committee.  Consequently the Company does not currently have a designated audit committee financial expert.
 
23

 
Item 11. EXECUTIVE COMPENSATION
 
The following table sets out the compensation received for the fiscal years December 31, 2014 and 2013 in respect to each of the individuals who served as the Company’s chief executive officer at any time during the last fiscal year, as well as the Company’s two most highly compensated executive officers: 
 
The following table sets out the compensation received for the fiscal years December 31, 2014 and 2013 in respect to each of the individuals who served as the Company’s chief executive officer at any time during the last fiscal year, as well as the Company’s two most highly compensated executive officers: 

                         
             
Option
     
All Other
     
Name and
Fiscal
 
Salary
   
Bonus
   
Awards*
     
Compensation
   
Total
 
Principal Position
Year
 
($)
   
($)
   
($)
     
($)
   
($)
 
Mitchell Mitchell Roth,
                       
President (1)
2014
 
$
58,187
   
$
-
   
$
132,140
 
(8)
 
 
$
3,690
   
$
194,017
 
2013
 
$
5,590
   
$
-
   
$
-
       
$
280
   
$
5,870
 
                                               
Shawn Owen,
                                             
Chief Operating Officer (2)
2014
 
$
87,384
   
$
-
   
$
162,264
 
(9)
 
 
$
8,741
   
$
258,389
 
2013
 
$
72,082
   
$
-
   
$
25,157
 
(9)
 
 
$
7,920
   
$
105,159
 
                                               
Robert B. Mudd,
                                             
Director, Former Chief Executive Officer (3)
2014
 
$
65,385
   
$
-
   
$
41,758
 
(10)
 
 
$
6,160
   
$
113,303
 
2013
 
$
51,993
   
$
-
   
$
30,166
 
(10)
 
 
$
6,160
   
$
88,319
 
                                               
Stephen J. Cominsky
                                             
Former Chief Executive Officer and Director (4)
2014
 
$
-
   
$
-
   
$
-
       
$
-
   
$
-
 
2013
 
$
105,000
   
$
20,000
   
$
130,474
 
(11)
 
 
$
23,288
   
$
278,762
 
                                               
JW Roth
                                             
Chairman of the Board (5)
2014
 
$
93,766
   
$
-
   
$
123,172
 
(12)
 
 
$
18,343
   
$
235,281
 
2013
 
$
50,000
   
$
-
   
$
13,420
 
(13)
 
 
$
7,809
   
$
71,229
 
                                               
Heather Atkinson
                                             
Chief Financial Officer, Secretary and
2014
 
$
93,872
   
$
-
   
$
49,977
 
(14)
 
 
$
13,437
   
$
157,286
 
Treasurer (6)
2013
 
$
38,326
   
$
-
   
$
29,632
 
(14)
 
 
$
5,578
   
$
73,536
 
                                               
David Lavigne
                                             
Former Secretary and Treasurer (7)
2014
 
$
32,248
   
$
-
   
$
49,935
 
(15)
 
 
$
18,343
   
$
100,526
 
2013
 
$
12,500
   
$
-
   
$
282,315
 
(16)
 
 
$
7,809
   
$
302,624
 
                                               
 
(1)  Mr. Roth has served as the Company’s President since June 1, 2014, through the present.
 
(2)  Mr. Owen has served as the Chief Operating Officer since March 1, 2014, through the present.
 
(3)  Mr. Mudd served as the Interim Chief Executive Officer, Interim Chief Financial Officer and Interim Chairman of the Board from June 20, 2013, through January 22, 2014.  On January 22, 2014, he began serving as the Chief Executive Officer, President and Director until May 31,  2014, of which he resigned as Chief Executive Officer and President.  He continues to serve as a Director through the present.
 
(4)  Mr. Cominsky served as the Chief Operating Officer from June 15, 2012, through September 30, 2012.  On October 1, 2012, he became the Company's Chief Executive Officer and also began serving as a Director.  On June 20, 2013, he resigned his positions as Chief  Executive Officer and Director.
 
(5)  Mr. Roth is a founder of the Company and served as the Company’s Chairman from August 15, 2012, through his resignation date of May 17, 2013.  He has been a Director of the Company since its inception in August 2011 through his resignation date on May 17, 2013. He serves as the Company’s Chairman of the Board since January 22, 2014, through the present.  The salary paid to Mr. Roth was in exchange for services as an employee of the Company and not on behalf of his position as a Director and Chairman of the Board.
 
(6)  Ms. Atkinson has served as the Company's Chief Financial Officer since January 22, 2014 through the present.
 
(7)  Mr. Lavigne is a founder of the Company and began serving as the Company's Secretary and Treasurer from its inception in August 2011.  He resigned his positions as of May 17, 2013. He has served as a Company's Director from January 22, 2014, through the present.  The salary paid to Mr. Lavigne was in exchange for services as an employee of the Company and not on behalf of his position as a Director, Treasurer, or Secretary.
 
(8)  Upon his appointment as the Company’s President, Mr. Roth was granted an option to acquire 300,000 shares of Common Stock at $0.45 per share with 75,000 shares vesting immediately and the remaining shares vesting evenly over three years.  
 
24

(9)  In March 2014, the Company granted Mr. Owen options to purchase up to 300,000 shares of Common Stock, vesting in equal shares annually over four years, with the first tranche vested fully by March 1, 2015, with an exercise price of $0.50 per share with a five-year term. In addition, this person holds options for 18,243 common shares to vest evenly over two years with the first tranche vested fully by September 30, 2014, with an exercise price of $0.14 with a five-year term. In addition, this person holds options to purchase up to 30,000 shares of Common Stock vesting        in equal parts annually over three years with the first tranche vested fully by February 5, 2015, with an exercise price of $0.45 with a five-year term. Finally, Mr. Owens hold options to purchase 30,000 common shares that vested evenly over two years, these options are fully vested, and have an exercise price of $1.50 with a five year term.
 
(10)  On August 19, 2013, Mr. Mudd was granted options to acquire 304,854 shares of Common Stock to vest evenly over a three year vesting period.  The first tranche vested in August 2014 at an exercise price of approximately $0.000274 per share.
 
(11)  Upon his appointment as the Company's Chief Executive Officer, Mr. Cominsky was granted an option to acquire 660,368 shares of Common Stock at $0.0150677 per share with 66,035 shares vesting immediately and the remaining shares vesting upon certain criteria.  Mr. Cominsky exercised 66,035 shares in March 2013.  In connection with his resignation on May 17, 2013, the Company agreed to accelerate the vesting of a portion of his options for 264,149 shares from March 2014 to June 2013.  He exercised these options in a cashless exercise and the stock certificate was being held by the Company per a lock-up agreement through March 2014, at which time the certificate was released by the Company.
 
