UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

 

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

 

For the fiscal year ended December 31, 2014

 

OR

 

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

 

For the transition period from                 to                  

 

Commission file number: 000-54070

 

THE GRILLED CHEESE TRUCK, INC.

 

Nevada		27-3120288
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

 

151 North Nob Hill Road, Suite 321

Fort Lauderdale, FL 33324

(949) 478-2571

 

(Address, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act

None

 

Name of each exchange on which registered

N/A

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

 

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

 

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

 

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     x     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     x     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.      ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨	Accelerated filer ¨
Non-accelerated filer  ¨	Smaller reporting company   x

 

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

 

As of March 31, 2015, there were 19,721,429  shares of common stock, par value $0.001 per share, outstanding.

 

There was no trading market for the Registrants voting stock on the last business day of the Registrant’s most recently completed second fiscal quarter.

 

DOCUMENTS INCORPORATED BY REFERENCE

None

 

 

  

TABLE OF CONTENTS

 

PART I
Item 1.		Business			4
Item 1A.		Risk Factors			14
Item 1B.		Unresolved Staff Comments			23
Item 2.		Properties			23
Item 3.		Legal Proceedings			23
Item 4.		Mine Safety Disclosures			23
PART II
Item 5.		Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities			24
Item 6.		Selected Financial Data			24
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			24
Item 8.		Financial Statements and Supplementary Data			29
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			29
Item 9A.		Controls and Procedures			29
Item 9B.		Other Information			30
PART III
Item 10.		Directors, Executive Officers and Corporate Governance			31
Item 11.		Executive Compensation			33
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters			39
Item 13.		Certain Relationships and Related Transactions, and Director Independence			40
Item 14.		Principal Accountant Fees and Services			41
PART IV
Item 15.		Exhibits and Financial Statement Schedules			41

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K (the “Annual Report”) contains “forward-looking statements.” Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations of the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Annual Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets, business strategies, future cash flows, financing plans, plans and objectives of management, any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts. These risks and others described under “Risk Factors” may not be exhaustive.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this Annual Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Annual Report.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

Unless otherwise provided in this Annual Report, references to the “Company,” the “Registrant,” “we,” “us” and “our” refer to The Grilled Cheese Truck, Inc.

 

 

PART I

 

Item 1.

Business

  

Introduction

 

We, through our wholly-owned subsidiary, Grilled Cheese, Inc., are a food truck operation that sells various types of gourmet grilled cheese sandwiches and other comfort foods principally in the areas of Los Angeles, California and Phoenix Arizona. Our trucks currently make multiple stops per week (serving lunch and dinner five days a week) at prearranged locations. Food preparation occurs at our kitchen which supports streamlined operations within the truck by limiting in-truck operations to assembly and grilling. This allows each truck to achieve maximum revenues per hour and deliver melts, Tater Tots, soups and sides efficiently to our customers. Our business model implements the use of social media and location booking to secure sales at each stop. Our website, www.grilledcheesetruck.com always lists the upcoming schedule of our trucks identifying where each truck will be stopping. During the fiscal year ended December 31, 2013, we expanded our number of company operated food trucks from two to nine and expanded our geographical area to Phoenix, Arizona. During the fiscal year ended December 31, 2014, our number of company operated food trucks fluctuated based on market conditions and seasonality, with increases in the geographical areas of Phoenix, Los Angeles, Las Vegas and South Dakota.  Further, we entered into licensing agreements in certain locations in California and test marketed expansion, branding and licensing efforts in California and select markets throughout the United States.

 

We are capitalizing on the burgeoning gourmet food truck industry through our established food service operations and social media strategy. Driving our growth, we have received national media visibility and as of the date of this Annual Report, have accumulated over 150,000 total followers through a variety of social media platforms, including Facebook, Twitter and Instagram. We believe that our use of social media allows us to communicate with a large group of our interested fan base in real time, letting them know exactly when and where our food trucks will be located on a given date.  We believe that providing potential customers with up-to-date information regarding the time and location of our trucks helps promote and drive additional customers to our trucks, therefore increasing our sales at each prospective location. We believe we have established brand presence in certain locations throughout Southern California and in Phoenix, Arizona, but we have sustained losses to date.

 

The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2014 contains an explanatory paragraph regarding our ability to continue as a going concern. Our business will require significant amounts of capital to sustain operations and make the investments we need to execute our longer term business plan. Our net loss for the year ended December 31, 2014 was $7,712,208 and the deficit accumulated by us amounts to $15,628,986 over the same period. This raises substantial doubt about our ability to continue as a going concern. The accompanying audited consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

 

In order to continue as a going concern and achieve a profitable level of operations, we will need, among other things, additional capital resources.  Management’s plan to continue as a going concern includes raising capital through increased sales and growing operations to profitability and through additional debt and/or equity financing. However, management cannot provide any assurances that we will be successful in accomplishing any of our plans of raising additional funds or increasing sales. Our ability to continue as a going concern is dependent upon our management’s ability to successfully implement the plans described above.   Management cannot provide any assurance that unforeseen circumstances that may occur at any time within the next twelve months or thereafter will not increase the need for us to raise additional capital on an immediate basis. There can be no assurance that we will be able to continue to raise funds in subsequent debt or equity financings, in which case the Company may be unable to meet its obligations.

 

We generate revenue from food and beverage sales through our company-operated food trucks in Southern California and Phoenix, Arizona. In addition, we generate revenue from licensing the right to use certain portions of our intellectual property. Such licensing not only provides us with revenue, but it also enables us to further establish our brand. We have licensed these intellectual property rights for use in counties in California, including Ventura County, Santa Barbara County, and portions of Los Angeles County which are commonly referred to as the San Fernando Valley where our licensees currently license and operate two trucks. Further, we intend to expand nationally and prospectively generate revenue from franchise sales, royalties based on a percentage of sales by franchisees and sales of food products to our franchisees, however there is no guarantee or assurance that we will be able to implement our franchise expansion or that we will be able to collect royalties from the sales made by our potential franchisees. In addition to our potential franchise operations, we intend to expand and increase the number of company-owned trucks, to begin operating brick and mortar restaurants, and expand our operations within sports venues and airports and bring our food trucks to special events throughout the United States and internationally.

 

Our Corporate History and Background

 

We were incorporated in the state of Nevada on December 31, 2009 as GSP-1, Inc.  We were formed as a vehicle to pursue a business combination. The Company selected December 31 as its fiscal year end. On July 6, 2011, we filed a Certificate of Amendment to our Articles of Incorporation to change our name from “GSP-1, Inc.” to “TRIG Acquisition 1, Inc.” In connection with our acquisition of Grilled Cheese, Inc. on February 19, 2013, we filed a Certificate of Amendment to our Articles of Incorporation to change our name from “TRIG Acquisition 1, Inc.” to “The Grilled Cheese Truck, Inc.”

 

 

Our Industry

 

We believe that the United States retail market for gourmet food trucks is a large, growing and fragmented segment with increasing consumer demand. We believe our Company is an early mover in this segment. In January of 2015, our common stock commenced trading on the OTCQB Marketplace. We hope to take a leading role in this industry as a publicly traded gourmet food truck company and a national grilled cheese chain.

 

We believe gourmet food trucks are an alternative to fast food and quick service restaurants for consumers. Once commonplace only in big cities on the east and west coasts of the United States, food trucks can now be found in both urban and rural areas throughout the United States. The food truck provides a means for the on-the-go person to grab a quick bite at a low cost and is increasingly becoming known for gourmet fare as the popularity of food trucks continues to rise.

 

We believe the industry is growing so rapidly because gourmet food trucks satisfy the desires of the consumer beyond quality, value and speed. Media venues such as The Food Network, The Cooking Channel and numerous websites highlight the food truck industry and promote the industry with shows and TV series’ dedicated to food trucks.

 

Strategy

 

Our objective is to become the leader in the gourmet food truck industry. Each element of our strategy is designed to differentiate and reinforce our Company’s brand and engender a degree of loyalty among our customers. The cornerstones of this strategy include:

 

•

Maintaining our menu: We are committed to using the best available ingredients in producing the best grilled cheese sandwiches, soups and side dishes. We strive to use fresh ingredients in the preparation of our sandwiches, as opposed to frozen or canned goods.  Further, all of our ingredients are side-by-side taste-tested for quality prior to use.

 

•

Customer Service: We rely on repeat business and view our customers’ interactions with employees as critical to our long-term success. Through our emphasis on training, personal development and equity incentives, we believe we can attract and retain well-qualified, motivated employees committed to providing superior levels of customer service.

 

•

Marketing: We will continue to build on our social media and mainstream media presence (television, radio, print, etc.) to communicate with existing and future customers. We will reinforce a distinctive brand image built on the quality of our food and customer service experience.

 

•

Truck Design: Our trucks are typically configured to accommodate a high volume of traffic. Our truck’s design is intended to be casual and comforting.  Although a number of customers buy our food and return to their homes and/or offices to eat the purchased food, many of our customers enjoy eating at the truck. Although we do not personally provide organized tables and chairs for dining, we believe that approximately 25% of the locations we serve are set up for street side dining with organized tables and chairs for the customer’s comfort.

 

•

Truck Locations: Our strategy is to schedule truck locations in selected high-traffic, high-visibility locations in order to realize operating and marketing efficiencies and enhance brand awareness.

 

•

Hub-and-Spoke: In order to manage costs, ensure compliance with our quality standards and provide consistency to our customers, we control our food preparation from our centrally located kitchens. We believe this hub-and-spoke format provides significant competitive advantages.

 

	•	Expansion: Our expansion strategy is to increase our market share in existing markets and add trucks in new markets where we believe we can become a leading gourmet food truck operator.
	•	Brick and Mortar: Our long-term plan includes the franchising of brick and mortar locations, which we believe will provide measureable business results with fixed locations centered on improving the customer experience.

 

•

Employee Relations: We believe that the training and knowledge of our employees and the consistency and quality of the service they deliver are central to our success. We believe that an employee-oriented culture creates a sense of personal responsibility among all employees, resulting in a higher level of customer service. We intend to encourage and support our employees by offering competitive wages and developing relevant benefits.

 

 

 

Trucks

 

As of December 31, 2014, we generated revenue from retail sales through up to ten  Company-operated food trucks and two licensed trucks operated by third party licensees. All trucks operated by us are rented or leased. We receive 100% of the reported revenue and bear all associated costs from our Company-operated trucks. We collect 6% of gross revenue earned by our third party licensees from the licensed trucks.

 

Our trucks offer a complete menu of grilled cheese sandwiches ranging from our “Plain and Simple Melts” to our signature melt, “The Cheesy Mac and Rib” that contains proprietary recipes of macaroni and cheese and pulled BBQ pork. In addition, our trucks offer certain special melts including our “Fried Chicken and Waffle Melt” which are available on a limited basis. Our menu also offers dessert melts, homemade tomato soup, Tater Tots, specialty dipping sauces, our signature bread and butter pickles as well as an assortment of beverages. Our menu is subject to seasonal menu changes to ensure the use of high quality and fresh ingredients and we make custom menus available for our catering clients.

 

We believe that we offer products that would be found in the gourmet food industry while maintaining menu prices that are average within the industry. We believe that it is this combination of a desirable product, exceptional customer service and competitive prices that will allow us to maintain repeat business from our customers.

 

Truck Design:

 

We design each of our trucks in-house and use quality truck wraps to reinforce our brand image. Our trucks are typically configured to accommodate a high volume of traffic. The trucks are typically 176 square feet and can park in a parking area that is 25 feet long by 15 feet deep. Although a number of customers buy our food and return to their homes and/or offices to eat the purchased food, many of our customers enjoy eating at the truck.  Although we do not personally provide organized tables and chairs for dining, we believe that approximately 25% of the locations we serve are set up for street side dining with organized tables and chairs for the customer’s comfort.

 

Site Selection and Truck Locations

 

We operate our trucks in high-traffic, high-visibility locations in each of our target markets in order to realize operating and marketing efficiencies and enhance brand awareness. In addition to pedestrian traffic, when determining site location we consider the following factors: (i) direct requests for lunch and dinner stops from local businesses, (ii) direct requests for private caterings and (iii) direct requests for special food and gourmet food truck events.

 

Our mobility enables us to operate in highly populated areas, including at or near office buildings, in downtown and suburban centers and at or near local businesses that have heavy pedestrian street traffic. It further enables us to adapt in the event that there is a large festival, gathering or public event in our target markets (such as an auto race, professional or college sporting event, event at a school or church or a movie premier) that could enable us to increase our sales.

 

We also operate our trucks at private locations in connection with caterings for events such as birthdays, graduations, weddings, bar and bat mitzvahs, cast and crew caterings and other special events.

 

Truck Economics

 

The current anticipated average cost to obtain a Grilled Cheese Truck franchise is estimated to be under $25,000. However, the $25,000 does not include deposits to lease or rent a truck, an exterior wrap for the truck, a point of sale system, equipment, permits, uniforms and new staff training, which is estimated to be $35,000 (such estimates will differ depending on location). In addition, each franchisee will be responsible for a royalty fee payable to us, however, we have not established such royalty fee yet. There is no guarantee that the royalty structure we ultimately establish will enable us or our franchisees to operate profitability under this model.

 

Our expansion strategy is to add trucks in new markets and open brick and mortar retail locations in new and existing markets. We intend to expand and generate revenue from additional company trucks, company stores, third-party license agreements at airports, stadiums, malls and other locations as well as franchise revenues, to consist primarily of royalties based on a percentage of sales reported by franchise revenue and franchise fees paid by franchisees as well as the development of Company operated and the acquisition of grilled cheese stores. However, we cannot provide any assurance or guarantee that we will be able to implement our expansion of food trucks and stores or collect any royalties based on a percentage of sales reported by licensees or franchisees.

 

We intend to begin operating trucks in new markets where we believe we can become a leading gourmet food truck in the area. Our intent is to develop our veteran training, management and ownership program, with the goal of having qualified veterans owning and operating Grilled Cheese Trucks. There is no guarantee that we will be able to increase the number of trucks that we operate. There are several obstacles that the Company will need to overcome in order to implement our expansion strategy including: (i) obtaining adequate financing, (ii) receiving legal approval for franchising in each respective state in which we seek to expand, (iii) building customer demand in new markets and (iv) streamlining our management and operations. We have not yet begun any legal franchising efforts.

 

  

Truck Operations and Management

 

Our objective is to maintain quality and consistency in our trucks through the careful training and supervision of personnel and the establishment of standards relating to gourmet grilled cheese preparation, maintenance of facilities and conduct of personnel. We maintain financial and accounting controls for each of our trucks through the use of central accounting and management information systems. Cash is controlled through daily deposits of sales proceeds in local bank accounts.

 

The typical staff for one of our foods trucks consists of one manager and three hourly employees. Each employee receives an initial 40 hours of training. We seek to instill enthusiasm and dedication in our employees and regularly solicit employee suggestions concerning truck operations. Our management attempts to be responsive to employee concerns by conducting face to face meetings with personnel in each market.

  

A typical truck will perform 10 prescheduled stops per week. Typical weekday lunch hours of operation are 11:30 a.m. to 2:00 p.m. and typical weekday dinner hours are 6:00 p.m. to 8:30 p.m. Hours of operation on weekends vary depending upon the types of scheduled stops. A typical weekend dinner shift can serve customers as late as 12:00 a.m.

 

We implemented a new POS system during fiscal year 2013 to include the implementation of more efficient systems and equipment. Management recognizes the importance of efficient cash and accounting management systems and implementing advanced point-of-sales (POS) platform that will work for both the Company and franchised outlets. In addition to quicker customer order process, this system will also streamline the financial reporting, cost of goods, performance metrics and finance processes. It will also track franchised operations and remotely calculate and collect royalties, all in real time and on a daily basis.

 

During 2014, we continued our efforts to manage two kitchens, with one in Los Angeles, California and one in Phoenix, Arizona, and to create the infrastructure to support rapid expansion and growth within these markets. Additionally, we focused on the development, testing and implementation of a training program for US veterans.

 

Hub-and-Spoke

 

We utilize a hub-and-spoke business model. The hub contains our kitchen and social media booking departments, as well as our operational supervision for each market. Each hub services and supports trucks within a 90 minute drive time radius from it. A typical hub can support 10 high-volume trucks. In order to ensure the quality and consistency of our menu items, we supervise and oversee the adherence to recipes, preparation and cooking procedures from our kitchens in the hubs.

 

A regional food hub is a business or organization that actively manages the aggregation, distribution and marketing of source-identified food products primarily from local and regional producers to strengthen their ability to satisfy client demand. It is designed to increase transportation efficiencies, control quality and in-transit visibility and reduce truck travel and down-time.

 

The hub-and-spoke operating format has been deployed successfully for decades in transport, airlines, rail and public transit industries in the United States, whereby the hub-and-spoke model is a distribution system of connections arranged around a center location, in which distribution moves along areas connected to the hub at the center. We believe the hub-and-spoke format is the most efficient operating model for multi-unit gourmet food truck operators.

 

Our ability to grow new territories and to increase the scale of our operations is driven by the increased economics of the hub-and-spoke system. We believe that the hub-and-spoke format can service more Company-operated and/or franchised trucks with a centralized (hub) location that manages the procurement and preparation of our products and quality control for each truck. We are currently utilizing the hub-and-spoke system in Los Angeles where we have the ability to service up to ten trucks from a single (hub) location in Gardena, California.

 

We have been focusing on our strategy regarding the implementation of our franchise model. Although we believe that the hub-and-spoke format can be scaled to facilitate our potential franchisees, given the preliminary stage of our Company we have not yet developed a full scale hub-and-spoke economic model applicable to our potential franchisees. As the franchise model is implemented, we will further explore and develop a hub-and-spoke model that is scalable to accommodate our potential franchisees.

 

Prospective franchisees will be responsible for all the costs associated with development of their franchises, including costs associated with implementing the hub-and-spoke model.