(12)  In January 2014, the Company granted Mr. Roth options to purchase up to 729,707 shares of Common Stock vesting evenly over four years with the first tranche vested fully by January 9, 2015, with an exercise price of $0.0685 with a five-year term.  As of November 6, 2014, the Company entered into a financing agreement with Rocky Mountain Bank & Trust for up to $200,000 that Mr. Roth personally guaranteed. In turn for his personal guarantee, the vesting of these options for 729,707 shares of Common Stock became immediately vested.
 
(13)  On December 14, 2012, the Company entered into an indemnification agreement with JW Roth for his personal risk regarding personal guarantees in favor of Southern Hospitality Franchising & Licensing, LLC (the “Franchisor”), which are the subject of an Area Development Agreement between the Franchisor and Southern Hospitality Franchisee Holding Corporation, a wholly owned subsidiary of the Company. In addition to the indemnification agreements, the Company compensated Mr. Roth for his personal guarantee in the form of a warrant for 200,000 shares exercisable for ten years at $1.00 per share with the warrant vested immediately with a cashless exercise feature.
 
(14)  On August 19, 2013, the Company granted Ms. Atkinson options to purchase up to 364,854 shares of Common Stock of the Company which were scheduled to vest in substantially equal annual installments over four years beginning on August 19, 2014 with an exercise price of approximately of $0.000274 per share.
 
(15)  In March 2014, the Company granted options to Mr. Lavigne for 100,000 common shares with a one year vesting term and an exercise price of $0.51 per share in connection with his appointment to the Board of Directors of the Company.
 
(16)  Mr. Roth and Mr. Lavigne are founders of AMHC Managed Services, Inc. ("AMMS").  Mr. Roth served as the CEO through July 31, 2013, and continues to be a controlling shareholder.  Mr. Lavigne serves as the Company's CEO and CFO and is a controlling shareholder.  The fees paid by the Company to AMMS are shown under Mr. Lavigne for 2013 in regards to AMMS for disclosure purposes.
 
(*) Amounts represent the calculated fair value of stock options granted to the named executive officers based on provisions of ASC 718-10, Stock Compensation. See Note 8 to the consolidated financial statements for the year ended December 31, 2014, for discussion regarding assumptions used to calculate fair value under the Black-Scholes–Merton valuation model.
 
Compensation Committee Interlocks and Insider Participation
 
The Board of Directors acting in lieu of a compensation committee, is charged with reviewing and approving the terms and structure of the compensation of the Company’s executive officers.  To date, the Company has not retained an independent compensation committee to assist the Company review and analyze the structure and terms of the Company’s executive officers.  Moreover, throughout much of the Company’s fiscal year, the same persons serving on the Board also served as Company executive officers.
 
The Company considers various factors when evaluating and determining the compensation terms and structure of its executive officers, including the following:

1.
The executive’s leadership and operational performance and potential to enhance long-term value to the Company’s shareholders;
2.
The Company’s financial resources, results of operations, and financial projections;
3.
Performance compared to the financial, operational and strategic goals established for the Company;
4.
The nature, scope and level of the executive’s responsibilities;
5.
Competitive market compensation paid by other companies for similar positions, experience and performance levels; and
6.
The executive’s current salary, the appropriate balance between incentives for long-term and short-term performance.

Company management is responsible for reviewing the base salary, annual bonus and long-term compensation levels for other Company employees, and the Company expects this practice to continue going forward.  The entire Board of Directors remains responsible for significant changes to, or adoption, of new employee benefit plans.  The Company believes that, as a relatively new company, its compensation structure is fair to its executive officers as it is intended to balance the Company’s need to minimize its overhead costs yet reward its executives for individual performance and company performance.
 
25

To date the Company has not entered into any employment agreements with any of the persons who serve (or served) as the Company’s executive officers.  Currently there are no contractual commitments in place that provide for severance payments to our executive officers or similar benefits upon a change of control transaction.
 
The Company believes that the compensation environment for qualified professionals in the industry in which we operate is competitive.  In order to compete in this environment, the compensation of our executive officers is primarily comprised of the following components:

Base salary;
Stock option awards and/or equity based compensation;
Discretionary cash bonuses; and
Other employment benefits.
 
Base Salary.  Base salary, paid in cash, is the first element of compensation to our officers.  In determining base salaries for our key executive officers, the Company aims to set base salaries at a level we believe enables us to hire and retain individuals in a competitive environment and to reward individual performance and contribution to our overall business goals.  The Board of Directors believes that base salary should be relatively stable over time, providing the executive a dependable, minimum level of compensation, which is approximately equivalent to compensation that may be paid by competitors for persons of similar abilities.  The Board of Directors believes that base salaries for our executive officers are appropriate for persons serving as executive officers of public companies similar in size and complexity to the Company.
 
During the Company’s 2014 and 2013 calendar years it paid its executive officers the following base salaries:

Stephen J. Cominsky was paid a salary of $210,000 in 2013.
Robert B. Mudd was paid a salary of $150,000 in 2014.
Mitchell R. Roth was paid a salary of $90,000 in 2014.
Shawn Owen was paid a salary of $90,000 in 2014.
Heather Atkinson was paid a salary of $90,000 in 2014.
 
Stock Option Plan Benefits.  The Company believes that equity based compensation helps align management and executives’ interests with the interests of our shareholders.  Our equity incentives are also intended to reward the attainment of long-term corporate objectives by our executives.  We also believe that grants of equity-based compensation are necessary to enable us to be competitive from a total remuneration standpoint.   At the present time, we have one equity incentive plan for our management and employees, the 2012 Stock Option Plan.
 
We have no set formula for granting awards to our executives or employees.  In determining whether to grant awards and the amount of any awards, we take into consideration discretionary factors such as the individual’s current and expected future performance, level of responsibilities, retention considerations, and the total compensation package.  The Company has granted certain of its executive officers stock options under the Company’s 2012 Stock Option Plan.
 
Discretionary Annual Bonus.  Discretionary cash bonuses are another prong of our compensation plan.  The Board of Directors believes that it is appropriate that executive officers and other employees have the potential to receive a portion of their annual cash compensation as a cash bonus to encourage performance to achieve key corporate objectives and to be competitive from a total remuneration standpoint.
 
We have no set bonus formula for determining or awarding discretionary cash bonuses to our other executives or employees.  In determining whether to award bonuses and the amount of any bonuses, we have taken and expect to continue to take into consideration discretionary factors such as the individual’s current and expected future performance, level of responsibilities, retention considerations, and the total compensation package, as well as the Company’s overall performance including cash flow and other operational factors.
 
During fiscal year 2013, we paid a discretionary cash bonus to a Company’s executive officer, Mr. Cominsky.  In general, the bonuses paid to these executive officers were determined by the Board.
 
Other Compensation/Benefits.  Another element of the overall compensation is through providing our executive officers are various employment benefits, such as the payment of a monthly allowance for health care insurance and other benefits costs.
 