 

License Agreements

 

As part of our ordinary course of business, and in conjunction with expanding our overall business plan, we have, and will continue to, enter into license agreements with individuals or entities regarding our intellectual property. Specifically, we have, and will continue to grant, certain exclusive licensing rights regarding our intellectual property, including but not limited to trademarks, copyrights, know-how, trade secrets, software, patents, certain goods and services pertaining to our business, to entities in designated areas, whereby such individuals or entities will be entitled to the use of our intellectual property in connection with their use and sale of our products and our brand name. In exchange for such licenses, we receive a specifically negotiated cash payments, royalty payments and/or equity interests in the licensees.

 

 

Veteran Ownership Opportunity

 

A major component of our business strategy is to market our franchises to United States veterans for our first prospective 100 mobile truck franchise operations. Despite their significant skill sets, many returning veterans experience difficulty finding work upon returning to civilian life. Since September 11, 2001, it is estimated that approximately 2.7 million United States veterans have served in the military with an approximate unemployment rate of 9.2 percent, compared with 7.6 percent of non-veterans, according to the Bureau of Labor Statistics. We believe that given these circumstances United States veterans would be interested in starting or buying a new business or considering doing so. General Wesley Clark, our Director and Senior Veterans Advisors, will supervise the development and implementation of recruitment and “vetting” for prospective veteran franchisees.

 

As of the date of this Annual Report, only preliminary steps have been taken to implement our veteran program (including development of a recruitment and training program). Since our focus over the past year has been primarily on expanding our business plan in preparation for implementing our licensing and franchise model, we have not yet established any estimated budgets or milestones regarding the implementation of our veteran program. Once the franchise model is in place, we intend to focus on establishing a strategy which focuses on veterans receiving the first franchises, including the scope and the timeframe for implementation of the training, management and ownership of the franchises and methods we anticipate utilizing to assist prospective veteran franchisees to secure financing to acquire a franchise.

 

Marketing Strengths

 

We have enjoyed success using social media as our primary marketing effort. With a base of over 150,000 followers on varying sources of social media including Twitter, Facebook or Instagram, our followers are able track our site locations. We have become increasingly adept with our social media marketing, running campaigns to support new offerings or events. We believe that we are an influential ‘Tweeter’ in Los Angeles and are currently one of the most followed food trucks on Facebook and on Twitter. In fact, we were listed as the 3rd most influential ‘Tweeter’ in Los Angeles by WeFollow.com in 2011 and 3rd most influential food truck in 2011 by Klout.com. 

 

With the help of social media, fans of the Grilled Cheese Truck can find out where the truck will be at any moment and get up-to-the-minute updates on specials, new menu items and location changes. We believe these social media initiatives have been a major contributing factor to our success. In particular, we have successfully made our Twitter, Facebook and Instagram following into a direct sales tool, creating a business proposition for prospective franchise owners and licensees, as we believe the networks drive sales and direct customers to the truck’s locations without the need for more traditional (and expensive) local advertising campaigns.

 

In addition to the success of our social media activities, we have gained national media attention following appearances and/or coverage from The Chew, The Rachel Ray Show, The Price is Right, ABC Channel 7 (top food truck in Los Angeles), NBC News, Fox News.com, USA Today, Los Angeles Times (best food truck in Los Angeles and Southern California), The Cooking Channel, Food & Wine (best grilled cheese in the U.S.), The Travel Channel, Klout.com (top 10 most influential food trucks - 2011), BBC Travel, MSN.com (the best food on wheels), and Zagat Guide. Additionally, many of the segments featuring the Grilled Cheese Truck continue to be re-aired regularly on the Food Network, the Cooking Channel, the Travel Channel and others. We have also had a presence at the SXSW conference as a speaker on a panel discussion about food truck expansion.

 

Products

 

We serve innovative gourmet grilled cheese melts that are made from seasonal ingredients. We believe that gourmet grilled cheese is the “new pizza.”  This iconic sandwich has been a beloved part of the American food culture since the early 1920’s.  Many Americans have grown up and continue to consume grilled cheese sandwiches as they are often considered a comfort food. Our founder, David Danhi, is an award winning chef and we are committed to upholding his food standards.

 

Our grilled cheese sandwiches have received numerous accolades and social media notoriety. These awards have been given by various entities that asked their followers to vote for their favorite food truck. Below are several of the articles to show the results of these awards :

 

 

	•	thedailymeal.com as one of Los Angeles 15 Best Foot Trucks of 2013 on July 15, 2013 (http://www.thedailymeal.com/los-angeles-s-15-best-food-trucks-2013);
	•	the latimes.com reader’s choice as best food truck (http://www.latimes.com/custompublishing/readerschoice/restaurants/la-ss-readerschoice-grilledcheese-072429011,0,701450.story#axzz2lImZ93yB);
	•	the Los Angeles Hot List as number 1 food truck on LA Hot List 2011 ( http://la.cityvoter.com/best/food-truck/food/los-angeles/2011 );
	•	the 2013 number 1 people’s choice award at the Grilled Cheese Invitational in April 2013 (http://grilledcheeseinvitational.com/?p=14250) ;
	•	relish.com as one of America’s top 10 grilled cheese sandwiches on April 9, 2013 (http://relish.com/slideshows/americas-10-best-grilled-cheese-sandwiches-2/ ); and
	•	thedailymeal.com as one of the Sandwiches of the Week: America’s Top 20 New Sandwiches on March 21, 2011 ( Thedailymeal.com\ at http://www.thedailymeal.com/america-s-top-20-new-sandwiches?utm_source=Outbrain ).

 

 

 

 

Suppliers

 

We are committed to producing a delicious, quality, and consistent gourmet grilled cheese sandwich for each of our customers. In order to achieve this goal, we carefully select our suppliers, control the quality of the food that we order and use and oversee food preparations.

 

We purchase our ingredients primarily through US Foods, Inc. (“US Foods”) pursuant to one year contracts. Though we purchase our ingredients primarily from only one reputable supplier, we have long standing relationships with some of the most reputable food purveyors in the nation due to Mr. Danhi’s 30 years of experience as a professional chef and restaurant executive. Because of these relationships, we believe that we are not dependent upon US Foods in order to continue our business. For the years ended December 31, 2014 and 2013, respectively, US Foods supplied us with approximately $618,000 of our supplies used for production and accounted for approximately 32% of total cost of our sales for the year ended 2014 in contrast with approximately $244,000 of our supplies used for production and approximately 19% of total cost of sales in the year ended 2013. Our one year contracts with US Foods requires that we provide payment of the purchase price of goods or services acquired from US Foods in accordance with the terms set forth on each invoice. Although we only utilized one primary supplier of goods during 2014 and 2013, management believes that the Company is not solely dependent on US Foods for its food supplies, as management believes that there are ample other suppliers that the Company could engage is a short period of time to supply the required goods on substantially similar terms as US Food.

 

Gourmet Food Truck Recipes from Renowned Chef

 

Our food truck offerings are the result of the creative energies of our Chief Creative Officer and director, Mr. Danhi, who is the founder and culinary force behind the Grilled Cheese Truck. Mr. Danhi has been engaged in the restaurant and food business for 30 years, with his melts appearing on numerous lists describing the best grilled cheese creations in the industry. Mr. Danhi was the Executive Chef at the Michelin star Water Grill restaurant in Los Angeles from 1996 to 1998. From 1990 to 1992, Mr. Danhi was Executive Chef at the Roxbury Supper club in Hollywood, California. Mr. Danhi has received numerous accolades including the Robert Mondovi Award of Culinary Excellence (naming him one of the country's top rising star chefs in 1994), best restaurant of the year in 1993 by numerous magazines including Bon Appétit, Esquire and Travel and Leisure, and best crab cakes in Los Angeles two years in a row.

 

Competition

 

The mobile food truck and restaurant industry is intensely competitive and we expect to compete in the United States with many well-established food service companies on the basis of product choice, quality, affordability, service and location. Our competitors include a variety of independent local operators, in addition to well-capitalized regional, national and international restaurant chains and franchises. We compete for consumer dining dollars with national, regional and local (i) quick service restaurants that offer alternative menus, (ii) casual and “fast casual” restaurant chains, and (iii) convenience stores and grocery stores. Furthermore, the mobile food truck and restaurant industry has few barriers to entry, and therefore new competitors may emerge at any time.

 

The gourmet food truck industry is in its initial stages of demand and we are not aware of other hub-and-spoke multi-unit operators in the food truck industry. We believe we can actively compete in the gourmet food truck industry because of our positive customer feedback, our large social media following, media attention and growth.

 

Our locations vary depending on the city we are in or the time of day.  There are times our trucks are the only food venue at the location and times where we compete with two to four other food trucks depending on the location. Further, there are times we participate in “food truck lots” or events that will host multiple food trucks with numbers of participants ranging from two trucks to 70 trucks.  The cuisine offerings from other trucks at these events, and in general, vary tremendously, including but not limited to hamburgers, hot dogs, Asian food, Latin American food, European food and desserts.

 

As stated above, we experience competition from a number of different sources. We consider our primary competition to be other local food trucks that compete for customers at our “planned” stops. Some of our primary competitors in the Los Angeles area are Kogi (Korean/Mexican fusion), Cool Haus (gourmet ice cream sandwiches) and Cousin’s Main Lobster (lobster rolls, etc.). Some of our primary competitors in the Phoenix, Arizona area are Short Leash (hot dogs), Luncha Libre (quesadillas) and Burgers Amore (hamburgers). Further, we consider other quick service restaurants and “fast and casual” restaurant chains, such as McDonald’s and Burger King, to be our direct competitors. No one competitor has a significant presence in our market.

 

Customers

 

We have acquired over 150,000 total followers using various social media channels including Facebook, Instagram and Twitter. This has translated to a fan-base of loyal followers and has resulted in long lines of customers at our trucks. This has also translated into increased requests for catering events for private parties (weddings, birthdays, bar mitzvahs) as well as numerous entertainment industry and promotional events, such as movie premieres, cast and crew feeds, new model releases for the automotive industry and the like. Our customer base is consistently growing due to our social medial presence, our constant street presence and continued accolades and food industry awards.

 

  

Charitable Foundation and Not-For-Profit Initiatives

 

On September 6, 2013, our Board of Directors approved the creation of a new charitable foundation.  This foundation is intended to provide financial assistance to the surviving spouses and children of United States military personnel who have died in combat and to United States military personnel suffering from physical and mental disabilities.  We initially intend to donate up to 1,000,000 shares of our common stock to the foundation, with such shares to be donated from time to time as the Board of Directors determines is prudent.  The Board of Directors delegated to General Clark the responsibility for supervising and administering shares under the foundation. 

 

On November 17, 2014, the Company issued 1,000,000 restricted shares of its Common Stock to certain nonprofits that support people in need with a focus on veterans.

 

The issuance of the restricted shares to the charitable foundations is subject to the following resale restriction: each of the charitable foundations receiving restricted shares from the Company may only sell up to 1/12^th of such shares in any given month following the eligibility for resale of such shares either pursuant to 1) a registration statement filed by the Company to register such shares or 2) Rule 144 of the Securities Act.

 

On March 30, 2015, we entered into a Cooperation Agreement (the “Cooperation Agreement”) with Orange County Rescue Mission, a non-profit, faith-based organization that provides services to the homeless (“OCRM”). Under the Cooperation Agreement, we have agreed to partner with OCRM to carry out certain commissary and mobile food truck operations, with each of the Company and OCRM agreeing to provide each other certain staffing, marketing and administrative services for the purposes of expanding our commercial presence and community outreach. The Cooperation Agreement provides for mutual licensing rights for certain intellectual property of each of the parties, and a quarterly obligation on the part the Company to distribute to OCRM fifty percent (50%) of the net proceeds generated from all operations under the Cooperation Agreement. The Cooperation Agreement, and our working relationship with OCRM, is intended to both generate revenue and to help create additional jobs by facilitating the training of homeless individuals, students and veterans (with a particular focus on veterans) to transition into the mainstream workforce.

 

Intellectual Property

 

Our intellectual property consists of our copyrighted website content and social media pages on Facebook and Twitter. We have and will continue to file applications with the United States Patent and Trademark Office (the “USPTO”) to protect our intellectual property. As of the date of this report, we have obtained federal registration for certain trademarks and logos, including but not limited to “GCT”, “CHEESY MAC AND RIB MELT”, “PEPPERBELLY MELT”, “PLAIN AND SIMPLE MELT”, “S’MORE MELT”, “THE CHEESE MAC MELT”, “THE FULLY LOADED”, “YOU CANT SAY GRILLED CHEESE WITHOUT SMILING” and the “Reclining Girl Eating Sandwich Design” logo. We have additional trademark and logo applications pending with the USPTO and will continue to file additional applications to protect our intellectual property in the future.

 

The Franchise Business Model

 

We intend to commence preliminary operations as a franchisor (in addition to our operation as a purveyor of food) pursuant to a food truck business model. Our franchise operations are still in development. We began test marketing in Phoenix, Arizona throughout 2014. As a franchisor, we expect to generate revenues through franchising fees, the sale of food and supplies to franchisees and continuous royalty payments by franchisees. We are currently researching initial franchise markets in the states of Texas, Arizona, Illinois, Nevada, North Dakota, South Dakota and Florida. Company guidelines will be placed on the geographic locations that franchise trucks will be permitted to operate in. Additionally, our franchises will be required to comply with quality and customer service standards that we will develop internally.

 

Franchise Costs

 

Four Wheel - Mobile Grilled Cheese Truck

 

We intend to primarily offer the first franchises to United States veterans. Franchisees will be required to pay an initial franchise fee and be required to rent or lease a pre-specified and fully equipped mobile food truck. Additionally, franchisees will pay a royalty to us based on revenue earned. Additional costs not included in the initial franchise fee include: truck costs, owner/operator training costs and related travel expense; initial inventory; grand opening expense; local business licenses and permits; home office business equipment and expenses; contributions to our advertising fund; and working capital reserves.

 

Besides the initial costs, there will also be franchise costs and ongoing expenses. We expect those costs will include:

 

 

•	royalty payment based on a percentage of gross sales;
•	cooperative ad fee based on a percentage of gross sales; and
•	local advertising based on a percentage of gross sales.

 

Each franchisee will also be required to purchase certain ingredients and supplies from us at a profit to us. To reduce this cost to our franchisees, we will strategically place our commissaries to minimize transportation costs associated with these ingredients and supplies. We do not believe that the markup on sales of food and supplies will cause the food truck prices to become overpriced.

 

Brick and Mortar - Fixed location Grilled Cheese Truck Restaurants

 

In addition to the initial roll-out of 100 mobile truck franchises, our long-term plan includes the franchising of brick and mortar, or fixed, locations. We are currently performing research and development for potential locations and anticipate opening our first fixed location in 2015.

 

The Grilled Cheese truck has developed innovative retail branding and design that we believe will provide measureable business results with brick and mortar locations centered on improving the customer experience. Our creative and strategically-driven brick and mortar design solutions offering a variety of floor plans that currently exist in the following three layouts:

 

Layout one is for a self-sufficient Brick and Mortar retail location of approximately 2,000 square feet. This includes a well-designed kitchen which will support efficient, safe and profitable food preparation and consists of approximately 60 seats and slightly larger back kitchen and preparation area with adequate space for all of the necessary equipment, plus ample room for employees to work that can be utilized for both retail operations and to support truck operations. This layout can replace the need for a separate kitchen to fortify food storage and preparation for our mobile food truck solutions. This design allows us to coordinate all operational and marketing requirements to seamlessly integrate them into the design, construction and operations. 

 

Layout two is for a self-sufficient Brick and Mortar retail location of approximately 1,300 square feet. This includes a well-designed kitchen which will support efficient, safe and profitable food preparation and consists of approximately 60 seats. This layout would allow us to go into a smaller retail foot print and keep the lease and overhead costs down. A separate kitchen location would be utilized to fortify food storage and preparation for our mobile food truck solutions.

 

Layout three is for retail locations of approximately 900 square feet, ideally designed for locations such as a mall food court, kiosk or other such locations that can utilize shared kitchen and storage facilities. This includes a well-designed layout which will support efficient, safe and profitable food preparation and position us to become a leading integrated food court provider delivering consistent quality products & excellent customer-focused service.

 

We anticipate that our Company-owned restaurant will serve as a springboard to franchise other fixed locations and to provide training for future operators of franchised fixed locations. Franchisees will be required to pay an initial franchise fee and will be responsible for the purchase, lease or sublease of real property on terms suitable for the development of an approved Grilled Cheese Truck retail restaurant operation. Franchisees will also be responsible for payment of all improvement costs necessary to make such Grilled Cheese Truck restaurant suitable for operations. We anticipate that improvement costs, excluding the costs of the land and building, will be between $150,000 to $375,000 per location. Each franchisee will also be required to purchase certain ingredients and supplies from us at a profit to us. Additional costs to the Franchisee will include: owner/operator training costs and related travel expense, initial inventory, grand opening advertising and promotional marketing expense, local business licenses and permits, contributions to our advertising fund and working capital reserves.

 

As part of our effort to expand into brick and mortar operations, on January 27, 2015, we entered into a series of agreements (the Ruby’s LOIs) with franchisees of Ruby’s Franchise Systems, Inc. to acquire all, or substantially all, of the assets of each of DJ Brinton Lake, LLC, DJR King of Prussia, Inc. and DJR Suburban Square, Inc. (which we collectively refer to as the Ruby’s Franchisees). Pursuant to the Ruby’s LOIs, each of the Ruby’s Franchisees has agreed not to negotiate with, or agree to sell or otherwise dispose of, directly or indirectly, any of their respective assets to any other third party, until March 31, 2015. Each of the Ruby’s LOIs included a non-binding term sheet describing the terms of the acquisition as agreed upon between the Company and each of the Ruby’s Franchisees. Entry into definitive agreements with each of the Ruby’s Franchisees will be subject to certain conditions, including the ability of such Ruby’s Franchisee to obtain any necessary consent to sell its assets to us from the applicable franchisor or, if necessary, termination of any agreement that may prohibit such Ruby’s Franchisee from selling the subject assets to us.