 
26

 
Stock Option, Stock Awards and Equity Incentive Plans
 
In accordance with the Company’s 2012 Stock Option Plan, the Company granted certain of its executive officers stock options during the Company’s 2014 fiscal year. The following table sets forth the outstanding equity awards for each named executive officer at December 31, 2014.    
  
Outstanding Equity Awards at Fiscal Year End
 
 
 
Number of Securities
   
 
  
 
 
Underlying Unexercised
   
 
  
 
 
Options (#)
   
Option
 
Option
 
 
   
   
Exercise
 
Expiration
Name and Principal Position
 
Exercisable
   
Un-exercisable
   
Price ($)
 
Date
 
 
   
   
 
     
          Mitchell R. Roth, President (1)
   
75,000
     
225,000
   
$
0.45
 
08/21/2019
          Heather Atkinson, CFO (2)
   
--
     
273,640
   
$
0.000274
 
08/19/2019
          Shawn Owen, COO (3)
   
30,000
     
--
   
$
1.50
 
03/26/2018
     
9,122
     
9,122
   
$
0.14
 
09/29/2018
             
30,000
   
$
0.45
 
02/14/2019
             
300,000
   
$
0.50
 
02/28/2019

(1) Upon his appointment as the Company’s President, Mr. Roth was granted an option to acquire 300,000 shares of Common Stock at $0.45 per share with 75,000 shares vesting immediately and the remaining shares vesting evenly over three years.  

(2) On August 19, 2013, the Company granted Ms. Atkinson options to purchase up to 364,854 shares of Common Stock which were scheduled to vest in substantially equal annual installments over four years beginning on August 19, 2014 with an exercise price approximately of $0.000274 per share.  On August 19, 2014 Ms. Atkinson exercised her option to purchase 91,124 share of Common Stock.

(3)  In March 2014, the Company granted Mr. Owen options to purchase up to 300,000 shares of Common Stock, vesting in equal shares annually over four years, with the first tranche vested fully by March 1, 2015, with an exercise price of $0.50 per share with a five-year term.  In addition, Mr. Owen holds options to purchase 30,000 shares of Common Stock vesting in equal parts annually over three years with the first tranche vested fully by February 5, 2015, with an exercise price of $0.45 and five-year term. Further, Mr. Owens holds options for 18,243 common shares to vest evenly over two years with the first tranche vested fully by September 30, 2014, with an exercise price of $0.14 with a five-year term.  Finally, Mr. Owens hold options to purchase 30,000 common shares that vested evenly over two years, these options are fully vested, and have an exercise price of $1.50 with a five year term.

Compensation of Directors
 
To date, the Company has not provided compensation to the persons serving as its directors on the Board.
 
27

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
 
Security Ownership of Directors and Management
 
The number of shares outstanding of the Company’s stock at February 28, 2015, was 49,174,654 common shares and 4,884,859 Series A preferred shares.  The following table sets forth the beneficial ownership of the Company’s common stock as of February 28, 2015, by each director and each executive officer of the Company and by all directors and executive officers as a group.   To the extent any of the named shareholders own derivative securities that are vested or otherwise exercisable into shares of our common stock these securities are included in the column regarding that shareholders’ common stock beneficial ownership (as required by Rule 13d-3(a)) and the material terms of such derivative securities are explained in the notes to the table.
 
Name and Address of Beneficial Owner
Position
Common
Stock -
Amount and Nature of Beneficial Ownership
 
Percent of Common Stock
 
Series A Preferred Stock-Amount and Nature of Beneficial Ownership
 
Percent of Series A Preferred Stock
 
All Stock-Amount of Beneficial Ownership(9)
Voting Power (10)
JW Roth
2 North Cascade Ave, Suite1400
Colorado Springs, CO 80903
 
Chairman of the Board
 
6,828,887
(1)
 
13.89
%
 
2,228,034
(2)
 
45.61
%
9,056,921
36.50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Robert B. Mudd
2 North Cascade Ave, Suite 1400
Colorado Springs, CO 80903
Director
Former CEO & President & Interim CFO
 
    1,434,749
 
 
2.92
%
 
 
 
*
 
1,434,749
*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Mitchell R. Roth
 
 
 
 
 
 
 
 
 
 
 
 
 
   
2 North Cascade Ave, Suite 1400
Director Nominee &
 
 
 
 
 
 
 
 
 
 
 
 
   
Colorado Springs, CO 80903
President
 
75,000
(3)
 
*
 
 
228,034
 
 
4.67
%
303,034
3.37%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
David Lavigne
 
 
 
 
 
 
 
 
 
 
 
 
 
   
2 North Cascade Ave, Suite 1400
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Colorado Springs, CO 80903
Director
 
3,113,878
(4)
 
6.33
%
 
1,000,000
 
 
20.47
%
4,113,878
16.41%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Richard D. Steward
 
 
 
 
 
 
 
 
 
 
 
 
 
   
2 North Cascade Ave, Suite 1400
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Colorado Springs, CO 80903
Director
 
1,840,692
(5)
 
3.74
%
 
 
 
*
 
1,840,692
*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
James J. Fenlason
 
 
 
 
 
 
 
 
 
 
 
 
 
   
2 North Cascade Ave, Suite 1400
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Colorado Springs, CO 80903
Director
 
333,333
 
 
*
 
 
 
 
*
 
333,333
*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Robert L. Cohen
 
 
 
 
 
 
 
 
 
 
 
 
 
   
2 North Cascade Ave, Suite 1400
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Colorado Springs, CO 80903
Director
 
134,436
(6)
 
*
 
 
 
 
*
 
134,436
*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Brent B. Wood
 
 
 
 
 
 
 
 
 
 
 
 
 
   
2 North Cascade Ave, Suite 1400
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Colorado Springs, CO 80903
Director
 
96,666(7)
 
 
*
 
 
 
 
*
 
96,666
*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Heather Atkinson
 
 
 
 
 
 
 
 
 
 
 
 
 
   
2 North Cascade Ave, Suite 1400
CFO, Secretary & 
 
 
 
 
 
 
 
 
 
 
 
 
   
Colorado Springs, CO 80903
Treasurer
 
456,068
 
 
*
 
 
 
 
*
 
456,068
*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Shawn Owen
 
 
 
 
 
 
 
 
 
 
 
 
 
   
2 North Cascade Ave, Suite 1400
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Colorado Springs, CO 80903
COO
 
132,424
(8)
 
*
 
 
 
 
*
 
132,424
*
                               
Jane Norton
 
 
 
 
 
 
 
 
 
 
 
 
 
   
2 North Cascade Ave, Suite 1400
 
 
 
 
 
 
 
 
 
 
 
 
 
   
Colorado Springs, CO 80903
Director Nominee
 
 
 
*
 
 
 
 
*
 
*
                               
All current directors and executive officers as a group
 
 
14,446,133
 
 
29.38
%
 
3,456,068
 
 
70.75
%
17,902,201
58.87%
 
28


(1)
Includes 200,000 shares in the form of a warrant exercisable at $1.00 per share and 182,427 common shares. Also, includes options to acquire 729,707 shares at $0.0685 per share which vested on November 6, 2014 in exchange for Mr. Roth’s personal guarantee for a loan at Rocky Mountain Bank & Trust, 4,346,087 owned by his spouse as trustee for the KMR Living Trust Dated Nov. 19, 2012 and 1,370,666 shares owned by Accredited Members Acquisition Corp., an entity controlled by Mr. Roth and Mr. Lavigne.
 
(2)
Includes 228,034 shares owned by his minor daughter and 2,000,000 shares owned by Mr. Roth as trustee for the JWR Living Trust Dated Nov. 19, 2012.
 
 
(3)
Includes options to acquire 75,000 shares of Common Stock at $0.45 per share.
 
 
(4)
Includes options to acquire 100,000 shares at $0.51 per share, fully vesting on March 1, 2015 and 56,800 common shares. Also, includes 1,370,666 shares owned by Accredited Members Acquisition Corp., an entity controlled by Mr. Roth and Mr. Lavigne and 1,586,412 shares owned by his spouse.
 
 
(5)
Includes options to acquire 100,000 shares at $0.51 per share which were granted in connection with Mr. Steward’s appointment to the Board of Directors and in exchange for Mr. Steward’s personal guarantee for a loan at Rocky Mountain Bank & Trust these options became immediately exercisable on November 6, 2014. Also, includes options to acquire 150,000 options at $0.40 per share which vested in full on July 17, 2014.
 
 
(6)
Includes 134,436 shares owned by Dakotah Investments, LLC, an entity controlled by Mr. Cohen.
 
 
(7)
Includes 30,000 shares in the form of a warrant exercisable at $0.30 per share.
   
(8)
Includes options to acquire 9,122 shares of Common Stock at $0.137 per share, options to acquire 75,000 shares at $0.50 per share, options to acquire 10,000 shares at $0.45 per share, and options to acquire 15,000 shares at $1.50 per share.
 
 
(9)
Common Stock and Series A Preferred Stock (on a 1:1 converted basis to Common Stock).
 
 
(10)
Calculated based on one vote per common share and 25 votes per share of Series A Preferred Stock.
 
 

 
29

Security Ownership of Certain Beneficial Owners
 
The following table sets forth the persons who beneficially own of record, or was known to own beneficially, more than 5% of the Company’s Common Stock and/or Series A Preferred Stock as of February 28, 2015.  To the extent any of the named shareholders own derivative securities that are vested or otherwise exercisable into shares of our Common Stock these securities are included in the column regarding that shareholder’s Common Stock beneficial ownership (as required by Rule 13d-3(a)) and the material terms of such derivative securities are explained in the notes to the table.
 
 
Name and Address of Beneficial Owner
 
Amount and Nature of
Beneficial Ownership of Common Stock
   
Percent of
Common Stock
   
Amount and Nature of Beneficial Ownership of Series A Preferred Stock
   
Percent of Series A Preferred Stock
   
All Stock-Amount of Beneficial Ownership
   
Voting Power(5)
 
 
 
   
   
   
   
   
 
JW Roth
   
6,828,887
(1)
   
13.89
%
   
2,228,034
(2)
   
45.61
%
   
9,056,921
     
36.50
%
2 North Cascade Ave
Suite 1400
                                               
Colorado Springs, CO 80903
                                               
 
                                               
David Lavigne
   
3,113,878
(3)
   
6.33
%
   
1,000,000
     
20.47
%
   
4,113,878
     
16.41
%
2 North Cascade Ave
Suite 1400
                                               
Colorado Springs, CO 80903
                                               
 
                                               
Stephen J. Cominsky
   
346,180
(4)
   
*
     
1,200,757
     
24.58
%
   
1,546,937
     
17.73
%
5935 Blue Sage Way
                                               
Littleton, CO 80123
                                               
 


 
(1)
 
Includes 200,000 shares in the form of a warrant exercisable at $1.00 per share and 182,427 common shares. Also, includes options to acquire 729,707 shares at $0.0685 per share which vested on November 6, 2014 in exchange for Mr. Roth’s personal guarantee for a loan at Rocky Mountain Bank & Trust, 4,346,087 owned by his spouse as trustee for the KMR Living Trust Dated Nov. 19, 2012 and 1,370,666 shares owned by Accredited Members Acquisition Corp., an entity controlled by Mr. Roth and Mr. Lavigne.
 
 
(2)
 
Includes 228,034 shares owned by his minor daughter and 2,000,000 shares owned by Mr. Roth as trustee for the JWR Living Trust Dated Nov. 19, 2012.
 
 
 
 
 
(3)
 
Includes options to acquire 100,000 shares at $0.51 per share, fully vesting on March 1, 2015 and 56,800 common shares. Also, includes 1,370,666 shares owned by Accredited Members Acquisition Corp., an entity controlled by Mr. Roth and Mr. Lavigne and 1,586,412 shares owned by his spouse.
 
 
 
 
 
(4)
 
Includes 19,058 shares owned by Mr. Cominsky’s spouse.
 
 
 
 
 
(5)
 
Calculated based on one vote per common share and 25 votes per share of Series A Preferred Stock.
 
 
 
 
 
 
 
*Less than 1%.
       
Changes in Control
 
There are no arrangements known to the Company which may result in a change in control of the Company.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
See Item 5, above, for information regarding securities authorized for issuance under equity compensation plan in the form required by Item 201(d) of Regulation S-K.
 
 
30

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Related Party Transactions
 
The Company’s Board of Directors as a whole is charged with reviewing and approving all related party transactions.  There have not been any transactions, or proposed transactions, to which the Company was or is to be a party, in which any Company director, officer, or any member of the immediate family of the aforementioned persons had or is to have a direct or indirect material interest, except those outlined below.  The following disclosure is with respect to material transactions between the Company and related parties and with respect to material transactions.
 
Robert B. Mudd has substantial business interests in the restaurant space and real estate property related to restaurants. Mr. Mudd may continue to buy real estate, engage in real estate transactions with third parties, and then lease the space to the Company. Mr. Mudd acted as a manager for, and held a substantial equity interest in, Bourbon Brothers Holding Company, LLC prior to its acquisition by the Company in January 2014 and holds a substantial equity interest in several other related party entities including Bourbon Brothers, LLC and Bourbon Brothers #14, LLC.
 