 

On March 31, 2015, The Grilled Cheese Truck, Inc., a Nevada corporation (the “Company”) entered into an amendment to a letter of intent (the “Brinton Amendment”) between the Company and DJ Brinton Lake, LLC, a Pennsylvania limited liability company (“Brinton”), dated as of January 27, 2015 (the “Brinton LOI”), pursuant to which the Company intends to acquire all, or substantially all, of the related assets of Brinton (the “Brinton Assets”). Pursuant to the Brinton LOI, the parties agreed that until March 31, 2015 (the “Expiration Date”), Brinton will not enter into negotiations with any third party for the sale of the Brinton Assets. Under the Brinton Amendment, the parties agreed to extend the Expiration Date until May 31, 2015. The remaining terms and conditions of the Brinton LOI remain unchanged.

 

 

On March 31, 2015, the Company also entered into an amendment to a letter of intent (the “King Amendment”) between the Company and DJR King of Prussia Plaza, Inc., a Pennsylvania corporation (“King”), dated as of January 27, 2015 (the “King LOI”), pursuant to which the Company intends to acquire all, or substantially all, of the related assets of King (the “King Assets”). Pursuant to the King LOI, the parties agreed that until March 31, 2015 (the “Expiration Date”), King will not enter into negotiations with any third party for the sale of the King Assets. Under the King Amendment, the parties agreed to extend the Expiration Date until May 31, 2015. The remaining terms and conditions of the King LOI remain unchanged.

 

On March 31, 2015, the Company also entered into an amendment to a letter of intent (the “Square Amendment”) between the Company and DJR Suburban Square, Inc., a Pennsylvania corporation (“Square”), dated as of January 27, 2015 (the “Square LOI”), pursuant to which the Company intends to acquire all, or substantially all, of the related assets of Square (the “Square Assets”). Pursuant to the Square LOI, the parties agreed that until March 31, 2015 (the “Expiration Date”), Square will not enter into negotiations with any third party for the sale of the Square Assets. Under the Square Amendment, the parties agreed to extend the Expiration Date until May 31, 2015. The remaining terms and conditions of the Square LOI remain unchanged.

 

Government Regulation

 

The franchise disclosure requirement

 

Under the Federal Trade Commission’s (FTC) “Franchise Rule,” franchisors must provide prospective franchisees with certain information regarding the franchise. The Franchise Rule specifies the form and content of the disclosures a franchisor must give. The disclosures are shown in a “Franchise Disclosure Document,” or an “FDD.” The predecessor of the FDD was the “Uniform Franchise Offering Circular,” or the “UFOC.” The Franchise Rule also specifies the timing of delivery of the FDD. As of the date of this report, we have not yet prepared the FDD.

 

The FDD must disclose facts about the franchisor, the franchise transaction, and the franchise documents. These facts are consolidated into sections of the FDD called “Items.” The FDD must contain 23 Items, including:

 

•

a description of the franchisor and any parents, predecessors, and affiliates;

•

profiles of key management and staff personnel, and their business experience;

•

the franchisor’s litigation and bankruptcy history;

•

initial and ongoing fees required to operate the franchised business;

•

the amount of the franchisee’s initial investment;

•

restrictions on the franchisee’s purchases of goods and services;

•

the franchisee’s obligations;

•

financing, if any, that the franchisor may offer prospective franchisees;

•

assistance the franchisor provides;

•

the parties’ territorial rights and obligations;

•

the intellectual property, like trademarks and copyrights, associated with the franchise;

•

renewal and termination provisions;

•

information about franchised and company-owned outlets; and

•

audited financial statements.

 

There are some exemptions where the franchisor does not have to comply with the Franchise Rule when selling a franchise. These exemptions include:

 

•	Minimum payment exemption - where required payments to a franchisor total less than $500 during the first six months of operation;
•	Fractional franchise exemption - where the franchisee’s management already has experience in the business being franchised and the sales of the franchise will be 20% or less of the franchisee’s revenues;
•	Large franchise investment exemption - where the investment in the franchise is at least $1 million, excluding the cost of land and franchisor-provided financing; and
•	Large franchisee exemption - where the franchisee is likely to be a particularly sophisticated business operator.

 

State franchise law

 

While every franchise business is subject to the franchise rules laid out by the FTC, franchises are also subject to state franchise laws and regulations. While the FTC franchise rule is aimed at all types of franchises, many state regulations are industry-specific. Further, franchise law is not a completely separate body of law, since it also involves other state laws such as trademark, intellectual property, and commercial laws. This means that there can be many different nuances between franchise laws from state to state.

 

   

Some states have comprehensive franchise regulations. The franchise laws in these states usually require the franchisor to register with the state government. While the FTC rule states that a FDD must be given to the franchisee, many states with comprehensive franchise laws will have further rules on what must be provided to a potential franchisee. Various states may also require the franchisor to file the necessary documents with the state. States with comprehensive franchise laws will also generally review the franchisor's financial information as well as any documents it plans to give to a potential franchisee.

 

A primary intention of these high-regulation states is to reduce fraudulent business practices. A state can deny the registration of a franchise business if it determines that franchise documents contain false or misleading information. These states may also deny registration if there are circumstances in which selling the franchise would be deceptive in some manner. The FTC website has information about which states currently have registration or notice requirements.

 

There are other various franchise laws that apply in certain states. Many states have laws that regulate the relationship between the franchisor and the franchisee, called franchise relationship laws. These relationship laws typically require, for example, that the franchisor have “good cause” in order to refuse to renew a franchise contract with the franchisee.

 

Government Regulation

 

As a manufacturer and distributor of food products, we are, and our future franchisees will be, subject to food safety regulations, including supervision by the United States Food and Drug Administration, which governs the manufacture, labeling, packaging and safety of food. In addition, we may become subject to legislation or regulation seeking to tax and/or regulate high-fat, high-calorie and high-sodium foods, particularly in the United States. Certain states, counties and municipalities, such as California, Vermont, New York City, New York and King County, Washington, have approved menu labeling legislation that requires restaurant chains to provide caloric information on menu boards. Additionally, menu labeling legislation has also been adopted on the federal level.

 

We are, and our future franchisees will be, subject to United States federal laws affecting the operation of our restaurants and our business. Each of our mobile food trucks must comply with licensing requirements and regulations by a number of governmental authorities, which include zoning, health, safety, sanitation, building and fire agencies in the jurisdiction in which the food truck is located. We are, and our future franchisees will be, subject to laws relating to information security, privacy, cashless payments and consumer credit, protection and fraud. An increasing number of governments and industry groups worldwide have established data privacy laws and standards for the protection of personal information, including social security numbers and financial information.

 

Our franchising activities are subject to the rules and regulations of the FTC and various state laws and similar foreign agencies. The rules of the FTC and those of a number of states in which we will be franchising regulate the sale of franchises and require registration of the franchise disclosure document with state authorities and the delivery of a franchise disclosure document to prospective franchisees. We may operate under exemptions from registration in several of these states where and when applicable. These state laws often limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate sources of supply.

 

Environmental Matters

 

We are subject to various federal, state and local environmental regulations. Various laws concerning the handling, storage and disposal of hazardous materials and restaurant waste and the operation of restaurants and food trucks in environmentally sensitive locations may impact aspects of our operations; however, compliance with applicable environmental regulations is not believed to have a material effect on capital expenditures, financial condition, results of operations, or our competitive position. Increased focus by United States governmental authorities on environmental matters is likely to lead to new governmental initiatives, particularly in the area of climate change. To the extent that these initiatives caused an increase in our supplies or distribution costs, they may impact our business both directly and indirectly.

  

Employees

 

As of April 10, 2015, the Company has 62 employees, including 21 full-time and 41 part-time employees, working for us in various capacities.

 

Legal Proceedings

 

In the normal course of our business, we may periodically become subject to various lawsuits. However, there are currently no legal actions pending against us, or, to our knowledge, are any such proceedings contemplated.

 

Corporate Information

 

Our principal office is located at 151 North Nob Hill Road, Suite 321, Fort Lauderdale, FL 33324. Our telephone number is (949) 478-2571.

 

 

The Company has entered into a lease in Gardena, California to lease an approximately four thousand square foot warehouse facility. The warehouse facility will be used by the Company to store ingredients to be cooked on our trucks and to prepare certain of our products prior to being placed on our trucks. The lease began on July 1, 2013 and runs through June 30, 2018 with a base rent beginning at $5,310 per months. The facility located in Gardena is currently operating at approximately 50% capacity based on the current number company operated and leased trucks. Management believes that such facility can sustain our operations, including our intended expansion, over the next 24 months.

 

The Company has entered into a lease in Phoenix, Arizona to lease an approximately five thousand square foot warehouse facility. The warehouse facility will be used by the Company to store ingredients to be cooked on our trucks and to prepare certain of our products prior to being placed on our trucks. The lease began on December 1, 2014 and runs through November 30, 2016 with a base rent beginning at $3,150 per months. The facility located in Gardena is currently operating at approximately 50% capacity based on the current number company operated and leased trucks.

 

Management believes that both such facilities can sustain our operations, including our intended expansion, over the next 24 months.

 

Item 1A.

Risk Factors

 

You should carefully consider the following risk factors and all other information contained in this Annual Report.  If any of the following risks occur, our business, financial conditions or results of operations may be materially and adversely affected. This Annual Report also contains forward-looking statements that involve risks and uncertainties.  There can be no assurance that actual results will not materially differ from expectations. Important factors could cause actual results to differ materially from those indicated by such forward-looking statements.

 

Risks Related to Our Business

 

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing. 

 

The report of our independent auditors on our consolidated financial statements for the year ended December 31, 2014 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Our auditors’ doubts are based on our incurring significant net loss and our working capital deficit position. Our ability to continue as a going concern will be determined by our ability to obtain additional funding in the short term to enable us to realize the commercialization of our planned business operations. On December 18, 2014, we commenced a “best-efforts” private placement offering of up to $1,500,000 pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). From December 18, 2014 through March 31, 2015, we held closings of our private placement offering whereby the Company received an aggregate of $975,000 from two accredited investors. We cannot provide any assurance or guarantee that we will be able to raise the full amount or any additional funds under this offering. Further, we may be required to raise funds in addition to this offering. We cannot provide any assurance or guarantee that we will be able to conduct other additional rounds of financing at all or on terms acceptable to us.

 

We have a limited operating history in the mobile food truck industry on which to evaluate our potential and determine if we will be able to execute our business plan.

 

We currently operate mobile food trucks in Los Angeles, California, where we began our operations in 2009, and have expanded operations to include additional trucks operating in Phoenix, Arizona that began operations in 2013. Additionally, we have entered into licensing agreements with additional trucks operating in Ventura, Santa Barbara and the West Valley of Los Angeles, California. Although we are in the process of identifying new locations, we currently primarily rely on our Los Angeles food trucks for the majority of our revenue. Consequently, our historical results of operations may not provide an accurate indication of our future operations or prospects. Investment in our securities should be considered in light of the risks and difficulties we will encounter as we attempt to penetrate the mobile food truck industry.

  

In addition, we cannot guarantee that we will be able to achieve our expansion goals or that new mobile food trucks will generate sufficient revenues or be operated profitably. Our ability to expand will depend on a number of factors, many of which are beyond our control. These risks may include, but are not limited to:

 

•	locating suitable sites in new and existing markets;
•	recruiting, training and retaining qualified corporate and personnel and management;
•	attracting and retaining qualified employees;
•	cost effective and timely planning, design and delivery out of mobile food trucks;
•	obtaining and maintaining required local, state and federal governmental approvals and permits related to the mobile food truck sites;
•	creating customer awareness of our mobile food trucks in new markets;
•	competition in our markets; and
•	general economic conditions.

 

If we are unable to expand our mobile food truck concept, our potential for growth and our results of operations could be harmed significantly.

 

A critical factor in our future viability will be our ability to expand our mobile food truck concept. Our growth plans contemplate acquiring a number of additional mobile food trucks in future months and years, in addition to franchising. If we do not open and operate new mobile food trucks, our growth and results of operations could be harmed significantly. Our ability to access and open new mobile food trucks in a timely manner and operate them profitably depends upon a number of factors, many of which are beyond our control, including the following:

  

 

•	our ability to generate or raise the capital necessary to acquire and open new mobile food trucks;
•	the availability of suitable locations for the mobile food trucks, our ability to compete effectively for those locations, and enter into agreements or obtain permits for such locations on acceptable terms;
•	obtaining and maintaining required local, state and federal governmental approvals and permits related to the mobile food truck sites and the sale of food;
•	labor shortages or disputes; and
•	unforeseen engineering or environmental problems with the premises.

 

Our future growth plans depend in large part on our ability to identify, attract and retain qualified franchisees and to manage our proposed franchise business.

 

We expect to grow our business through the franchising of our mobile food truck concept. As a result, our future growth will depend on our ability to attract and retain qualified franchisees, the franchisees’ ability to execute our concept and capitalize upon our brand recognition and marketing, and the franchisees’ ability to timely develop mobile food trucks. We may not be able to recruit franchisees that have the business abilities or financial resources necessary to open mobile food trucks on schedule, or at all, or who will conduct operations in a manner consistent with our concept and standards. Also, our franchisees may not be able to operate mobile food trucks in a profitable manner.

 

In addition, a FTC rules require us to furnish prospective franchisees with an FDD containing prescribed information before entering into a binding agreement or accepting any payment for the franchise. Sixteen states also have state franchise sales or business opportunity laws which require us to add to the federal disclosure document additional state-specific disclosures and to register our offering with a state agency before we may offer our franchises for locations in the state or to state residents. We will have to file and receive approval of our FDD before we can sell franchises. Applicable laws in states provide state examiners with discretion to disapprove registration applications based on a number of factors. There can be no assurance that we will be successful in obtaining registration in all states or be able to continue to comply with these regulations, which could have a material adverse effect on our business and results of operations.

 

Finally, our future franchise operations will be dependent upon our ability to:

 

•	develop, maintain and enhance the “Grilled Cheese Truck” brand;
•	maintain satisfactory relations with our franchisees who may, in certain instances, have interests adverse to our interests;

 

•	monitor and audit the reports and payments received from franchisees; and
•	comply with applicable franchising laws, rules and regulations.

 

The viability of our new business model is dependent on a number of factors that are not within our control.

 

The viability of our Company-owned and potential franchised mobile food truck operations are, and will continue to be, subject to a number of factors that are not within our control, including:

 

•	changes in consumer tastes;
•	national, regional and local economic conditions;
•	traffic patterns in the venues in which we and our franchisees will operate;
•	discretionary spending priorities;
•	demographic trends;
•	consumer confidence in food quality, handling and safety;
•	consumer confidence in the venues in which we and our franchisees will operate;
•	weather conditions; and
•	the type, number and location of competing mobile food trucks or restaurants.

 

 

Our inability to manage our growth could impede our ability to generate revenues and profits and to otherwise implement our business plan and growth strategies, which would have a negative impact on our revenues and results of operation.

 

Our business plan is to grow rapidly by opening new mobile food trucks, expanding upon the locations that our food trucks service, opening a brick and mortar facility and beginning franchising operations. Our planned growth will require us to:

 

•	significantly improve or replace our existing managerial, operational and financial systems, procedures and controls;
•	begin compliance with complex rules and regulations relating to franchising;
•	manage the coordination between our various corporate functions, including accounting, legal, accounts payable and receivable, and marketing and development;
•	manage, train, motivate and maintain a growing employee base; and
•	manage our relationships with franchisees.

 

 

 

In addition, our expansion plans will likely require us to:

 

•	make significant capital investments;
•	devote significant management time and effort;
•	develop budgets for, and monitor, food, beverage, labor, occupancy and other costs at levels that will produce profitable operations; and
•	as applicable, budget and monitor the cost of future capital investments.

  

The time and costs to effectuate these steps may place a significant strain on our management personnel, systems and resources, particularly given the limited amount of financial resources and skilled employees that may be available at the time. As a result, it may become more difficult to both implement more sophisticated managerial, operational and financial systems, procedures and controls and to train and manage the personnel necessary to implement these functions. We cannot assure you that we will institute, in a timely manner or at all, the improvements to our managerial, operational and financial systems, procedures and controls necessary to support our anticipated increased levels of operations and to coordinate our various corporate functions.

 

Our expansion into new markets may present increased risks due to our unfamiliarity with the geographic area.

 

As a part of our expansion strategy, we expect that we will be opening mobile food trucks in markets in which we have no prior operating experience. These new markets may have different competitive conditions, consumer tastes and discretionary spending patterns. In addition, any new mobile food trucks may take several months to reach budgeted operating levels due to problems associated with new mobile food trucks, including lack of market awareness, inability to hire sufficient staff and other factors. Although we will attempt to mitigate these factors by thoroughly researching potential markets and paying careful attention to training and staffing needs, there can be no assurance that we will be able to operate new mobile food trucks in new geographic areas on a profitable basis.

  

Fluctuations in the cost, availability and quality of our raw ingredients may affect our business, reputation and financial results.

 

The cost, availability and quality of the ingredients that we use to prepare our food are subject to a range of factors, many of which are beyond our control. Fluctuations in economic and political conditions, weather and demand could adversely affect the cost of our ingredients. We have limited control over changes in the price and quality of commodities since we typically do not enter into long-term pricing agreements for our ingredients. We may not be able to pass through any future cost increases by increasing menu prices. We are, and our potential franchisees will be, dependent on frequent deliveries of fresh ingredients, thereby subjecting us to the risk of shortages or interruptions in supply. This could dramatically increase the price of certain menu items which could decrease sales of those items or could force us to eliminate those items from our menus entirely. All of these factors could adversely affect our business, reputation and financial results.

 

Our ability to maintain local, state and national licenses and permits could adversely affect our financial results and restrict our ability to grow.