J.W. Roth has substantial business interests in the restaurant space and real estate property related to restaurants.  Mr. Roth may continue to buy real estate, engage in real estate transactions with third parties, and then lease the space to the Company.  He is the founder of, and owned a substantial interest in, Bourbon Brothers Holding Company, LLC (which the Company acquired in January 2014) and holds a substantial equity interest in several other related party entities including Bourbon Brothers, LLC, Bourbon Brothers #14, LLC, Cathedral Peaks Capital, LLC and Roth Development Company, LLC.  In December 2012, Mr. Roth entered into an indemnification agreement with the Company for his personal risk regarding personal guarantees in favor of Southern Hospitality Franchising & Licensing, LLC, which is the subject of a Franchise Agreement between Southern Hospitality Franchising & Licensing, LLC and Southern Hospitality Franchisee Holding Corporation, a wholly owned subsidiary of the Company and received compensation in the form of a warrant for 200,000 of common shares.  In November 2014, Mr. Roth (along with Richard D. Steward) personally guaranteed a loan between Southern Hospitality Lone Tree, LLC f/k/a 53 Peaks Lonetree LLC, a wholly owned subsidiary of the Company and Rocky Mountain Bank & Trust to purchase kitchen equipment for the restaurant location and in exchange Mr. Roth’s options for 729,707 shares of Common Stock granted on January 22, 2014 became immediately exercisable.  This personal guarantee has since been released.  In December 2014, Mr. Roth personally guaranteed a loan on behalf of Bourbon Brothers #14, LLC allowing Bourbon Brothers #14, LLC the ability to subsequently loan to the Company $1,250,000 in exchange for the personal guarantee, Mr. Roth received a warrant for the purchase of 7,500,000 shares of Common Stock exercisable after one year.
 
David Lavigne held a substantial equity interest in Bourbon Brothers Holding Company, LLC (which the Company acquired in January 2014) and holds a substantial equity interest in several other related party entities including Bourbon Brothers, LLC, Bourbon Brothers #14, LLC, and Cathedral Peaks Capital, LLC.
 
Richard D. Steward has nominal equity interests in several related party entities including Bourbon Brothers, LLC and Bourbon Brothers #14, LLC. In November 2014, Mr. Steward (along with Mr. Roth) personally guaranteed a loan between Southern Hospitality Lone Tree, LLC f/k/a 53 Peaks Lonetree LLC, a wholly owned subsidiary of the Company and Rocky Mountain Bank & Trust to purchase kitchen equipment for the restaurant location and in exchange Mr. Steward’s options for 100,000 shares of Common Stock granted on March 5, 2014 became immediately exercisable.  This personal guarantee has since been released.
 
Robert L. Cohen is currently the Chairman and CEO of IMA Financial Group, Inc., a diversified financial services company specializing in retail insurance brokerage, wholesale insurance brokerage, and discretionary money management.  The Company has in the past and may continue to do so in the future, purchase insurance products from IMA Financial Group, Inc.  To the Company’s knowledge, Mr. Cohen has not been compensated by IMA Financial Group, Inc. in connection with any products or services provided to the Company.
 
Heather Atkinson is currently the manager of Bourbon Brothers #14, LLC. BB14 received a warrant from BBHC as partial consideration the loan from BB14 to BBHC in the aggregate principal amount of 7,500,000.  Mr. Atkinson was assigned 500,000 of this warrant for her service as manager of BB14.  The warrant is exercisable after one year. Ms. Atkinson also has voting and dispositive control of Bourbon Brothers #14, LLC as manager.
 
Independence of the Board of Directors
 
Our Board of Directors currently consists of Messrs. Mudd, Roth, Lavigne, Steward, Fenlason, Cohen and Wood.  Messrs. Steward, Fenlason, Cohen and Wood are the only directors or director nominees considered “independent” as that term defined by Section 803A of the NYSE MKT LLC Company Guide inasmuch as each of the other directors has had material relationships with the Company.  The Board considers all relevant facts and circumstances in its determination of independence of all members of the Board.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
Audit Fees.
Our independent registered public accounting firm, GHP Horwath, P.C., (“GHP Horwath”) performed services in the amount of approximately $58,000 for the calendar year ended December 31, 2014 and $45,000 for the calendar year ended December 31, 2013.  These amounts were for professional services that GHP Horwath provided for the audit of our annual financial statements, as well as for reviews of our quarterly interim financial statements.

Audit-Related Fees.
None.

Tax Fees.
GHP Horwath did not bill us for any tax fees for the fiscal years ended December 31, 2014 and 2013.

All Other Fees.
GHP Horwath did not bill us for any other fees for the fiscal years ended December 31, 2014 and 2013.
 
 
31

Audit Committee’s Pre-Approval Practice
 
Inasmuch as the Company does not have an audit committee, the Company’s board of directors performs the functions of its audit committee.  Section 10A(i) of the 1934 Act prohibits our auditors from performing audit services for us as well as any services not considered to be “audit services” unless such services are pre-approved by the board of directors (in lieu of the audit committee) or unless the services meet certain de minimis standards.
 
The board of directors has adopted resolutions that provide that the board must:
 
Pre-approve all audit services that the auditor may provide to us or any subsidiary (including, without limitation, providing comfort letters in connection with securities underwritings or statutory audits) as required by §10A(i)(1)(A) of the 1934 Act.
 
Pre-approve all non-audit services (other than certain de minimis services described in §10A(i)(1)(B) of the 1934 Act that the auditors propose to provide to us or any of our subsidiaries.
 
The board of directors considers at each of its meetings whether to approve any audit services or non-audit services.  In some cases, management may present the request; in other cases, the auditors may present the request.  The board of directors approved GHP Horwath performing our audit for the 2014 fiscal year.
 
 
 
 
32

PART IV
 
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
 Exhibit
 Number
 
 
                                         Description
 
 
2.1
Agreement and Plan of Merger and Reorganization with Art Dimensions, Inc.(1)
2.2.1
Acquisition Agreement by and between Smokin Concepts Development Corporation, Bourbon Brothers Holding Company, LLC and JW Roth and Robert B. Mudd, dated September 30, 2013.(2)
2.2.2
First Amendment to Acquisition Agreement by and between Smokin Concepts Development Corporation, Bourbon Brothers Holding Company, LLC and JW Roth and Robert B. Mudd, dated November 8, 2013.(2)
2.2.3
Second Amendment to Acquisition Agreement by and between Smokin Concepts Development Corporation, Bourbon Brothers Holding Company, LLC and JW Roth and Robert B. Mudd, dated January 22, 2014.(3)
3.1
Articles of Incorporation, as amended through January 21, 2015. Filed Herewith.
3.2.
Bylaws, as amended through January 6, 2015. Filed Herewith.
10.1.1
Franchise Agreement by and between SH Franchising & Licensing LLC and Southern Hospitality Franchisee Holding Corporation, dated November 4, 2011, as amended by the First Amendment dated November 4, 2011, as amended by the Second Amendment dated November 9, 2012, and as amended by the Third Amendment dated January 9, 2013.(4)
10.1.2
Amendment and Release Agreement by and between SH Franchising & Licensing LLC, Southern Hospitality Franchisee Holding Corporation, and Southern Hospitality Denver, LLC, dated September 23, 2013.(5)
10.1.3
Fifth Amendment to the Franchise Agreement dated December 30, 2014. Filed Herewith.
10.1.4 Sixth Amendment to the Franchise Agreement dated February 13, 2014.  Filed Herewith
10.2
2012 Stock Option Plan, as amended on January 22, 2014.(6)
10.3
Lease Agreement by and between Southern Hospitality Southern Kitchen Colorado Springs, LLC f/k/a Bourbon Brothers Southern Kitchen Colorado Springs, LLC and Bourbon Brothers, LLC, dated May 29, 2013.(7)
10.4
Standard Building Lease by and between Southern Hospitality Franchise Holding Corporation and ELMO, LLC dated April 15, 2012.   Filed Herewith.
10.6.1
Lease Agreement by and between Bourbon Brothers Holding Company, LLC and Stradivarius Highlands, LLC, dated July 9, 2014.(8)
10.6.2
First Amendment to the Lease Agreement by and between Bourbon Brothers Holding Company, LLC and Stradivarius Highlands, LLC, dated September 17, 2014.(9)
10.6.3
Guaranty of Lease by and between Bourbon Brothers Holding Company, LLC and Stradivarius Highlands, LLC, dated September 17, 2014.(10)  
10.7
License Agreement, as amended and restated, by and between Bourbon Brothers Holding Company, LLC and subsidiaries with Bourbon Brothers, LLC, dated April 18, 2013.(11)
10.8 Loan Agreement by and between Bourbon Brothers #14, LLC and Bourbon Brothers Holding Corporation dated December 31, 2014.  Filed Herewith.
14.1
Code of Ethics as adopted by the Board of Directors on January 22, 2014.(12)
21.1
List of subsidiaries and organization chart. Filed herewith.
31.1
Rule 13a-14(a)/15d-14(a) - Certification of Principal Executive Officer.  Filed herewith.
31.2
Rule 13a-14(a)/15d-14(a) - Certification of Principal Financial Officer.  Filed herewith.
32.1
Section 1350 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the SARBANES-OXLEY ACT of 2002. Filed herewith.
32.2
Section 1350 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the SARBANES-OXLEY ACT of 2002. Filed herewith.
101
Interactive data files. Filed herewith.
 
(1) Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 and filed on March 8, 2013.
(2) Incorporated by reference from the Company’s Current Report on Form 8-K dated November 8, 2013, and filed on January 17, 2014.
(3) Incorporated by reference from the Company’s Current Report on Form 8-K dated January 22, 2014, and filed on January 27, 2014.
(4) Incorporated by reference from the Company’s Annual Report on Form 10-K for the period ending December 31, 2013, and filed on March 19, 2014..
(5) Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 2013, and filed on November 14, 2013.
(6) Incorporated by reference from the Company’s Annual Report on Form 10-K for the period ending December 31, 2013, and filed on March 19, 2014.
(7) Incorporated by reference from the Company’s Annual Report on Form 10-K for the period ending December 31, 201, and filed on March 19, 2014.
(8) Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 2014, and filed on October 31, 2014.
(9) Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 2014, and filed on October 31, 2014.
(10) Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 2014, and filed on October 31, 2014.
(11) Incorporated by reference from the Company’s Annual Report on Form 10-K for the period ending December 31, 2013, and filed on March 19, 2014.
(12) Incorporated by reference from the Company’s Annual Report on Form 10-K for the period ending December 31, 2013, and filed on March 19, 2014.
 
 
33

In accordance with the requirements of Section 13 or 15(d) Exchange Act, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.
 
 
BOURBON BROTHERS HOLDING CORPORATION
 
 
 
Date:  March 6, 2015
By:
/s/  Mitchell Roth
 
 
Mitchell Roth, President and acting Principal Executive Officer
  
Date:  March 6, 2015
By:
/s/ Heather Atkinson
 
 
Heather Atkinson, CFO, Secretary, Treasurer and acting Principal Accounting Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities and on the dates indicated.
 
 
 
 
Date:  March 6, 2015
By:
/s/  Mitchell Roth
 
 
Mitchell Roth, President and acting Principal Executive Officer
  
Date:  March 6, 2015
By:
/s/ Heather Atkinson
 
 
Heather Atkinson, CFO, Secretary, Treasurer and acting Principal Accounting Officer
 
Date:  March 6, 2015
By:
/s/ JW Roth
   
JW Roth, Director
     
Date:  March 6, 2015
By:
/s/ David Lavigne
   
David Lavigne, Director 
     
Date:  March 6, 2015
By:
/s/ Robert B. Mudd
   
Robert B. Mudd, Director 
     
Date:  March 6, 2015
By:
/s/ Richard D. Steward
   
Richard D. Steward, Director 
     
Date:  March 6, 2015
By:
/s/ James J. Fenlason
    James J. Fenlason, Director
     
Date:  March 6, 2015
By:
/s/ Brent B. Wood
 
Brent B. Wood, Director
 
 
 
34

BOURBON BROTHERS HOLDING CORPORATION
YEARS ENDED DECEMBER 31, 2014 AND 2013
CONTENTS


 
 
 
PAGE
Report of Independent Registered Public Accounting Firm
 
F-2
Consolidated Financial Statements:
 
 
Balance sheets as of December 31, 2014 and 2013
 
F-3
Statements of loss for the years ended December 31, 2014 and 2013
 
F-4
Statements of changes in equity for the years ended December 31, 2014 and 2013
 
F-5
Statements of cash flows for the years ended December 31, 2014 and 2013
 
F-6
Notes to financial statements
 
F-7 – F-25
 
 
 
 
 
F-1

  
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Bourbon Brothers Holding Corporation:

We have audited the accompanying consolidated balance sheets of Bourbon Brothers Holding Corporation and its subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of loss, changes in equity, and cash flows for the years ended December 31, 2014 and 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has a limited operating history, it has suffered recurring losses from operations, and has an accumulated deficit at December 31, 2014. These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 1.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ GHP Horwath, P.C.
Denver, Colorado
March 6, 2015


 
F-2

BOURBON BROTHERS HOLDING CORPORATION 
  CONSOLIDATED BALANCE SHEETS
 
   
December 31
   
December 31,
 
   
2014
   
2013
 
         
Assets
       
Current assets:
       
Cash and cash equivalents
 
$
1,182,099
   
$
13,611
 
Prepaid expenses and other
   
66,023
     
5,459
 
Inventory
   
64,091
     
31,559
 
Total current assets
   
1,312,213
     
50,629
 
                 
Deposits
   
80,525
     
18,034
 
Deferred financing costs
   
28,369
     
-
 
Related party receivable
   
25,787
     
-
 
Intangible asset, net
   
40,625
     
45,625
 
Property and equipment, net
   
2,986,050
     
2,443,575
 
Total assets
 
$
4,473,569
   
$
2,557,863
 
                 
Liabilities and equity
               
Current liabilities:
               