 

We must obtain a food service license from local health authorities as well as other related permits from local and national authorities in order to operate our mobile food trucks. Obtaining and maintaining these permits and licenses is an imperative component of our mobile food truck operations and there can be no assurance that we will remain in compliance with applicable laws or licenses that we have or will obtain. The failure to obtain or maintain our food service licenses and other required licenses, permits and approvals for each food truck could result in our loss of the mobile food truck’s license and would adversely affect our financial results and could impact our growth strategy.

 

Government regulations affecting franchising could restrict our ability to grow.

 

We will be subject to federal regulation and state laws that regulate the offer and sale of franchises and substantive aspects of a franchisor-franchisee relationship. We are also subject to various other federal, state and local laws, rules and regulations affecting our business, and our future franchisees will be subject to these laws, rules and regulations as well. Each of our mobile food trucks and those owned by our future franchisees will be subject to a variety of licensing and governmental regulatory provisions relating to wholesomeness of food, sanitation, health and safety. Difficulties in obtaining, or the failure to obtain, required licenses or approvals by our franchisees can delay or prevent the opening of new mobile food trucks in any particular area. Furthermore, there can be no assurance that our franchisees will remain in compliance with applicable laws or licenses that such franchisees will obtain, the failure of which by a mobile food truck could result in the loss of the mobile food truck’s license which would adversely affect our growth strategy.

 

Our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available on terms favorable to us.

 

The ability of our business to grow and compete depends on the availability of adequate capital, which in turn depends in large part on our cash flow from operations and the availability of equity and debt financing. We cannot assure you that our cash flow from operations will be sufficient or that we will be able to obtain equity or debt financing on acceptable terms, if at all, to implement our growth strategy. As a result, we cannot assure you that adequate capital will be available to finance our current growth plans, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.

 

  

Our future success is dependent, in part, on the performance and continued service of David Danhi, our Chief Creative Officer and director.

 

We are presently dependent to a great extent upon the experience, abilities and continued services of Mr. Danhi, our Chief Creative Officer and director. Mr. Danhi entered into an employment agreement with a three year term, however, Mr. Danhi can terminate the employment agreement with 30 days notice. Although we have a key man insurance policy on Mr. Danhi, the loss of his services could have a material adverse effect on our business, financial condition or results of operation.

  

Our success relies on consumers purchasing our products. Changes in consumer preferences and market conditions may affect our ability to be profitable.

 

Our operating results may fluctuate significantly from period to period as a result of a variety of factors, including purchasing patterns of customers, competitive pricing, debt service and principal reduction payments, and general economic conditions.  There is no assurance that we will be successful in marketing any of our products, or that the revenues from the sale of such products will be significant.  Consequently, our revenues may vary by quarter, and our operating results may experience fluctuations.

 

Our success depends on our ability to compete with our major competitors, many of which have greater resources than us.

 

The mobile food truck and restaurant industry is intensely competitive and we expect to compete in the United States with many well-established food service companies on the basis of product choice, quality, affordability, service and location. Our competitors include a variety of independent local operators, in addition to well-capitalized regional, national and international restaurant chains and franchises. We compete for consumer dining dollars with national, regional and local (i) quick service restaurants that offer alternative menus, (ii) casual and “fast casual” restaurant chains, and (iii) convenience stores and grocery stores. Furthermore, the mobile food truck and restaurant industry has few barriers to entry, and therefore new competitors may emerge at any time.

 

Our ability to compete will depend on the success of our plans to improve existing products, to develop and roll-out new products and product line extensions, to expand the number of trucks/franchises, to effectively respond to consumer preferences and to manage the complexity of our restaurant operations as well as the impact of our competitors’ actions. Some of our competitors have substantially greater financial resources, higher revenues and greater economies of scale than we do. These advantages may allow them to (1) react to changes in pricing and marketing more quickly and more effectively than we can, (2) rapidly expand new product introductions, and (3) spend significantly more on advertising, marketing and other promotional activities than we do, all of which may give them a competitive advantage. These competitive advantages arising from greater financial resources and economies of scale may be exacerbated in a difficult economy, thereby permitting our competitors to gain market share. Such competition may further adversely affect our revenues and profits by reducing our revenues and royalty payments from franchise restaurants.

 

Our business plan depends on our ability to successfully integrate and manage our future franchise operations.

 

Our business plan relies on the substantial expansion of our business through the franchising of our mobile food trucks. However, we lack prior experience with establishing and managing franchise operations. The success of our franchises depends upon, among other things, the skills and business acumen of our franchisees, the identification of suitable locations for food truck operations, the effective management of those franchises’ locations, and our managerial and administrative resources. Our future success will depend on our ability to operate and oversee a significant number of franchise food trucks.

 

We will not be able to exercise control over the day-to-day operations of our franchised trucks. While we will try to ensure that franchised trucks meet the same operating standards that we demand of Company operated trucks, one or more franchised trucks may not do so. Any operational shortcomings of our franchised trucks are likely to be attributed to our system-wide operations and could adversely affect our reputation and have a direct negative impact on the franchised royalty revenues we receive from those trucks.

 

Additionally, we have not yet established a royalty payment structure for our franchise business model. Depending on the structure, our trucks could be at a disadvantage against competitor mobile food trucks that will not have to pay such fees.

  

Our business plan depends on our ability to successfully enter into new markets.

 

A significant element of our future growth strategy involves the expansion of our business into new geographic markets. Expansion of our operations depends, among other things, on the acceptance of our business model in various geographic locations. The design of other cities may cause them to be less receptive to food trucks for a variety of reasons, which could hurt our ability to expand into those markets. In addition, changes in climate over seasons could make it difficult to operate a mobile food truck business consistently throughout the year. Some geographic areas may have lower costs associated with establishing fixed locations which may decrease the appeal of operating a mobile food truck over a fixed location. The mobile food truck industry may turn out to be a phenomenon. If this is the case, it may be more difficult for us to attract customers in new markets.

 

  

We do not have an anticipated timeframe for opening fixed locations.

 

Our long term business model includes the establishment of fixed locations. However, we do not currently have a fixed location model and have not determined how the operation and franchising of fixed locations will differ from the franchising of mobile food trucks.

 

Economic conditions have, and may continue to, adversely affect consumer discretionary spending which could negatively impact our business and operating results.

 

We believe that our sales, customer traffic and profitability are strongly correlated to consumer discretionary spending, which is influenced by general economic conditions, unemployment levels, the availability of discretionary income and, ultimately, consumer confidence. A protracted economic slowdown, increased unemployment and underemployment of our customer base, decreased salaries and wage rates, increased energy prices, inflation, foreclosures, rising interest rates or other cost pressures adversely affect consumer behavior by weakening consumer confidence and decreasing consumer spending for dining occasions.

 

Our franchise business model presents a number of disadvantages and risks.

 

We intend to have a high percentage of franchise mobile food trucks, and we expect the number of franchises to increase as we continue to implement our growth plans. Our franchised business model presents a number of drawbacks, such as our limited influence over franchisees and reliance on franchisees to implement major initiatives, limited ability to facilitate changes in restaurant ownership, limitations on enforcement of franchise obligations due to bankruptcy or insolvency proceedings and inability or unwillingness of franchisees to participate in our strategic initiatives.

 

Our principal competitors may have greater influence over their respective systems than we do because of their significantly higher number of restaurants and, as a result, they may have a greater ability to implement operational initiatives and business strategies, including their marketing and advertising programs.

 

Franchisee support of our marketing and advertising programs is critical for our success.

 

The support of our franchisees will be critical for the success of our marketing programs and any new capital intensive or other strategic initiatives we seek to undertake, and the successful execution of these initiatives will depend on our ability to maintain alignment with our franchisees. While we can mandate certain strategic initiatives through enforcement of our franchise agreements, we need the active support of our franchisees if the implementation of these initiatives is to be successful. In addition, our efforts to build alignment with franchisees may result in a delay in the implementation of our marketing and advertising programs and other key initiatives. Our franchisees may not continue to support our marketing programs and strategic initiatives. The failure of our franchisees to support our marketing programs and strategic initiatives could adversely affect our ability to implement our business strategy and could materially harm our business, results of operations and financial condition.

  

Increases in the cost of food, paper products and energy could harm our profitability and operating results.

 

Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. Any increase in food prices could adversely affect our operating results. Increases in commodity prices could result in higher operating costs, and the highly competitive nature of our industry may limit our ability to pass increased costs on to our customers.

 

Increases in energy costs, principally fuel, could adversely affect our operating margins and our financial results if we choose not to pass, or cannot pass, these increased costs to our customers. In addition, our distributors purchase gasoline needed to transport food and other supplies to us. Any significant increases in energy costs could result in the imposition of fuel surcharges by our distributors that could adversely affect our operating margins and financial results if we chose not to pass, or cannot pass, these increased costs to our customers.

 

Increases in labor costs could slow our growth or harm our business.

 

We are a labor intensive business. Consequently, our success depends in part upon our ability to manage our labor costs and its impact on our margins. We currently seek to minimize the long-term trend toward higher wages in both mature and developing markets through increases in labor efficiencies. However we may not continue to be successful in this regard.

 

Furthermore, we must continue to attract, motivate and retain employees with the qualifications to succeed in our industry and the motivation to apply our core service philosophy. If we are unable to continue to recruit and retain sufficiently qualified managers or to motivate our employees to sustain our service levels, our business and our growth could be adversely affected. Despite current economic conditions, attracting and retaining qualified managers and employees remains challenging and our inability to meet these challenges could require us to pay higher wages and/or additional costs associated with high turnover. In addition, increases in the minimum wage or labor regulations and the potential impact of union organizing efforts in the different states within the United States in which we operate could increase our labor costs. Additional labor costs could adversely affect our margins.

 

  

Our operating results depend on the effectiveness of our marketing and advertising programs.

 

Our revenues are heavily influenced by brand marketing and advertising utilizing social media. Our marketing and advertising programs may not be successful, which may lead us to fail to attract new customers and retain existing customers. If our marketing and advertising programs are unsuccessful, our results of operations could be materially and adversely affected. Moreover, because franchisees and restaurants will contribute to our advertising fund based on a percentage of our gross sales, our advertising fund expenditures will be dependent upon sales volumes system-wide. If system-wide sales decline, there will be a reduced amount available for our marketing and advertising programs.

 

Food safety and food-borne illness concerns may have an adverse effect on our business.

 

Food safety is a top priority, and we dedicate substantial resources to ensure that our customers enjoy safe, quality food products. However, food-borne illnesses, such as pathogenic E. coli, bovine spongiform encephalopathy or “mad cow disease,” hepatitis A, salmonella, and other food safety issues have occurred in the food industry in the past, and could occur in the future. Furthermore, our reliance on third-party food suppliers and distributors increases the risk that food-borne illness incidents could be caused by factors outside of our control and that multiple locations would be affected rather than a single location. New illnesses resistant to any precautions may develop in the future, or diseases with long incubation periods could arise, such as mad cow disease, which could give rise to claims or allegations on a retroactive basis. Any report or publicity linking us or one of our franchisees to instances of food-borne illness or other food safety issues, including food tampering or contamination, could adversely affect our brands and reputation as well as our revenues and profits. Outbreaks of disease, as well as influenza, could reduce traffic. If our customers become ill from food-borne illnesses, we could also be forced to temporarily suspend truck stops. In addition, instances of food-borne illness, food tampering or food contamination occurring solely at restaurants of competitors could adversely affect our sales as a result of negative publicity about the foodservice industry generally.

  

The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, which could result in disruptions in our supply chain, significantly increase our costs and/or lower margins for us and our franchisees. In addition, our industry has long been subject to the threat of food tampering by suppliers, employees or customers, such as the addition of foreign objects in the food that we sell. Reports, whether or not true, of injuries caused by food tampering have in the past severely injured the reputations of restaurant chains in the quick service restaurant segment and could affect us in the future as well.

 

Our results can be adversely affected by unforeseen events, such as adverse weather conditions, natural disasters or catastrophic events.

 

Unforeseen events, such as adverse weather conditions, natural disasters or catastrophic events, can adversely impact our sales. Natural disasters such as earthquakes, hurricanes, and severe adverse weather conditions, can keep customers in the affected area from dining out and result in adversely affecting our sales. Because a significant portion of our operating costs is fixed or semi-fixed in nature, the loss of sales during these periods hurts our operating margins and can result in operating losses.

 

Shortages or interruptions in the availability and delivery of food, beverages and other supplies may increase costs or reduce revenues.

 

We are, and our franchisees will be, dependent upon third parties to make frequent deliveries of perishable food products that meet our specifications. Shortages or interruptions in the supply of food items and other supplies could adversely affect the availability, quality and cost of items we buy and our operations. Such shortages or disruptions could be caused by inclement weather, natural disasters such as floods, drought and hurricanes, increased demand, problems in production or distribution, the inability of our vendors to obtain credit, food safety warnings or advisories or the prospect of such pronouncements, or other conditions beyond our control. A shortage or interruption in the availability of certain food products or supplies could increase costs and limit the availability of products critical to our operations.

 

Our distributors operate in a competitive and low-margin business environment. If one of our principal distributors is in financial distress and therefore unable to continue to supply us and our franchisees with needed products, we may need to take steps to ensure the continued supply of products in the affected markets, which could result in increased costs to distribute needed products. If a principal distributor for our Company or our franchisees fails to meet its service requirements for any reason, it could lead to a disruption of service or supply until a new distributor is engaged, which could have an adverse effect on our business.

 

Being a public company may strain the Company’s resources, divert management’s attention and affect its ability to attract and retain qualified directors.

 

The Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The requirements of these laws and the rules and regulations promulgated thereunder entail significant accounting, legal and financial compliance costs, and have made, and will continue to make, some activities more difficult, time consuming or costly and may place significant strain on the Company’s personnel, systems and resources.

 

  

Risks Related to Our Common Stock

 

There is a limited market for our common stock, which may make it difficult for you to sell your stock.

 

Our common stock trades on the OTCQB under the symbol “GRLD” There is a limited trading market for our common stock. Accordingly, there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.

 

The market price of our common stock may be highly volatile, and you could lose all or part of your investment.

 

The trading price of our common stock is likely to be volatile. This volatility may prevent you from being able to sell your shares at or above the price you paid for your shares. Our stock price could be subject to wide fluctuations in response to a variety of factors, which include:

 

• actual or anticipated fluctuations in our quarterly or annual financial results;
• additional needs for financing;
• failure of industry or securities analysts to maintain coverage of us, changes in financial estimates by any industry or securities analysts that follow us or our failure to meet such estimates;
• market factors, including rumors, whether or not correct, involving us, our products, or our competitors;
• fluctuations in stock market prices and trading volumes of securities of similar companies; 
• sales or anticipated sales of large blocks of our stock; 
• short selling of our common stock by investors; 
• additions or departures of key personnel; 
• announcements of new truck locations, commercial relationships, acquisitions or entry into new markets by us or our competitors; 
• failure of any of our initiatives, including our brick and mortar strategy, to achieve commercial success; 
• regulatory or political developments;
• changes in accounting principles or methodologies;
• litigation or governmental investigations; 
• negative publicity about us in the media and online;
• supply shortages for any of our product ingredients;
• fluctuations in fuel costs nationally; and 
• general financial market conditions or events.

 

Our common stock is considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.

 

Our common stock is considered to be a low-priced security, or a “penny stock,” under rules promulgated under the Exchange Act. A stock is considered to be a “penny stock” if it meets one or more of the definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g) of the Exchange Act. These include but are not limited to the following: (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a “recognized” national exchange; (iii) it is not quoted on The NASDAQ Stock Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company with net tangible assets less than $2.0 million, if in business more than a continuous three year period, or with average revenues of less than $6.0 million for the past three years. The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis.

 

The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Securities Exchange Act of 1934. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

 

 

As an issuer of “penny stock”, the protection provided by the federal securities laws relating to forward-looking statements does not apply to us.

 

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, as our common stock is considered “penny stock”, we do not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

 

Future issuance of our common stock could dilute the interests of existing stockholders.

 

We may issue additional shares of our common stock in the future in connection with a financing or an acquisition. The issuance of a substantial number of shares of common stock could have the effect of substantially diluting the interests of our existing stockholders and any subsequent sales or resales by our stockholders could have an adverse affect on the market price of our common stock.

 

FINRA sales practice requirements may also limit your ability to buy and sell our common stock, which could depress the price of our shares.

 

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.

 

We have no plans to pay dividends.

 

To date, we have paid no cash dividends on our common shares. For the foreseeable future, earnings generated from our operations will be retained for use in our business and not to pay dividends.

  

If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.

 

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

As a public company, we have significant additional requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

 

We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.

 

Lack of experience as officers of publicly-traded companies of our management team may hinder our ability to comply with Sarbanes-Oxley Act.

 

It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff or consultants in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the Sarbanes-Oxley Act’s internal controls requirements, we may not be able to obtain the independent auditor certifications that Sarbanes-Oxley Act requires publicly-traded companies to obtain.

 

 

We have incurred increased costs as a public company which may affect our profitability.

 

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. We are subject to the SEC’s rules and regulations relating to public disclosure. SEC disclosures generally involve a substantial expenditure of financial resources. Compliance with these rules and regulations significantly increase our legal and financial compliance costs and some activities are more time-consuming and costly.  Management may need to increase compensation for senior executive officers, engage additional senior financial officers who are able to adopt financial reporting and control procedures, allocate a budget for an investor and public relations program, and increase our financial and accounting staff in order to meet the demands and financial reporting requirements as a public reporting company. Such additional personnel, public relations, reporting and compliance costs may negatively impact our financial results.

   

Because we became a public company by means of a reverse merger, we may not be able to attract the attention of major brokerage firms.

 

Additional risks may exist since we became public through a “reverse merger.” Securities analysts of major brokerage firms may not provide our Company coverage since there is little incentive to brokerage firms to recommend the purchase of its common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on our behalf in the future.

 

“Emerging growth companies” are subject to lessened disclosure requirements.

 

“Emerging growth companies” as defined in the JOBS Act, permits certain qualifying companies to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:

 

 

•	not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
•	taking advantage of an extension of time to comply with new or revised financial accounting standards;
•	reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and
•	exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

 

We have elected not to take advantage of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act and such election not use such transition period is irrevocable.

 

Public company compliance may make it more difficult to attract and retain officers and directors.

 

The Sarbanes-Oxley Act and rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these rules and regulations to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that these rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers.

  

Because our directors and executive officers are among our largest shareholders, they can exert significant control over our business and affairs and have actual or potential interests that may depart from investors.

 

Our directors and executive officers collectively and beneficially own 45.71% of outstanding common stock. David Danhi, our Chief Creative Officer and director, beneficially owns 22.42% of our outstanding common stock. Additionally, the holdings of our directors and executive officers may increase in the future upon vesting or other maturation of exercise rights under any of the options or warrants they may hold or in the future be granted or if they otherwise acquire additional shares of our common stock. The interests of such persons may differ from the interests of our other shareholders. As a result, in addition to their board seats and offices, such persons will have significant influence over and control all corporate actions requiring shareholder approval, irrespective of how our other shareholders may vote, including the following actions:

 

•	to elect or defeat the election of our directors;
•	to amend or prevent amendment of our Certificate of Incorporation or By-laws;
•	to effect or prevent a merger, sale of assets or other corporate transaction; and
•	to control the outcome of any other matter submitted to our shareholders for vote.

 

Such persons’ stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our Company, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our stock price.

 

  

We have a substantial number of convertible securities outstanding. The exercise of our outstanding warrants and conversion of

our outstanding convertible notes can have a dilutive effect on our common stock.

 

If the price per share of our common stock at the time of exercise of any warrants or other convertible securities is in excess of the various exercise or conversion prices of such convertible securities and the holders of our convertible securities decide to convert such securities into shares of common stock, it will have a dilutive effect on our common stock. As of December 31, 2014, we had (i) outstanding warrants to purchase 9,710,951 shares of our common stock at a weighted average exercise price of $2.08 per share and (ii) outstanding convertible notes that, upon conversion, would provide note holders with an aggregate of 711,667 shares of our common stock. Further, any additional financing that we secure may require the granting of rights, preferences or privileges senior to those of our common stock and result in additional dilution of the existing ownership interests of our common stockholders.

 

Item 1B.

Unresolved Staff Comments.

 

Not applicable.

 

Item 2.

Properties

 

Our principal office is located at 151 North Nob Hill Road, Suite 321, Fort Lauderdale, FL 33324. Our telephone number is (949) 478-2571.

 

The Company entered into a lease in Gardena, California to lease an approximately four thousand square foot warehouse facility.  The warehouse facility will be used by the Company to store ingredients to be cooked on our trucks and to prepare certain of our products prior to being placed on our trucks.  The lease began on July 1, 2013 and runs through June 30, 2018, with a base rent beginning at $5,310 per month. The facility is currently operating at approximately 50% capacity based on the current number of Company operated and leased trucks. We believe that this facility can sustain our operations, including our intended expansion, over the next 24 months.

 

Item 3.

Legal Proceedings

 

In the normal course of our business, we may periodically become subject to various lawsuits. However, there are currently no legal actions pending against us or, to our knowledge, are any such proceedings contemplated.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

 

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities.

 

Market Information

 

Our common stock began trading on the OTCQB under the symbol “GRLD” in January of 2015. During the period from the initial listing in January 2015 through March 31, 2015, we have traded a total of 169,300 shares of common stock at prices between $1.20 and $6.00 and trading only occurred on a limited number of days.  An active and liquid market may never exist for our stock.

 

Holders

 

As of March 31, 2015, there are approximately 193 record holders of our common stock.

 

Dividends

 

The Registrant has not paid any cash dividends to date and does not anticipate or contemplate paying dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development of the Registrant's business.

 

Recent Sales of Unregistered Securities

 

Sales of our common stock during the first three quarters of the fiscal year were reported in Item 2 of Part II of the Form 10-Q filed for each quarter.

 

On December 31, 2014 the Company completed its first closing of its best efforts private offering (the "10% Note Offering") of up to $5,000,000 of 10% Senior Convertible Promissory Notes (the "10% Notes"), whereby the Company issued to one accredited investor a 10% Note in the aggregate principal amount of $350,000, pursuant to a subscription agreement with the investor.

 

The 10% Notes mature on June 30, 2016 (the "Maturity Date"), unless voluntarily converted by the purchaser. Prior to the Maturity Date, the 10% Notes are subject to a voluntary conversion at the election of the purchaser, whereby the purchaser may elect to convert the principal amount of the 10% Note, including all accrued but unpaid interests, into restricted shares of Common Stock at a conversion price of $2.00 per share (subject to adjustment for stock splits, stock dividends or similar events).

 

In addition, each purchaser of the 10% Notes shall receive a warrant (the "10% Warrants") to purchase 50,000 shares of Common Stock for every 10% Note purchased in the principal face amount of $100,000. Such 10% Warrants shall be exercisable for a period three years from the date of issuance at an exercise price of $4.00 per share. Accordingly, the Company issued a 10% Warrant to purchase 175,000 shares of Common Stock to the investor. The issuance of the 10% Notes and 10% Warrants qualified for exemption under Rule 506(b) promulgated under Section 4(a)(2) of the Securities Act since the issuance of these securities by the Company did not involve a public offering.

 

Repurchase of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

Item 6.

Selected Financial Data

 

Not applicable.

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

 

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forwarding looking statements as a result of certain factors, including but not limited to, those which are not within our control.

 

Although we qualify as an “emerging growth company” as defined in the JOBS Act, and have elected not to take advantage of certain exemptions from various reporting requirements that are available to “emerging growth companies.”

 

Overview

 

TRIG Acquisition 1, Inc. was incorporated in the State of Nevada on December 31, 2009 as GSP-1, Inc. The Company was formed as a vehicle to pursue a business combination. On October 18, 2012 (the “Closing Date”), Trig Acquisition 1, Inc. (the “Company”) entered into a share exchange agreement (the “Exchange Agreement”) by and among (i) the Company, (ii) Grilled Cheese, Inc., a California corporation, (“Grilled Cheese”), (iii) GCT, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (“GCT”). The Company selected December 31 as its fiscal year end. On July 6, 2011, the Company filed a Certificate of Amendment to its Articles of Incorporation to change its name from “GSP-1, Inc.” to “TRIG Acquisition 1, Inc.” On February 19, 2013, following the Share Exchange Transaction, the Company changed its corporate name from “TRIG Acquisition 1, Inc.” to “The Grilled Cheese Truck, Inc.”

 

From inception until the closing of the Share Exchange Transaction, we solely existed as a vehicle to pursue a business combination. As a result of the Share Exchange Transaction, we ceased our prior operations on October 18, 2012 and, through our wholly-owned subsidiary, Grilled Cheese, now operate as a gourmet food truck Company, specializing in gourmet grilled cheese.

 

 

Grilled Cheese, Inc. was a privately held California S corporation, incorporated on September 18, 2009. Immediately prior to the closing of the Share Exchange Transaction, David Danhi was the majority shareholder of Grilled Cheese. Grilled Cheese’s operations to date have consisted of sales of grilled cheese and food related items in their food trucks, business formation, strategic development, marketing, website development, negotiations with prospective licensees and franchisees and capital raising activities.

 

The Grilled Cheese Truck is a gourmet food truck that sells various types of gourmet grilled cheese and other comfort foods principally in the Los Angeles, California area and in Phoenix, Arizona. Each of our trucks currently makes approximately ten stops per week (lunch and dinner five days a week) at prearranged locations. We are a hub and spoke operator, whereby all the food preparation occurs at our kitchens which support streamlined operations within the truck by limiting truck activity to assembly and grilling to focus on customer service, allowing the truck to achieve maximum revenues per hour and delivering melts, Tater Tots, soups and sides efficiently and consistently to its customers. Our business model implements the use of social media and advance location booking to secure high sales per stop. Our website, www.thegrilledcheesetruck.com lists the weekly schedule where the trucks will be stopping.

 

We are capitalizing on the burgeoning food truck industry through our established food service operations and social media strategy. Driving our growth, we have received national media visibility and as of the date of this report, have accumulated over 150,000 followers through a variety of social media platforms, including Facebook and Twitter. The gourmet food truck industry is in an early stage of development and is highly fragmented and is expected to grow year over year for the foreseeable future.

 

We believe that the use of social media allows us to communicate with a large group of an interested customers and our fan base in real time, letting them know exactly where and when our food trucks will be located.  We believe that providing potential customers with up-to-date information regarding the time and location of our trucks helps promote and drive additional customers to our trucks, therefore increasing our sales at each prospective location. We believe we have established brand presence in certain locations, such as Southern California and Phoenix, Arizona, but have sustained losses to date.

 

We are currently an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (which we refer to herein as the JOBS Act), which permits us to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:

  

•	not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

 

•	taking advantage of an extension of time to comply with new or revised financial accounting standards;

 

•	reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

 

•	exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

Although we qualify as an emerging growth company under the JOBS Act, we have elected not to take advantage of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act and such election not use such transition period is irrevocable.

 

Going Concern

 

The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2014 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our net losses totaling $7,712,208 of which $5,273,225 were non-cash items and cash used in operations totaled $2,438,983. Our business will require significant amounts of capital to sustain operations and make the investments we need to execute our longer term business plan. Our net loss for the year ended December 31, 2014 was $7,712,208 and the deficit accumulated by us since inception amounts to $15,628,986 as of December 31, 2014. These matters raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

 

In order to continue as a going concern and achieve a profitable level of operations, we will need, among other things, additional capital resources. Management’s plan to continue as a going concern includes raising capital through increased sales and growing operations to profitability with the proceeds of additional financings through equity or debt transactions. However, management cannot provide any assurances that we will be successful in accomplishing any of our plans. Our ability to continue as a going concern is dependent upon the management’s ability to successfully implement the plans described above. Management also cannot provide any assurance that unforeseen circumstances that could occur at anytime within the next twelve months or thereafter will not increase the need for us to raise additional capital on an immediate basis. There can be no assurance that we will be able to continue to raise funds in debt or equity financings, in which case the Company may be unable to meet its obligations.  

 

  

Results of Operations:

 

Years Ended December 31, 2014 and 2013

 

The following table summarizes changes in selected operating indicators, illustrating the relationship of various income and expense items to food and beverage sales for the respective periods presented:

 

 

		Twelve Months  Ended  December 31,  2014				% of  Revenue				Twelve Months  Ended  December 31,  2013				% of  Revenue
Revenue:
Food truck sales		$	2,392,342				66	%		$	1,484,802				73	%
Catering and special events			710,446				19	%			424,116				21	%
Licensed truck			547,233				15	%			120,414				6	%
Total revenue			3,650,021				100	%			2,029,332				100	%
Cost of Sales:
Food and beverage			899,847				25	%			659,683				33	%
Food truck expenses			2,050,453				56	%			1,004,571				50	%
Commissary and kitchen expenses			417,846				11	%			468,805				23	%
Total cost of sales			3,368,146				92	%			2,133,059				105	%
Gross Profit (Loss)			281,875				8	%			(103,727	)			-5	%
Operating Expenses:
General and administrative			7,076,901				194	%			2,532,334				125	%
Selling costs			211,295				6	%			293,648				14	%
Consulting expense – related parties			74,357				2	%			1,652,087				81	%
Depreciation			75,357				2	%			12,120				1	%
Bad debts			278,551				8	%			—				0	%
Amortization of intangible assets			—				0	%			4,035				0	%
Impairment of fixed assets			—				0	%			142,309				7	%
Impairment of intangible assets			—				0	%			134,909				7	%
Total operating expenses			7,716,461				211	%			4,771,442				235	%
Loss From Operations			(7,434,586	)			-204	%			(4,875,169	)			-240	%
Other Income (Expenses):
Interest expense			(267,553	)			-7	%			(335,486	)			-17	%
Interest expense - related party			(17,248	)			0	%			(1,521	)			0	%
Loss on disposition of equipment			(43,800	)			-1	%			—				0	%
Interest income			11,018				0	%			2,784				0	%
Other income from asset sale			450,000				12	%			—				0	%
Amortization of debt discount			(174,071	)			-5	%			(321,568	)			-16	%
Amortization of deferred finance costs			(235,968	)			-6	%			(88,638	)			-4	%
Amortization of restricted shares			—				0	%			(8,000	)			0	%
Gain on settlement of debt			—				0	%			14,679				1	%
Total Other Expense			(277,622	)			-8	%			(737,750	)			-36	%
Loss before provision for income tax			(7,712,208	)			-211	%			(5,612,919	)			-277	%
Provision for income tax (benefit) expense			—				0	%			—				0	%
Net loss		$	(7,712,208	)			-211	%		$	(5,612,919	)			-277	%

 

 

 

Revenue. The increase in sales during the year ended December 31, 2014, when compared to the comparable prior year periods, is primarily due to the increased number of trucks and the popularity of the Company's truck sales and catered events. The per truck revenue decreased during 2014. We also recognized an area licensing fee of $200,000 and $300,000 during the third and fourth quarter of 2014, respectively and licensing revenue increased during 2014.

 

We believe our revenues for 2015 will continue to increase when compared to the prior year periods.

 

Cost of sales. Cost of sales is mainly comprised of  food and beverage products used to make grilled cheese sandwiches, other food products, beverages and paper products and the operating costs related to the food truck, including food truck employee compensation and benefits, commissary kitchen costs, maintenance and fuel. The increase in cost of sales is primarily related to the increase in the number of trucks in the fourth quarter of 2013, the popularity of the Company’s truck sales and catered events as well as the start-up costs for the additional source of revenue generated from company and our licensed truck sales.

 

Food and beverage expenses consist primarily of bread, cheese, meats, seafood and other types of foods and various types of beverages. The increase in food and beverage cost of sales during the year ended December 31, 2014, when compared to the comparable prior year period, is primarily related to the increase in sales, slightly offset by a more efficient deployment of the types of food by trucks as we gain experience in the demand of our products.

 

Food truck expenses consist of truck staff payroll, truck insurance, gas, repairs and maintenance and other truck related expenses. The increase in food truck cost of sales was primarily related to the expansion of the Company’s operations in Phoenix and Los Angeles. This increase in Food truck expenses was related to startup costs and training of truck staff personnel for expanding operations from three (3) to eleven (11) trucks during the year ended December 31, 2014 when compared to prior year periods. Additionally, during the year ended December 31, 2014, we participated in a few events located outside Phoenix and Los Angeles, such as Las Vegas and South Dakota, to showcase our products for licensing purposes which increased our food truck expenses during such period. We did not attend such events during the year ended December 31, 2013.

 

Kitchen expenses consist of occupancy, equipment and commissary employee compensation. The kitchen expenses decreased during the year ended December 31, 2014 when compared to the comparable prior year period due to better purchasing practices.

 

We believe our costs of sales for 2015 will continue to increase commensurate with our expected increase in revenues.

 

Gross profit. The change in gross profit relates to the increase in the aforementioned revenues, food and beverage costs as well as food truck expenses and kitchen expenses.

  

Our gross profit and gross profit margin is a function of our increase in non-licensing revenues and the timing of the costs of sales we incur, some of which are fixed in nature (kitchen expenses), some of which are semi-fixed (food truck expenses), and some of which are variable (food expenses).

  

General and administrative expenses. General and administrative expenses consists of general corporate expenses, including but not limited to market development, insurance, professional costs, clerical and administrative overhead. The increase in general and administrative expenses during the year ended December 31, 2014 is primarily related to the expenses associated with the increased consulting fees, professional fees and executive compensation, which are needed to expand the business and support its growing operations and prepare the Company for public trading, which were mostly incurred during the first half of 2014. Additionally, the increase in general and administrative expenses during the year ended December 31, 2014 over those incurred during the year ended December 31, 2013 is due to the value of stock compensation for consultants, executive compensation and charitable contributions made during the year ended December 31, 2014. 

 

Selling costs. Selling costs include, but are not limited to, marketing and promotion, printing, processing fees and utility vehicle rental which is used to transport employees to and from the food trucks. The decrease in selling costs during the year ended December 31, 2014, when compared to the comparable prior year periods, relates to certain marketing events held in Los Angeles and Phoenix  when we opened these markets during the first half of 2013, which we did not have to incur during the year ended December 31, 2014. Our selling costs during the year ended December 31, 2014 were at comparable levels than those incurred during the second half of the year ended December 31, 2013.

 

Consulting expense, related party. The decrease in consulting expenses-related parties is primarily due to the termination of a number of agreements with such parties which occurred during the latter part of fiscal 2013.

 

Depreciation. The increase in depreciation relates to the addition of fixed assets during the third quarter of fiscal 2013, which were reflected for the full year presented in 2014 but only two months during the periods presented in 2013.

 

Bad debts. During the year ended December 31, 2014, we created an allowance for doubtful accounts receivable and notes receivable of $51,723 and $226,828, respectively as compared to $0 during the same period in 2013.

 

 

  

Other Income (Expenses). Other income (expenses) include recognition of deferred revenue, interest, amortization and bad debt expense. The changes in other income (expenses) are primarily due to us recognizing deferred income of $450,000 in 2014, an increase in amortization of debt discount related to debt satisfied during the year ended December 31, 2014 and was amortized through that period offset by an increase in interest expense primarily attributable to the excess of fair value of shares of our Common Stock in excess of the carrying value of the liabilities settled during the first quarter of 2014.

 

Net loss. Net loss for the year ended December 31, 2014 increased by $2,099,289 to a loss of $7,712,208 from a loss of $5,612,919 for the same period in 2013.