Accounts payable
 
$
91,792
   
$
81,015
 
Accrued expenses
   
229,539
     
78,568
 
Related party notes payable and accrued interest
   
117,318
     
204,877
 
Note payable and accrued interest
   
218,970
     
211,614
 
Convertible notes payable and accrued interest, current portion
   
129,589
     
60,000
 
Total current liabilities
   
787,208
     
636,074
 
                 
Deferred rent
   
303,070
     
234,900
 
Convertible notes payable and accrued interest, less current portion,
               
(net of $528,019 (2014) and $295,872 (2013) discount)
   
722,439
     
532,844
 
Related party note payable (net of $731,880 (2014) discount)
   
520,184
     
-
 
Total liabilities
   
2,332,901
     
1,403,818
 
                 
Commitments and contingencies
               
                 
Equity
               
Preferred stock - par value $0.001;
               
Authorized Series A shares - 4,884,859
               
Issued and outstanding Series A shares - 4,884,859 (2014) and none (2013)
   
248,994
     
-
 
Common stock - no par value;
               
Authorized shares - 100,000,000
               
Issued and outstanding shares - 48,783,363 (2014) and 9,629,220 (2013)
   
7,916,942
     
4,925,860
 
Additional paid-in capital
   
2,602,171
     
1,086,609
 
Accumulated deficit
   
(8,692,743
)
   
(5,297,742
)
Total Bourbon Brothers Holding Corporation ("BBHC") equity
   
2,075,364
     
714,727
 
Noncontrolling interest
   
65,304
     
439,318
 
Total equity
   
2,140,668
     
1,154,045
 
Total liabilities and equity
 
$
4,473,569
   
$
2,557,863
 
 

See notes to consolidated financial statements.
 
 
F-3

 
BOURBON BROTHERS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
 
 
   
Year ended 
 
   
December 31,  
 
   
2014
   
2013
 
         
Revenue
 
$
5,144,491
   
$
2,098,925
 
Operating expenses:
               
Restaurant operating costs (related party $383,400 for 2014),
               
exclusive of depreciation and amortization below
   
5,490,495
     
2,321,817
 
General and administrative
   
2,405,191
     
1,213,751
 
Related party management services
   
-
     
409,388
 
Selling and marketing
   
444,216
     
18,974
 
Depreciation and amortization
   
436,228
     
250,757
 
Impairment of franchise fees
   
-
     
250,000
 
Total operating expenses
   
8,776,130
     
4,464,687
 
                 
Loss from operations
   
(3,631,639
)
   
(2,365,762
)
                 
Other expense:
               
Interest expense
   
(137,376
)
   
(515,680
)
                 
Net loss
 
$
(3,769,015
)
 
$
(2,881,442
)
                 
Net loss attributable to noncontrolling interest
 
$
(374,014
)
 
$
(318,595
)
                 
Net loss attributable to BBHC
   
(3,395,001
)
   
(2,562,847
)
                 
Net loss
 
$
(3,769,015
)
 
$
(2,881,442
)
                 
Basic and diluted net loss per share attributable to BBHC common shareholders
 
$
(0.08
)
 
$
(0.29
)
                 
Weighted average number of common shares outstanding - basic and diluted
   
42,302,121
     
8,882,809
 
 
 
See notes to consolidated financial statements.
F-4

BOURBON BROTHERS HOLDING CORPORATION
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 2014 AND 2013
 
 
                   
Additional
       
Non-
     
   
Common Stock
   
Preferred Stock
   
paid-in
   
Accumulated
   
Controlling
     
   
Shares
   
Amount
   
Shares
   
Amount
   
capital
   
Deficit
   
Interest
   
Total
 
Balances, December 31, 2012
   
6,980,270
   
$
2,725,200
     
-
   
$
-
   
$
673,626
   
$
(2,734,895
)
 
$
531,933
   
$
1,195,864
 
Issuance of common stock for cash
   
1,901,780
     
1,368,012
     
-
     
-
     
-
     
-
     
-
     
1,368,012
 
Conversion of notes payable to common shares
   
417,828
     
830,984
     
-
     
-
     
-
     
-
     
-
     
830,984
 
Stock issued for services
   
35,554
     
26,664
     
-
     
-
     
-
     
-
     
-
     
26,664
 
Warrant issued with a note payable
   
-
     
-
     
-
     
-
     
44,494
     
-
     
-
     
44,494
 
Contribution of cash by non-controlling members
   
-
     
-
     
-
     
-
     
-
     
-
     
225,980
     
225,980
 
Exercise of stock options
   
327,122
     
-
     
-
     
-
     
4,976
     
-
     
-
     
4,976
 
Stock-based compensation
   
-
     
-
     
-
     
-
     
263,513
     
-
     
-
     
263,513
 
Contributed services
   
-
     
-
     
-
     
-
     
100,000
     
-
     
-
     
100,000
 
Repurchase of shares for services
   
(33,334
)
   
(25,000
)
   
-
     
-
     
-
     
-
     
-
     
(25,000
)
Net loss
   
-
     
-
     
-
     
-
     
-
     
(2,562,847
)
   
(318,595
)
   
(2,881,442
)
Balances, December 31, 2013
   
9,629,220
     
4,925,860
     
-
     
-
     
1,086,609
     
(5,297,742
)
   
439,318
     
1,154,045
 
Issuance of common stock and warrants for cash
   
4,183,042
     
1,254,913
     
-
     
-
     
-
     
-
     
-
     
1,254,913
 
Acquisition of BBHCLLC for common and preferred shares
   
20,274,201
     
1,033,429
     
18,242,687
     
929,878
     
-
     
-
     
-
     
1,963,307
 
Stock issued for services
   
51,678
     
21,503
     
-
     
-
     
-
     
-
     
-
     
21,503
 
Exercise of stock options
   
192,832
     
53
     
-
     
-
     
-
     
-
     
-
     
53
 
Exercise of warrants
   
1,094,562
     
300
     
-
     
-
     
-
     
-
     
-
     
300
 
Conversion of preferred shares to common
   
13,357,828
     
680,884
     
(13,357,828
)
   
(680,884
)
   
-
     
-
     
-
     
-
 
Debt discount on convertible debt allocated to
                                                               
warrants and beneficial conversion feature
   
-
     
-
     
-
     
-
     
308,626
     
-
     
-
     
308,626
 
Debt discount on long-term debt allocated to warrants
                                   
731,880
                     
731,880
 
Stock-based compensation
   
-
     
-
     
-
     
-
     
475,056
     
-
     
-
     
475,056
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
(3,395,001
)
   
(374,014
)
   
(3,769,015
)
Balances, December 31, 2014
   
48,783,363
   
$
7,916,942
     
4,884,859
   
$
248,994
   
$
2,602,171
   
$
(8,692,743
)
 
$
65,304
   
$
2,140,668
 
 
 
 
See notes to consolidated financial statements.
 