 

Liquidity and Capital Resources

 

The accompanying audited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business. The business will require significant amounts of capital to sustain operations and make the investments it needs to execute its longer term business plan. The Company had cash of $348,099 and working capital deficiency approximately $2.0 million at December 31, 2014. The Company’s cash and working capital amounts were derived from the proceeds of financing transactions through the issuance of notes, convertible notes and Common Stock purchase warrants and shares of our Common Stock. The Company’s net loss for the year ended December 31, 2014 was approximately $7.7 million and our accumulated deficit amounts to $15.6 million as of December 31, 2014. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

 In order to continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, additional capital resources.  Management’s plan to continue operating as a going concern includes raising capital, which could further dilute our existing Shareholders, and to implement the execution of its business plan to become cash flow positive from the completion of its offering and equity financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon the management’s ability to successfully implement the plans described above, including securing additional sources of financing and attain profitable operations.   Management also cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for the Company to raise additional capital on an immediate basis. There can be no assurance that we will be able to continue to raise funds in which case the Company may be unable to meet its obligations.

 

The Company's liquidity and capital needs relate primarily to working capital and other general corporate requirements. To date, the Company has funded its operations with convertible loans and by the sale of Common Stock and through private placement offerings.

 

Year ended December 31, 2014

 

Cash used in operations of $2,438,983 during the year ended December 31, 2014 consists primarily of our net loss of approximately $7,712,000, adjusted by depreciation and amortization of approximately $485,000, and the fair value of options, warrants, and shares of our Common Stock of approximately $3,779,000. Additionally, our accounts payable and accrued compensation, included payables to related parties, and accrued interest decreased by approximately $381,000 during the year ended December 31, 2014, as we delayed cash payments with certain agreeable parties to keep a certain level of liquidity and ultimately satisfied certain payable and accrued compensation aggregating approximately $655,000 by issuing shares of our Common Stock.

 

Net cash provided by investing activities was $18,409 for the year ending December 31, 2014. The Company purchased approximately $6,600 of computer equipment, food service equipment and equipment for the Company’s trucks and received proceeds from the disposition of equipment of $25,000 during the year ended December 31, 2014.

 

Cash provided by financing activities of $2,726,314 during the year ended December 31, 2014 consists primarily of proceeds generated from the issuance of shares of our Common Stock, convertible notes and promissory notes, which amounted to $2,840,625, offset by principal repayments of notes payable aggregating $104,000. Additionally, the Company issued shares of its Common Stock to satisfy obligations under convertible promissory notes and accrued interest aggregating approximately $3,621,000.

 

Year ended December 31, 2013

 

Cash used in operations of $2,562,237 in the year ended December 31, 2013 was primarily attributable to the net loss of $5,612,919 offset by adjustments totaling $3,050,682, which primarily relates to an increase in accounts receivable of $12,528, increase in prepaid expenses and other assets of $61,606, an increase in notes receivable of $226,828, net increase in accounts payable – related parties and accounts payable of $1,112,545, an increase in deferred finance costs of $179,350, an increase in accrued interest of $326,024, an increase in accrued compensation of $124,500, common stock, options and warrants issued for services of $1,273,190, an increase in impairment expense of $277,218, a gain on settlement of debt of $14,679 and $442,360 of depreciation and amortization.

 

Net cash provided by investing activities was $397,494 for the year ending December 31, 2013. The Company purchased computer equipment, food service equipment and equipment for the Company’s trucks and received proceeds from deferred sale of intangible assets during the year ended December 31, 2013.

 

  

Cash provided by financing activities of $2,129,068 during the year ended December 31, 2013 consists primarily of proceeds generated from the issuance of our convertible notes of $1,996,200. Additionally, we had proceeds of $130,000 related to a subscription agreement, $44,000 from proceeds of a promissory note and we had payments totaling $41,132 which were payments made for notes payable and a repayment of a loan from a shareholder.

 

Financial Position

 

The Company's liquidity and capital needs relate primarily to working capital and other general corporate requirements. Since inception, the Company raised approximately $3,520,000 in senior secured notes, of which $3,150,000 was converted into shares of our Common Stock as of December 31, 2014, and $2.3 million through the issuance of our shares of Common Stock during the year ended December 31, 2014. Management plans to continue raising capital to implement the expansion plan and become cash flow positive within twelve months. The Company expects to use the proceeds for operating and working capital, significantly expanding the number of trucks, opening stores and paying professional fees.

 

Total assets decreased at December 31, 2014 primarily due to a decrease in our property and equipment, including vehicles held for sale by approximately $242,000 following the sale of a number of trucks as well as depreciation and we wrote down approximately $521,000 of accounts and notes receivables and due from licensee.

 

Total liabilities decreased by $3.3 million, primarily from the conversion of convertible promissory notes.

 

Critical Accounting Policies

 

Our significant accounting policies are more fully described in Note 3 to our consolidated financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosures of contingent assets and liabilities. Actual results could differ from those estimates under different assumptions or conditions.

 

For other critical accounting policies, please refer Note 3 – Summary of Significant Accounting Policies in notes to consolidated financial statements.

 

Recently Issued Accounting Pronouncements

 

The FASB has issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

  

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

 

In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its consolidated financial statements.

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position or cash flows.

 

Off-Balance Sheet Arrangements

 

We have not entered into any 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 and would be considered material to investors.

 

Inflation

 

We do not believe that inflation has had a material effect on our Company’s results of operations.

 

  

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 8.

Financial Statements and Supplementary Data

 

The information required by this item appears beginning on page F-1 following the signature pages of this report and is incorporated herein by reference.

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A.

Controls and Procedures.

 

 

 

We carried out an evaluation required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” and “internal control over financial reporting” as of the end of the period covered by this Annual Report.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this Annual Report (the “Evaluation Date”), pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective.

 

Limitations on the Effectiveness of Controls

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives.

 

Management's Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated 2013 Framework. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (b) provide reasonable assurance that transactions are recorded as necessary to permit the 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 our management and directors; and (c) 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. Based on our evaluation under the framework described above, our management concluded that we had “material weaknesses” (as such term is defined below) in our control environment and financial reporting process consisting of the following as of the Evaluation Date:

 

1)	lack of a functioning audit committee due to a lack of a majority of independent members and a  lack of a majority of outside directors on our Board of Directors, resulting in ineffective oversight in  the establishment and monitoring of required internal control and procedures;
2)	inadequate segregation of duties consistent with control objectives;
3)	ineffective controls over period end financial disclosure and reporting processes; and
4)	lack of accounting personnel with adequate experience and training.

 

A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.

 

As of the date of this Annual Report, the Company does not intend to remedy the foregoing and therefore such material weaknesses in our control environment and financial reporting process will continue.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permits the Company to provide only management’s report in this annual report.

 

Changes in Internal Control over Financial Reporting

 

No change in our system of internal control over financial reporting occurred during the period covered by this report, fourth quarter of the fiscal year ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B.

Other Information

 

 

 

PART III

 

Item 10.  Directors, Executive Officers and Corporate Governance  

 

Directors and Executive Officers

 

The following table sets forth certain information concerning our executive officers and directors as of the date of the Annual Report:

 

Name		Age		Position
David Danhi		47		Chief Creative Officer and Director
Algie Hodges		57		Chief Executive Officer and Director
Robert Y. Lee		52		Executive Chairman, Director
Peter Goldstein		52		Director, President, Interim Chief Financial Officer, Treasurer and Secretary
General Wesley Clark		70		Director and Senior Veterans Advisor
Deepak Devaraj		36		Director, Director of Business Development

 

David Danhi, Chief Creative Officer and Director. Since September 6, 2013, Mr. Danhi has served as our Chief Creative Officer. From October 18, 2012 through September 6, 2013, Mr. Danhi served as our Chief Executive Officer and served as a director of the Company since October 18, 2012. Mr. Danhi was the founder and creative culinary management behind the Grilled Cheese, Inc. since 2009 at formation. Mr. Danhi has been engaged in the restaurant and food business for over 30 years with his melts having appeared on numerous lists being named some of the best grilled cheese creations in the industry. Mr. Danhi also owns and manages DD Factor, a hospitality recruiting company which he bought in 2005 and has been in operation since 1959. DD Factor has been an integral part of identifying management for southern California restaurants. Before buying the company, Mr. Danhi spent six successful years as a recruiter at DD Factor (previously known as Factor and Associates before he changed its name upon his successful purchase). Mr. Danhi’s culinary career includes Company Executive Chef at Kings Seafood Company from 1996 to 1999 and Opening Chef at Habana Restaurant in Costa Mesa, a Nuevo Latino restaurant that received best new restaurant in Orange County in 1995. Mr. Danhi was also Executive Chef at the now Michelin stared Water Grill restaurant from 1996 to 1998. From 1990 to 1992, Mr. Danhi was Executive Chef at the Roxbury Supper Club in Hollywood. In addition, Mr. Danhi held the Executive Chef position at Georgia restaurant in Hollywood from 1993 to 1995. At Georgia, Mr. Danhi received numerous accolades including the Robert Mondovi Award of Culinary Excellence (naming him one of the country's top rising star chefs in 1994), best restaurant of the year in 1993 by numerous magazines including Bon Appétit, Esquire and Travel and Leisure, and best crab cakes in Los Angeles two years in a row.

 

Mr. Danhi is qualified to serve on our Board of Directors because of his experience in the food industry and as founder of the Grilled Cheese, Inc.

 

Algie Hodges, Chief Executive Officer and Director. Since January 26, 2015, Mr. Hodges has served as our Chief Executive Officer and as a director of the Company. Prior to joining our Company, Mr. Hodges served as Vice President of Operations at Smoothie King Franchise, Inc., from October 2013 to October 2014. From June 2013 to October 2013, Mr. Hodges was employed by Mapco Mart Express as its Vice President of Food and Beverage. From September 2011 to December 2013, Mr. Hodges served as Vice President of Operations for Fazoli’s System Management, Inc., a quick-service Italian restaurant chain. From January 2009 to January 2011, Mr. Hodges served as Region Vice President, Vice President Eastern Seaboard for Dunkin Brands, Inc.

 

Mr. Hodges is qualified to serve on our Board of Directors because of his operational experience as a veteran executive with experience in strategic planning, profit/loss accountability, marketing, sales growth, rapid unit growth, acquisitions, change management and business turn-arounds in the retail food service industry.

 

Robert Lee, Director. Mr. Lee is currently our Executive Chairman of the Board of Directors. From June 24, 2013 to September 6, 2013, Mr. Lee served as our Principal Financial Officer and has served as our Chairman of the Board since July 2012. Mr. Lee served as the Company’s Interim Chief Executive Officer from July 2013 until January 2015. Mr. Lee is an entrepreneur and an experienced capital markets executive. Mr. Lee was the Founder, Chairman and Chief Executive Officer of U.S. Dry Cleaning, the largest operator of dry cleaning operations in the United States. Mr. Lee was an independent investor from 2001 through 2005 and became Chairman of U.S. Dry Cleaning in 2005. Mr. Lee successfully restructured the company in 2010 and 2011 pursuant to a Chapter 11 reorganization, positioning the company for the next generation of activity, overseeing financing, secured new management and oversaw the development of a pipeline of accretive acquisitions. Mr. Lee’s career spans 30 years of retail consumer experience. He has opened, acquired, managed, and operated over 500 video retail stores from 1981 through 2000. As CEO or Chairman, he lead and completed Reverse Mergers, an IPO, multiple M&A transactions, having generated over $100 million in capital formation through both institutional and high net worth investors. Mr. Lee led the growth of Video City, Inc., a formerly California-based operator of video retail stores, from an 18 store regional chain to more than 130 video rental stores located in 12 states. As of March 2000 (following the sale of forty-nine stores located in Oregon and Washington to Blockbuster, Inc.), in conjunction with management of the operations of West Coast Entertainment Corporation, Video City owned or managed 307 corporate stores and an additional 80 franchised locations. Mr. Lee is qualified to serve on our Board of Directors because of his experience as a successful entrepreneur and a capital markets executive.

 

  

Peter Goldstein, Director, President, Interim Chief Financial Officer and Secretary. Mr. Goldstein has served as our Director, President and Interim Chief Financial Officer since September 6, 2013. Mr. Goldstein was also our Founder and served as our President and Director from December 31, 2009 to April 12, 2012. Mr. Goldstein served as the Founder, Chief Executive Officer and Director of Grandview Capital, Inc., a registered broker-dealer and an investment banking and securities brokerage firm, from December 2006 to April 2012. Mr. Goldstein has also served as the Founder, CEO and Chairman of Grandview Capital Partners, Inc. since December 1999. Grandview Capital Partners, Inc. operated as an office of supervisory jurisdiction for Blackwall Capital Markets, Inc., from May 14, 2012 until September 9, 2013.

 

Since March 2013, Mr. Goldstein has served as a Chairman of the Board of Directors, Principal Financial Officer and Treasurer of Staffing 360 Solutions, Inc. Additionally Mr. Goldstein is the co-founder of TRIG Capital Group, LLC, a New York-based private equity firm formed in 2011. From March 2008 to April 2012, Mr. Goldstein served as the Founder, Chief Executive Officer and Director of Grandview Capital Advisors, Inc., a registered investment advisory firm, registered in the state of Florida. Since May 2006, Mr. Goldstein has served as the President and Director of Grandview Consultants, a company which provides management consulting services. From January 1997 through September 2008, Mr. Goldstein was Founder, President and Director of Global Business Resources, which provided financial, operational and organizational consulting services to private and emerging companies within the United States and international markets.

 

Mr. Goldstein has an MBA in International Business from the University of Miami and holds the Series 7, 24, 79, 99 and 66 registrations with FINRA. He is also a member of the National Investment Banking Association.

 

On June 21, 2013, our former Chief Financial Officer resigned. This resignation was not due to any disagreements with our company. The Board of Directors determined that, due to management’s resources and relative skills, Mr. Goldstein was qualified to act in such capacity as Interim Chief Financial Officer until we can identify a qualified executive to assume the role of Chief Financial Officer. In this case, it is anticipated that Mr. Goldstein will serve as Interim Chief Financial Officer for a period of less than 12 months to manage a period of transition within the organization until a qualified executive may be identified and appointed as the Company’s new Chief Financial Officer. Further, on April 11, 2014, Mr. Nicholas Koutsivitis resigned as the Company’s Treasurer. As a result, Mr. Goldstein was appointed, and assumed the role of Treasurer.

 

Mr. Goldstein is qualified to serve on our Board of Directors because of his experience as an entrepreneur and extensive capital markets experience.

 

General Wesley Clark, Director. General Clark is currently the Vice Chairman of the Board of Director, as of July 12, 2013, and has served as our Senior Veterans Advisor since August 15, 2012. Since March 2003, he has been the Chairman and CEO of Wesley K. Clark & Associates, a strategic advisory firm that he founded that same year. From 2007 to 2012, General Clark was a director of numerous companies in the U.S, and Europe and is a highly decorated, retired four-star general and successful businessman. General Clark spent 38 years in the Army and Department of Defense, receiving many military decorations, several honorary knighthoods, and a Presidential Medal of Freedom. From 1997 to 2000, after receiving his four-star general rank, General Clark became widely recognized in his role commanding Operation Allied Force during the Kosovo War, where he was designated the Supreme Allied Commander Europe for NATO. General Clark graduated valedictorian at West Point and received a Rhodes Scholarship to the University of Oxford.

 

General Clark is qualified to serve on our Board of Directors because of his business, military and political experience and his Capital Market experience.

 

Deepak Devaraj, Director, Director of Business Development.   On September 6, 2013, Mr. Devaraj was appointed as a Director and Director of Business Development. Prior to joining our company, from June 2012 until August 8, 2013, Mr. Devaraj served as the Chief Executive Officer of KOW Leasing Co., LLC, a Texas limited liability company.  Further, from June 2012 until August 8, 2013, Mr. Devaraj served as Chief Executive Officer of Hook & Ladder Draught House LLC, a mobile food and beverage truck.  Mr. Devaraj served as Senior Vice President of Fixed Income at Southwest Securities from July 2001 to June 2012.

 

Mr. Devaraj is qualified to serve on our Board of Directors because of his experience in all aspects of the food truck industry.

 

Section 16(a) Beneficial Ownership Reporting Compliance 

 

Section 16(a) of the Exchange Act, requires that our directors and executive officers and persons who beneficially own more than 10% of our Common Stock (referred to herein as the “Reporting Persons”) file with the SEC various reports as to their ownership of and activities relating to our Common Stock. Such Reporting Persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of the forms received by us and written representations from certain reporting persons, we believe that during the year ended December 31, 2014, our executive officers, directors and greater-than-ten percent stockholders have not complied with the Section 16(a) filing requirements.

 

  

Code of Conduct and Ethics

 

We have adopted a corporate Code of Conduct and Ethics that applies to our officers, employees and directors.

 

Director Independence

 

We are not currently subject to any standards regarding the “independence” of directors on our Board, or otherwise subject to any requirements of any national securities exchange or an inter-dealer quotation system with respect to the need to have a majority of our directors be independent. Although we are not required to comply with these requirements, our Board of Directors has reviewed the materiality of any relationship that each of our directors has with us, either directly or indirectly. Based on this review, the board has determined that none of the directors are “independent directors” as defined by in the rules of The NASDAQ OMX Group, Inc. listing standards and Rule 10A-3 promulgated under the Securities Exchange Act of 1934, as amended.

 

Committees

 

We have not formed an Audit Committee, Compensation Committee or Nominating and Corporate Governance Committee as of the filing of this report. Our Board of Directors performs the principal functions of an Audit Committee. We currently do not have an audit committee financial expert on our Board of Directors.  We believe that an audit committee financial expert is not required because the cost of hiring an audit committee financial expert to act as one of our directors and to be a member of an Audit Committee outweighs the benefits of having an audit committee financial expert at this time. However, we intend to implement a comprehensive corporate governance program, including establishing various board committees in the future. In addition, we have secured Directors and Officers insurance consistent with the Company’s and Board of Director’s mandates.

 

Item 11.

Executive Compensation

 

Summary Compensation Table

 

The following table sets forth all information concerning the compensation received for the fiscal years ended December 31, 2014 and 2013 for services rendered to us by persons who served as our principal executive officer our two most highly compensated executive officers (other than the principal executive officer) who were serving as executive officers at the end of the last completed fiscal year, and two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer of the smaller reporting company at the end of the last completed fiscal year. Aside from the salary amounts as described below, none of our officers are entitled to any additional compensation. No amounts have been paid or accrued to any named executive officer pursuant to a plan or arrangement in connection with any termination or change of control.

 

Name and Principal Position		Fiscal Year				Salary ($)				Bonus				Option Awards				All Other Compensation				Total ($)
David Danhi			2014			$	150,000			$	80,000			$	—			$	—			$	230,000
Chief Creative Officer (1)			2013			$	150,000			$	—			$	—			$	—			$	150,000
Robert Lee			2014			$	240,000			$	—			$	—			$	—			$	240,000
Executive Chairman, Interim Chief  Executive Officer (2)			2013			$	140,000			$	—			$	—			$	—			$	140,000
Peter Goldstein			2014			$	180,000			$	—			$	—			$	—			$	180,000
President, Interim Chief Financial Officer, Secretary and Treasurer (3)			2013			$	45,000			$	—			$	—			$	—			$	45,000
David Horin			2014			$	—			$	—			$	—			$	—			$	—
Former Chief Financial Officer (4)			2013			$	31,250			$	—			$	—			$	—			$	31,250
Nicholas Koutsivitis (5)			2014			$	—			$	—			$	—			$	—			$	—
			2013			$	40,000			$	—			$	—			$	—			$	40,000

 

 

1) Mr. Danhi, the majority shareholder of Grilled Cheese prior to the Share Exchange, was appointed Chief Executive Officer of the Company following the Share Exchange on October 18, 2012. Since September 6, 2013, Mr. Danhi has served as our Chief Creative Officer. From October 18, 2012 through September 6, 2013, Mr. Danhi served as our Chief Executive Officer and served as a director of the Company since October 18, 2012. Mr. Danhi earned $150,000 and $150,000 for 2014 and 2013, respectively.

 

  

2) Mr. Lee, our Executive Chairman, earned $240,000 and $137,500 in 2014 and 2013 respectively, as compensation from his employment agreement, dated July 16, 2012, as amended on September 6, 2013 and has amended on November 18, 2014. Mr. Lee earned $87,500 in 2012. In addition, Mr. Lee received a signing bonus of $80,000 of which $40,000 has been paid. Prior to execution of his employment agreement, Mr. Lee was paid $50,000 by the Company for his services as a consultant. At December 31, 2014, Mr. Lee is owed $40,000.

 

3) Mr. Goldstein has served as our Director, President and Interim Chief Financial Officer since September 6, 2013. Mr. Goldstein earned $180,000 in 2014, as compensation from his employment agreement, dated on September 6, 2013 and has amended on November 18, 2014. Prior to his appointment as Director, President and Interim Chief Financial Officer, Mr. Goldstein was paid $83,000 by the Company for his services as a consultant pursuant to the consulting agreement with Grandview Capital. At December 31, 2014, Mr. Goldstein is owed $30,000. 

 

4) On August 15, 2012 we entered into an agreement with Chord Advisors, LLC whereby Chord was engaged to provide us with comprehensive outsourced accounting solutions (this agreement was deemed effective as of August 1, 2012). Specifically, this agreement provided that Mr. Horin’s name could be used when identifying the Chief Financial Officer of the Company. Accordingly, Mr. Horin’s salary derived from this agreement is deemed executive compensation. On September 1, 2012, in connection with this agreement, the Company granted Mr. Horin 100,000 warrants with a term of three (3) years and an exercise price of $2.00. The value of the warrants at the time of the grant was $10,070. Mr. Horin was appointed Chief Financial Officer following the Share Exchange on October 18, 2012. On June 21, 2013, Mr. Horin submitted his resignation.

 

5) Mr. Koutsivitis was appointed treasurer of the Company on May 6, 2013. Mr. Koutsivitis did not receive any compensation in 2012 for his role. Prior to his appointment as treasurer, Mr. Koutsivitis was paid $9,000 by the Company for his services as a consultant. At December 31, 2013, Mr. Koutsivitis was paid $32,000 and is owed $8,000. On April 11, 2014, Mr. Koutsivitis resigned the Company’s treasurer, effective immediately after the filing of the December 31, 2013 Annual Report.

 

Employment Agreements

 

Robert Lee

 

On July 16, 2012, the Company entered into an employment agreement (the “Lee Employment Agreement”) with Robert Y. Lee to serve as our Executive Chairman.  The agreement stipulates that Mr. Lee will work no fewer than twenty (20) hours per week.  In addition, the parties agreed that Mr. Lee shall not engage or participate in any business that is in competition in any manner whatsoever with the business of our company, or any business which our company contemplates conducting or intends to conducts.

 

Pursuant to the terms of the Lee Employment Agreement, as amended, we will pay Mr. Lee $120,000 annually. In addition, Mr. Lee will receive reimbursement for all reasonable expenses which Lee incurs during the course of performance under the Lee Employment Agreement. In addition to his annual compensation, we paid Mr. Lee a signing bonus of $80,000, of which $40,000 was paid from the proceeds at the final closing of the 2012 Private Placement Offering on April 18, 2013 and an additional $40,000 remains due. The term of the Lee Employment Agreement is for eighteen months. Mr. Lee can terminate the Lee Employment Agreement after four months with 30 days notice. We can terminate the Lee Employment Agreement upon notice to Mr. Lee.

 

On September 6, 2013, we entered into Amendment No. 1 to the Employment Agreement (the “Amended Lee Agreement”) with Robert Y. Lee which amends the Lee Employment Agreement dated July 16, 2013. The Amended Lee Agreement provides that Mr. Lee will be appointed as Interim Chief Executive Officer of the Company. Mr. Lee will also continue in his role as Executive Chairman of the Board of Directors. The Amended Lee Agreement has a one year term and will pay Mr. Lee a salary of $240,000 per annum with certain expense reimbursements. In the event that Mr. Lee is replaced as Chief Executive Officer and this agreement is terminated, Mr. Lee is entitled to receive all compensation, benefits and expenses, as provided in the Amended Lee Agreement, for a period of 12 months following the replacement.

 

On November 18, 2014, the Company entered into Amendment No. 2 to its employment agreement with Robert Y. Lee (the "Second Amended Lee Agreement"), which amends Mr. Lee's employment agreement originally dated July 16, 2013, as amended by Amendment No. 1 dated September 6, 2013. The Second Amended Lee Agreement has a term ending December 31, 2015 and provides that in the event that the Company completes a private placement offering commencing in May 2013, Mr. Lee shall receive a cash payment of $100,000 if the Company raises a minimum of $5,000,000 in that offering. Also, the Company shall pay Mr. Lee a success fee, if it closes on an acquisition, merger or joint venture or similar transaction, payable in the same form of consideration paid by the Company in the amount of (i) 2.5% of the first $5,000,000 of total consideration paid, or any part; (ii) plus, 2% of the second $5,000,000 of total consideration paid, or any part; (iii) plus, 1.5% of the third $5,000,000 of total consideration paid, or any part; (iv) plus, 1% of the next $5,000,000 of total consideration paid, or any part; (v) plus, 0.5% of the balance of total consideration paid. No other material amendments were made to Mr. Lee's employment agreement.

 

 

Mr. Lee will be entitled to certain milestone and performance based bonuses, as described below.  In the event that our common stock is listed for quotation on the OTC Bulletin Board, OTCQB Market, or any other quotation or exchange and within 18 months of commencement of trading, the stock price exceeds $5.00 per share, the Mr. Lee will be granted warrants to purchase 700,000 shares of common stock at an exercise price of $2.00. These warrants will contain cashless exercise and will be exercisable for a period of three years from the date that they are granted. Additionally, the Mr. Lee is entitled to a cash bonus of $100,000 if the Company completes a private placement offering pursuant to the new Jumpstart Our Business Startups Act in which the Company raises a minimum of $5,000,000 in net proceeds. Mr. Lee is also entitled to certain performance bonuses if we meet certain revenue driven milestones.

  

In addition to the milestone and performance bonuses, Mr. Lee is entitled to receive certain payments, on a case-by-case basis and on terms and compensation to be negotiated separately from the Amended Lee Agreement and evidenced in a separate agreement, for Mr. Lee’s role with respect to any business development or any management support activities as may be requested or desired by the Company. Mr. Lee will also receive compensation for any referrals that cause us to consummate a licensing agreement.

 

David Danhi

 

On October 18, 2012, we entered into an employment agreement (the “Danhi Employment Agreement”) with David Danhi. The agreement stipulates that Mr. Danhi will work no fewer than (40) hours per week. Pursuant to the terms of the Danhi Employment Agreement, the Company will pay Mr. Danhi $150,000 annually. In addition, Mr. Danhi will receive reimbursement for all reasonable expenses which Danhi incurs during the course of performance under the Danhi Employment Agreement. The term of the Danhi Employment Agreement is for three years. Mr. Danhi can terminate the Danhi Employment Agreement after four months with 30 days notice. We can terminate the Danhi Employment Agreement upon notice to Mr. Danhi.

 

On November 18, 2014, the Company entered into Amendment No. 1 to its employment agreement with David Danhi (the "Amended Danhi Agreement"), which amends Mr. Danhi's employment agreement dated October 18, 2012. The Amended Danhi Agreement provides that if Mr. Danhi and the Company enter into a services agreement with a third party, pursuant to which Mr. Danhi provides services to a third party for which the Company receives a fee, the Company shall pay a bonus to Mr. Danhi equal to 100% of such fee, in cash or shares of Common Stock, provided that such bonus shall not be greater than $25,000. In addition, Mr. Danhi shall receive a cash payment of $160,000 if the Company raises a minimum of $5,000,000 in a private placement financing. No other material amendments were made to Mr. Danhi's employment agreement.

 

Deepak Devaraj

 

On August 8, 2013, and in connection with the Asset Purchase Agreement, we entered into an employment agreement (the “Devaraj Employment Agreement”) with Devaraj. Pursuant to the Devaraj Employment Agreement, Devaraj was appointed as Director of Business Development and as a director. The term of employment is for a period of three (3) years, subject to an additional 3 year extension based upon the mutual agreement of the Company and Devaraj. The Devaraj Employment Agreement stipulates that Devaraj devote substantially all of his time to the Company. Devaraj will be entitled to certain benefits, including reimbursement for certain expenses and vacation days. The Devaraj Employment Agreement may be terminated by us upon death, Devaraj’s inability to continue performing his duties under the agreement, a material breach of the provisions of the agreement or for cause (as such term is defined in the Devaraj Employment Agreement).

 

In consideration for entering into the Devaraj Employment Agreement, Mr. Devaraj will receive the following fully vested options to purchase shares of our common stock: (i) 250,000 options with an exercise price of $2.00 per share, (ii) 250,000 options with an exercise price of $3.00 per share, (iii) 250,000 options with an exercise price of $4.00 per share, and (iv) 250,000 options with an exercise price of $5.00 per share. Each of the options are exercisable for a term of 10 years. Mr. Devaraj will not be entitled to a base salary, but will receive compensation, on a case-by-case basis and on terms to be negotiated separately from the Devaraj Employment Agreement and evidenced in a separate agreement, for Mr. Devaraj’s role with respect to any business development or any management support activities as may be requested or desired by us. Further, in the event Mr. Devaraj introduces us to a prospective party that results in us entering into a licensing agreement or franchise agreement, Mr. Devaraj shall receive a (a) 5% commission on the first year of the license or franchise fee paid to us, (b) 4.5% commission on the second year of the license or franchise fee paid to us, (c) 4% commission on the third year of the license or franchise fee paid to us, (d) 3.5% commission on the fourth year of the license or franchise fee paid to us, (e) 3% commission on the fifth year of the license or franchise fee paid to us, and (f) 2.5% commission for the remainder of the term of the license or franchise agreement.

 

The Clark Group

 

On August 15, 2012, we entered into an agreement (the “Clark Group Agreement”) with Wesley K. Clark & Associates, LLC (the “Clark Group”). The agreement commenced (the “Commencement Date”) upon the completion of the Share Exchange and had a term of two years. The Clark Group Agreement was subsequently amended by Amendment No. 1 to the Clark Group Agreement, on September 6, 2013.

 

 

Pursuant to the Clark Group Agreement, as Amended, General Wesley K. Clark serves as our Vice Chairman of the Board of Directors and Officer of Senior Veterans Advisor. Prior to the Commencement Date, we paid the Clark Group a $10,000 monthly consultation fee. Following the Commencement Date, we agreed to pay the Clark Group $200,000 per year. We also agreed to execute a warrant agreement providing the Clark Group with the right to purchase up to 500,000 shares of the Company’s common stock (the “Clark Warrants”) at an exercise price anticipated of $1.00 per share. The Clark Warrants are exercisable on the following basis: (i) 100,000 Clark Warrants following the execution of the first 25 veteran franchise agreements; (ii) 100,000 Clark Warrants following the execution of the next 25 veteran franchise agreements; (iii) 100,000 Clark Warrants following the execution of the next 25 veteran franchise agreements; and (iv) 200,000 Clark Warrants following the execution of the next 25 veteran franchise agreements. General Clark supervises the development and implementation of recruitment and “vetting” for prospective veteran franchisees. In addition, pursuant to Amendment No. 1, The Clark Group‘s annual compensation was increased from $200,000 a year to $240,000 a year and received an additional 500,000 warrants (“Additional Clark Warrants”). Such Additional Clark Warrants are immediately vested, exercisable for a period of three years and have an exercise price of $1.00.

 

On November 18, 2014, the Company entered into Amendment No. 2 to the term sheet (the "Second Amended Clark Agreement") with Wesley K. Clark & Associates, LLC (the "Clark Group"), which amends the term sheet with the Clark Group originally dated August 15, 2012 (the "Clark Agreement"), as amended by Amendment No. 1 dated September 6, 2013 (the "Amended Clark Agreement"). The Second Amended Clark Agreement provides that as of the date thereof, the Company shall issue to the Clark Group 500,000 warrants to purchase Common Stock, such warrants exercisable through December 31, 2016 at a price of $1.00 per share and without the condition that a certain number of veteran franchise agreements be executed (thereby replacing the Clark Warrants to be issued under the Clark Agreement). The Second Amended Clark Agreement has a term that continues through December 31, 2015. No other material amendments were made to Clark Group's agreement with the Company. 

 

Further, the Clark Group will also be entitled to certain milestone and performance based bonuses. In the event that our common stock is listed for quotation on the OTC Bulletin Board, OTCQB Market, or any other quotation or exchange and within 18 months of commencement of trading, the stock price exceeds $5.00 per share the Clark Group will be granted warrants to purchase 700,000 shares of common stock at an exercise price of $2.00. These warrants will contain cashless exercise and will be exercisable for a period of three years from the date that they are granted. Additionally, the Clark Group is entitled to a cash bonus of $100,000 if we complete a private placement offering pursuant to the new Jumpstart Our Business Startups Act in which we raise a minimum of $5,000,000 in net proceeds. The Clark Group is also entitled to certain performance bonuses if we meet certain revenue driven milestones.

 

Peter Goldstein

 

On September 6, 2013, the Company entered into an employment agreement (the “Goldstein Employment Agreement”) with Peter Goldstein. Pursuant to the terms of the Goldstein Employment Agreement, Mr. Goldstein was appointed President, Interim Chief Financial Officer, Secretary and Director of the Company. Mr. Goldstein will receive a salary of $180,000 per annum and is entitled to certain expense reimbursements. The term of the Goldstein Employment Agreement is one year. In the event that Mr. Goldstein is replaced as Chief Financial Officer and this agreement is terminated, Mr. Goldstein is entitled to receive all compensation, benefits and expenses, as provided in the Goldstein Employment Agreement, for a period of 12 months following the replacement.

 

Mr. Goldstein will be entitled to certain milestone and performance based bonuses.  In the event that our common stock is listed for quotation on the OTC Bulletin Board, OTCQB Market, or any other quotation or exchange and within 18 months of commencement of trading, the stock price exceeds $5.00 per share, Mr. Goldstein will be granted warrants to purchase 700,000 shares of common stock at an exercise price of $2.00. These warrants will contain cashless exercise and will be exercisable for a period of three years from the date that they are granted. Additionally, Mr. Goldstein is entitled to a cash bonus of $100,000 if we complete a private placement offering pursuant to the new Jumpstart Our Business Startups Act in which we raise a minimum of $5,000,000 in net proceeds. Mr. Goldstein is also entitled to certain performance bonuses if we meet certain revenue driven milestones.

 

In addition to the milestone and performance bonuses, Mr. Goldstein is entitled to receive certain payments, on a case-by-case basis and on terms and compensation to be negotiated separately from the Goldstein Agreement and evidenced in a separate agreement, for his role with respect to any business development or any management support activities as may be requested or desired by the Company. Mr. Goldstein will also receive compensation for any referrals that cause us to consummate a licensing agreement.

 

On November 18, 2014, the Company entered into Amendment No. 1 to its employment agreement with Peter Goldstein (the "Amended Goldstein Agreement"), which amends Mr. Goldstein's employment agreement dated September 6, 2013. The Amended Goldstein Agreement provides that Mr. Goldstein will serve as Treasurer of the Company in addition to his roles as President, Interim Chief Financial Officer and Secretary of the Company. The Amended Goldstein Agreement has a term ending December 31, 2015 and provides that in the event that the Company completes a private placement offering commencing in May 2013, Mr. Goldstein shall receive a cash payment of $100,000 if the Company raises a minimum of $5,000,000 in that offering. Also, pursuant to the Amended Goldstein Agreement, the Company shall pay Mr. Goldstein a success fee, if the Company closes on an acquisition, merger or joint venture or similar transaction, payable in the same form of consideration paid by the Company, in the amount of (i) 2.5% of the first $5,000,000 of total consideration paid, or any part; (ii) plus, 2% of the second $5,000,000 of total consideration paid, or any part; (iii) plus, 1.5% of the third $5,000,000 of total consideration, or any part; (iv) plus, 1% of the next $5,000,000 of total consideration, or any part; (v) plus, 0.5% of the balance of total consideration paid. No other material amendments were made to Mr. Goldstein's employment agreement.