F-5

BOURBON BROTHERS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Years ended
 
   
December 31, 
 
   
2014
   
2013
 
Cash flows from operating activities
       
Net loss
 
$
(3,769,015
)
 
$
(2,881,442
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Amortization of prepaid management services and guarantees
   
99,820
     
194,280
 
Amortization of debt discount
   
76,469
     
387,067
 
Stock-based compensation
   
475,056
     
308,033
 
Interest attributed to converted debt
   
47,556
     
30,985
 
Contributed services by related party
   
-
     
100,000
 
Stock issued for services
   
21,503
     
26,664
 
Depreciation and amortization
   
436,228
     
250,757
 
Impairment of intangible asset
   
-
     
250,000
 
Changes in operating assets and liabilities,net of business acquisition:
               
Prepaid expenses
   
226,054
     
42,104
 
Deposit
   
(24,614
)
   
-
 
Inventory
   
(32,532
)
   
(31,559
)
Accounts payable
   
10,777
     
(373,090
)
Related party payable
   
-
     
(8,659
)
Accrued expenses and interest
   
9,179
     
13,258
 
Deferred rent
   
68,170
     
2,335
 
Net cash used in operating activities
   
(2,355,349
)
   
(1,689,267
)
Cash flows from investing activities
               
Cash acquired in acquisition
   
869,907
     
-
 
Note receivable advance
   
(25,334
)
   
-
 
Purchase of property and equipment
   
(350,771
)
   
(1,238,298
)
Net cash provided by (used in) investing activities
   
493,802
     
(1,238,298
)
Cash flows from financing activities
               
Proceeds from exercise of a stock options
   
53
     
4,976
 
Contribution to subsidiary by non-controlling interest
   
-
     
225,980
 
Proceeds from exercise of warrants
   
300
     
-
 
Proceeds from issuance of related party promissory note
   
115,000
     
204,877
 
Sale of common stock and warrants
   
1,254,913
     
1,368,012
 
Proceeds from issuance of promissory notes and warrants
   
460,000
     
200,000
 
Proceeds from bank loan
   
2,055
     
-
 
Repurchase of shares for services from related party
   
-
     
(25,000
)
Proceeds from issuance of long-term debt, net
   
1,197,714
     
-
 
Net cash provided by financing activities
   
3,030,035
     
1,978,845
 
Net increase (decrease) in cash and cash equivalents
   
1,168,488
     
(948,720
)
Cash and cash equivalents, beginning
   
13,611
     
962,331
 
Cash and cash equivalents, ending
 
$
1,182,099
   
$
13,611
 
Supplemental disclosure of non-cash investing and financing activities:
               
Convertible notes and interest converted to common stock
 
$
-
   
$
830,984
 
Preferred stock converted to common stock
 
$
680,884
   
$
-
 
Acquisition of BBHCLLC in exchange for preferred and common stock
 
$
1,963,507
   
$
-
 
Debt discount related to beneficial conversion features and warrants
 
$
1,040,506
   
$
-
 
Cash paid for interest
 
$
16,215
   
$
21,600
 
 
 
 
See notes to consolidated financial statements.
F-6

 
BOURBON BROTHERS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2014 AND 2013


NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND MANAGEMENT’S PLANS
 
Organization

Bourbon Brothers Holding Corporation (“BBHC” or the “Company”) is a Colorado corporation. The Company, on January 22, 2014, with approval of a majority of the Company’s shareholders, changed its name from Smokin Concepts Development Corporation to Bourbon Brothers Holding Corporation.
 
Basis of Presentation:

The Company’s subsidiary, SH Franchise & Licensing Corp. f/k/a Southern Hospitality Franchisee Holding Corporation (“SH”) entered into a franchise agreement and area development agreement with SH Franchising & Licensing LLC, dba Southern Hospitality BBQ (the “Franchisor”) in November 2011. In May 2012, SH formed Southern Hospitality Denver Holdings, LLC (“SHDH”), a wholly-owned subsidiary, and Southern Hospitality Denver, LLC (“SHD”). SHD was formed for the purpose of owning and operating the Company’s first franchised restaurant in Denver, Colorado. As of December 31, 2014 and 2013, SHD is 51% owned by SHDH and 49% owned by a non-controlling interest holder, Southern Hospitality Denver Investments, LLC, a related party.

On September 30, 2013, the Company entered into an Acquisition Agreement with Bourbon Brothers Holding Company, LLC (“BBHCLLC”) to acquire all of the equity interests in BBHCLLC and its subsidiaries (the “BB Transaction”). BBHCLLC is a Colorado limited liability company (“LLC”) formed in May 2013, for the purpose of developing and managing all aspects of operating units related to a recently developed “Bourbon Brothers” brand.  The principals of BBHCLLC were also, at various times, on the board of directors of the Company, and therefore BBHCLLC is considered to be a related party.  As of December 31, 2013, BBHCLLC was a development stage company. BBHCLLC’s subsidiaries (all LLCs formed in April 2013) include Bourbon Brothers Restaurant Group, LLC (“BBRG”), Bourbon Brothers Franchise, LLC (“BBF”) and Bourbon Brothers Brand, LLC (“BBB”). BBRG owns the stores to encompass several Bourbon Brothers brands, and owns Southern Hospitality Southern Kitchen Colorado Springs, LLC (“SHSK”) f/k/a Bourbon Brothers Southern Kitchen Colorado Springs, LLC, which opened its first restaurant in January 2014, and for which SHSK is 51% owned by BBRG as of the date of the BB Transaction and through December 31, 2014. BBRG also owns Bourbon Brothers Seafood and Chophouse Colorado Springs, LLC (“BBSF”). BBB manages all aspects of the Bourbon Brothers brand and anticipates establishing licensing and royalty agreements with producers of bourbon, spices, cigars and other products that fit the Company’s core brand.  In July 2014, the Company announced that the board of directors approved a third restaurant concept and formed Southern Hospitality Lone Tree, LLC, f/k/a 53 Peaks Lone Tree, a Colorado-themed, casual dining restaurant, with the first location to be in Lone Tree, Colorado.  This location is anticipated to open in April 2015 under the Southern Hospitality name. In connection with the planned restaurant, the Company entered into a Fifth Amendment to the Franchise Agreement (Note 6).

On January 22, 2014, the Company and BBHCLLC closed on the BB Transaction. On that date, the Company issued 20,274,201 shares of common stock to BBHCLLC Class B Non-Voting members and 18,242,687 shares of Series A Convertible Preferred Stock to BBHCLLC Class A Voting members. All outstanding options and warrants to acquire BBHCLLC units were assumed by the Company, applying a 1.82427 conversion ratio. The acquisition of BBHCLLC was accounted for using the acquisition method of accounting. The purchase price was allocated among the assets acquired and liabilities assumed at their estimated fair values, which management believes approximates the net book value of the assets and liabilities.
 
F-7

BOURBON BROTHERS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2014 AND 2013
 
 
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND MANAGEMENT’S PLANS (CONTINUED)
 
Organization
The following table summarizes the estimated fair values of BBHCLLC’s assets and liabilities acquired at the acquisition date (January 22, 2014):
Cash
 
$
869,907
 
Prepaid and other current assets