 

 

Algie Hodges

 

On January 26, 2015, the Company entered into an employment agreement (the “Hodges Employment Agreement”) with Algie Hodges. Pursuant to the Hodges Employment Agreement, Mr. Hodges will serve as the Chief Executive Officer of the Company. Mr. Hodges will be paid a salary of $300,000 per annum, plus other benefits including reimbursement for reasonable expenses, a car allowance and certain insurance coverage in accordance with the Company’s policies, for his role with the Company.

 

Effective upon satisfactory completion of services for the first ninety (90) days of employment, Mr. Hodges is (i) entitled to receive an annual bonus of up to 100% of his annual base salary, based on the completion of various performance goals and objectives, as determined by the Company’s Board of Directors and (ii) the Company shall grant to Mr. Hodges 1,000,000 stock options to be issued under the Company’s 2013 Equity Plan. Such stock options shall vest over a period of three (3) years at a rate of 333,333 after completion of the first year of employment, 333,333 after completion of the second year of employment and 333,334 after the third year of employment. Each stock option shall be exercisable until the fifth (5^th) anniversary of the date of grant at a price of $3.00 per share.

 

The Hodges Employment Agreement has a term of three years and will automatically renew for successive one (1) year periods thereafter unless 3 months written notice is provided by either party. The Hodges Employment Agreement may be terminated by us upon death, disability, or for cause (as such term is defined in the Hodges Employment Agreement). In the event the Company terminates Mr. Hodges’ employment before the end of initial term without cause, or if Mr. Hodges terminates his employment before the initial term for good reason (as such term is defined in the Hodges Employment Agreement), the Company shall pay Mr. Hodges the greater of six month’s salary or the amount of salary that remains to be paid for the rest of the unexpired initial term, and shall provide Mr. Hodges an annual bonus pro-rated on the basis of the number of whole months Mr. Hodges has worked in the year of the termination of employment. In the event the Company terminates Mr. Hodges’ employment before the end of the initial term for cause, or Mr. Hodges resigns without good reason, Mr. Hodges will be entitled to the salary and benefits he has accrued up until the date of termination.

 

  

Outstanding Equity Awards at 2014 Fiscal Year End

 

Option awards

Stock awards

Equity

incentive

Equity

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incentive

awards:

plan

Market

awards;

or

Number

payout

Equity

of

value of

incentive

Number

Market

unearned

unearned

plan

of

value of

shares,

shares,

awards:

shares

shares

units or

units or

Number of

Number of

or units

or units

other

other

securities

securities

of stock

of stock

rights

rights

underlying

underlying

that

that

that

that

unexercised

unexercised

Option

Option

have not

have not

have not

have not

options (#)

unearned

exercise

expiration

vested

vested

vested

vested

Name

exercisable

options (#)

price

date

(#)

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(#)

($)

Deepak Devaraj

1,000,000

(1)

9/8/2023

(1) Mr. Devaraj will receive the following fully vested options to purchase shares of Common Stock: (i) 250,000 options with an exercise price of $2.00 per share (ii) 250,000 options with an exercise price of $3.00 per share (iii) 250,000 options with an exercise price of $4.00 per share, and (iv) 250,000 options with an exercise price of $5.00 per share. Each of the options are exercisable for a term of 10 years. These were the only options granted during the year ended December 31, 2013. There were no additional options granted during the year ended December 31, 2014. During the years ended December 31, 2014 and 2013, the Company recorded share-based payment expenses amounting to $216,357 and $82,394, respectively.

 

 

2013 Equity Plan

 

On September 6, 2013, our board of directors adopted the 2013 Equity Plan. Under this plan, we may grant options to employees, directors, senior management of the company and, under certain circumstances, consultants. The purpose of the 2013 Equity Plan is to retain the services of the group of persons eligible to receive option awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the company and its affiliates . A maximum of 4,000,000 shares of common stock has been reserved for issuance under this plan. The plan expires on September 6, 2023. Our board of directors will administer the plan unless and until the board of directors delegates administration to a committee, consisting of one or more members, that has been appointed by the board of directors, except that once our common stock begins trading publicly, the committee will consist solely of two or more outside directors as defined in the Treasury Regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended. The board of directors will have the power to determine which persons eligible under the plan will be granted option awards, when and how each option award will be granted, and the provisions and terms of each option award. If the board of directors delegates administration of the plan to a committee, the committee will inherit all of the powers possessed by the board of directors.

 

Transferability

 

Option awards are not transferable other than by will or by the laws of descent and distribution unless otherwise provided in the individual option agreement.

 

Change of Control Event

 

In the event of a change in control, then, without the consent or action required of any holder of an option award (in such holder’s capacity as such):

 

(i) Any surviving corporation or acquiring corporation or any parent or affiliate thereof, as determined by the board of directors in its discretion, will assume or continue any option awards outstanding under the plan in all or in part or shall substitute to similar stock awards in all or in part; or

 

(ii) In the event any surviving corporation or acquiring corporation does not assume or continue any option awards or substitute to similar stock awards, for those outstanding under the plan, then: (a) all unvested option awards will expire (b) vested options will terminate if not exercised at or prior to such change in control; or

 

(iii) Upon change in control the board of directors may, in its sole discretion, accelerate the vesting, partially or in full, in the sole discretion of the board of directors and on a case-by-case basis of one or more option awards as the board of directors may determine to be appropriate prior to such events.

 

Notwithstanding the above, in case of change in control, in the event all or substantially all of the shares of the company are to be exchanged for securities of another company, then each holder of an option award shall be obliged to sell or exchange, as the case may be, any shares such holder hold or purchased under the plan, in accordance with the instructions issued by the board of directors, whose determination shall be final.

 

Termination of Employment/Relationship

 

In the event of termination of the option holders employment with the company or any of its affiliates, or if applicable, the termination of services given to the company or any of its affiliates by consultants of the company or any of its affiliates for cause (as defined in the plan), all outstanding option awards granted to such option holder (whether vested or not) will immediately expire and terminate on the date of such termination and the holder of option awards will not have any right in connection to such outstanding option awards, unless otherwise determined by the board of directors. The shares of common stock covered by such option awards will revert to the plan.

  

Director Compensation

 

Our directors did not receive any compensation during the years ended December 31, 2014 and 2013, except as follows:

 

				Fees
				earned
				or paid									Option
				in cash			Stock						Awards			All Other
Name		Fiscal Year		($)			Awards			Bonus			($)			Compensation			Total ($)
Dimitri Villard (1)		2014		$	-		$	-		$	-		$	-		$	-		$	-
		2013		$	-		$	13,125		$	-		$	-		$	13,125		$	26,250
Deepak Devaraj (2)		2014		$	-		$	-		$	-		$	216,357		$	-		$	216,357
		2013		$	-		$	-		$	-		$	82,394		$	-		$	82,394
General Wesley K. Clark (3)		2014		$	240,000		$	-		$	-		$	-		$	357,700		$	597,700
		2013		$	213,333		$	-		$	-		$	-		$	259,114		$	472,447

 

 

1) On July 16, 2012, we entered into an advisory agreement (the “Villard Advisory Agreement”) with Dimitri Villard. The parties agreed that from July 1, 2012 until June 30, 2013, Mr. Villard would perform advisory services for us, as well as serving as member of our Board of Directors. In compensation, we will pay Mr. Villard $45,000, consisting of: (i) $22,500 of shares of our Common Stock which were issued equally on a monthly basis pursuant to the terms of the Villard Advisory Agreement, and (ii) $22,500 of cash to be paid in monthly payments of $1,875 pursuant to the terms of the Villard Advisory Agreement. The Villard Advisory Agreement contains a share provision, whereby we will issue $22,500 worth of shares over the requisite service period based upon a $.50 per share price of common stock (based on 50% of the per share price of common stock sold in the 2012 Private Placement Offering). Mr. Villard did not receive any cash payments or shares in 2012. Mr. Villard resigned as a director on September 6, 2013.

 

2) Mr. Deveraj will receive the following fully vested options to purchase shares of Common Stock: (i) 250,000 options with an exercise price of $2.00 per share (ii) 250,000 options with an exercise price of $3.00 per share (iii) 250,000 options with an exercise price of $4.00 per share, and (iv) 250,000 options with an exercise price of $5.00 per share. Each of the options are exercisable for a term of 10 years. These were the only options granted during the year ended December 31, 2013. There were no additional options granted during the year ended December 31, 2014. During the year ended December 31, 2014 and 2013, the Company recorded share-based payment expenses amounting to $216,357 and $82,394, respectively.

 

3) On August 15, 2012, the Company entered into an Agreement to pay the Clark Group $200,000 per year for a period of 24 months. Pursuant to the Clark Group Agreement, General Wesley K. Clark serves as Vice Chairman and Senior Veterans Advisor of the company. On September 6, 2013, the agreement with the Clark Group was amended (the “Amended Clark Agreement”). Pursuant to the Amended Clark Agreement, the Clark Group will be paid $240,000 per year in cash in twelve equal installments, payable on the first day of each month in the amount of $20,000. In addition, the Company issued warrants to the Clark Group to purchase 500,000 shares of the Company’s common stock during 2014. The warrants have an exercise price of $1.00 and are exercisable for a period of three years from the date of the Amended Clark Agreement. During 2014, the Clark Group earned a total of $240,000 in Fees, of which $20,000 was paid to the Clark Group in cash, $140,000 was converted into equity units of the Company consisting of Common Stock and warrants, and $80,000 is accrued compensation due to the Clark Group. During 2013, the Clark Group earned a total of $213,333.33 in Fees, of which $90,000 was paid to the Clark Group in cash and $123,333 was accrued compensation due to the Clark Group. In addition, the Company issued warrants to the Clark Group to purchase 500,000 shares of the Company’s common stock during 2013. The warrants have an exercise price of $1.00 and are exercisable for a period of three years from the date of the Amended Clark Agreement.

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

 

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 31, 2015 for: (i) each of our directors; (ii) each of our executive officers: (iii) all of our directors and executive officers as a group; and (iv) all persons, to our knowledge, are the beneficial owners of more than five percent (5%) of the outstanding shares of common stock. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to the securities.

 

Except as indicated in footnotes to this table, we believe each person named in this table has sole voting and investment power with respect to the shares of common stock set forth opposite such person’s name. Percentage ownership is based on 19,721,429 shares of common stock outstanding on March 31, 2015.

 

 

				Convertible		Common Stock		Percent of
Name of Beneficial Owner (1)(2)		Common Stock		Securities		Beneficially Owned		Class **
David Danhi (3)		4,345,000		70,000		4,415,000		22.31	%
Robert Y. Lee (4)		812,000		712,000		1,524,000		7.46	%
Deepak Devaraj (5)		796,226		1,375,000		2,171,226		10.29	%
General Wesley Clark (6)		112,000		1,112,000		1,224,000		5.88	%
Peter Goldstein (7)		1,036,000		966,000		2,002,000		9.68	%
Trilogy Capital Partners, Inc. (8)		950,000		600,000		1,550,000		7.63	%
Algie Hodges		—		—		—		—
Directors and officers as a group (5 persons)						11,336,226		47.32	%

 

**

The percentage ownership of each person is calculated by assuming that only such person exercises all of his or her convertible securities as noted in the footnotes and the table above. Therefore, the amount of common stock issuable upon exercise of such convertible securities are added to the 19,721,429 shares currently issued and outstanding.

 

 

(1)	Unless otherwise indicated, the address of each person is The Grilled Cheese Truck, Inc., 151 North Nob Hill Road, Suite 321, Fort Lauderdale, FL 33324 .
(2)	Unless otherwise indicated, all ownership is direct beneficial ownership.
(3)	Includes warrants to purchase 70,000 shares of common stock which are currently exercisable.
(4)	Includes (i) warrants to purchase 600,000 shares of common stock which are currently exercisable and (ii) 700,000 shares of common stock held by Joshua Capital, LLC, of which Mr. Lee is the sole owner.
(5)	Includes (i) 375,000 shares of common stock issuable upon the exercise of warrants which are currently exercisable and (ii) 1,000,000 options to purchase common stock issued pursuant to the Company’s 2013 Equity Plan which are currently exercisable.
(6)	Includes 500,000 shares of common stock issuable upon exercise of a warrant that is currently exercisable.
(7)	Includes (i) 36,000 shares of common stock held by Grandview Capital Partners, Inc., (ii) 600,000 shares of common stock issuable upon exercise of a warrant which is currently exercisable and (iii) 366,000 shares of common stock issuable upon exercise of warrants held by Grandview Capital Partners, Inc. Mr. Goldstein, is the founder, chairman, chief executive officer and registered principal of Grandview Capital Partners, Inc.
(8)	Includes (i) 950,000 shares of common stock and (ii) 600,000 shares of common stock issuable upon the exercise of warrants which are immediately exercisable. Our former President, Secretary, and director, who resigned each of the respective positions on July 21, 2013, Alfonso J. Cervantes, owns 100% equity interest in Trilogy Capital Partners, Inc.

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

Certain Relationships and Related Transactions

 

Except as disclosed below, none of the following persons has any direct or indirect material interest in any transaction to which we are a party in the Company’s last fiscal year or in any proposed transaction to which we are proposed to be a party:

 

(A)	Any of our directors or officers;
(B)	Any proposed nominee for election as our director;
(C)	Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our common stock; or
(D)	Any relative or spouse of any of the foregoing persons, or any relative of such spouse, who has the same house as such person or who is a director or officer of any parent or subsidiary of our company.
	See Note 13 – Related Party Transactions in notes to consolidated financial statements.

 

 

 

Item 14.  Principal Accountant Fees and Services.

 

The following table sets forth fees billed to us by our independent registered public accounting firms during the fiscal years ended December 31, 2014 and 2013 for: (i) services rendered for the audit of our annual consolidated financial statements and the review of our quarterly financial statements; (ii) services by our independent registered public accounting firms that are reasonably related to the performance of the audit or review of our consolidated financial statements and that are not reported as Audit Fees; (iii) services rendered in connection with tax compliance, tax advice and tax planning; and (iv) all other fees for services rendered.

 

		December 31, 2014				December 31, 2013
Audit fees		$	67,500			$	67,500
Audited related fees		$	—			$	—
Tax fees		$	—			$	—
All other fees		$	12,500			$	5,000

 

 

AUDIT FEES. Consists of fees billed for professional services rendered for the audit of the Company's consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are provided by RBSM LLP.

 

AUDIT-RELATED FEES. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of consolidated financial statements and are not reported under "Audit Fees." There were no Audit-Related services provided in fiscal 2014 or 2013.

 

TAX FEES. Consists of fees billed for professional services for tax preparation and other tax services.

 

ALL OTHER FEES. Consists of fees for products and services other than the services reported above.

 

Audit Committee Policies

 

The Board of Directors is solely responsible for the approval in advance of all audit and permitted non-audit services to be provided by the independent auditors (including the fees and other terms thereof), subject to the de minimus exceptions for non-audit services provided by Section 10A(i)(1)(B) of the Exchange Act, which services are subsequently approved by the Board of Directors prior to the completion of the audit. None of the fees listed above are for services rendered pursuant to such de minimus exceptions.

 

Item 15.  Exhibits and Financial Statement Schedules.

 

(a)	The following documents are filed as part of this report:

 

(1)	Financial Statements

 

Reference is made to the Index to Consolidated Financial Statements of the Company under Item 8 of Part II.

 

(2)	Financial Statement Schedule

 

All consolidated financial statement schedules are omitted because they are not applicable or the amounts are immaterial, not required, or the required information is presented in the financial statements and notes thereto in Item 8 of Part II above.

 

Exhibit No.		Description
2.1		Share Exchange Agreement by and between TRIG Acquisition 1, Inc., GCT, Inc., Grilled Cheese, Inc., Michele Grant, and David Danhi dated October 18, 2012 (1)
3.1		Articles of Incorporation (2)
3.2		Certificate of Amendment to Articles of Incorporation (3)
3.3		Certificate of Amendment to Articles of Incorporation (4)
3.4		Bylaws (5)
4.1		Form of Note for October 2012 Offering (6)
4.2		Form of Warrant for October 2012 Offering (7)
4.3		Form of Note for July 2012 Offering (8)
4.4		Form of Warrant to TRIG  Capital Group, LLC for July 2012 Offering (9)
4.5		Form of Note for June 2013 Offering (10)
4.6		Form of Warrant for June 2012 Offering (11)

 

 

 

4.7		Form of Warrant issued pursuant to an Asset Purchase Agreement by and among Hook & Ladder Draught House, LLC, KOW Leasing Co., LLC and Deepak Devaraj dated August 8, 2013 (12)
10.1		Registration Rights Agreement by and between TRIG Acquisition 1, Inc. and Michele Grant, dated October 18, 2012 (13)
10.2		Form of Subscription Agreement for October 2012 Offering (14)
10.3		Form of Registration Rights Agreement (15)
10.4		Danhi Employment Agreement (16)
10.5		Chord Advisor Agreement (17)
10.6		PBNJ Advisory Agreement (18)
10.7		Amendment to TRIG Capital Group, LLC Advisory Agreement (19)
10.8		Clark Group Agreement (20)
10.9		Advisory Agreement between Richard M. Cohen Consultants, Inc. and the Company, dated July 16, 2012 (21)
10.10		Form of Note Purchase Agreement in connection with the July 2012 Offering (22)
10.11		Form of Repurchase Agreement (23)
10.12		Advisory Agreement between TRIG Capital Group, LLC and the Company, dated July 16, 2012 (24)
10.13		Investor Relations Agreement between Trilogy Capital Partners, Inc. and the Company, dated July 16, 2012 (25)
10.14		Advisory Agreement between Dimitri Villard and the Company, dated July 16, 2012 (26)
10.15		Employment Agreement between Robert Lee and the Company, dated July 16, 2012 (27)
10.16		Advisory Agreement between Grandview Capital Partners, Inc. and the Company, dated July 16, 2012 (28)
10.17		Form of Subscription Agreement for August 2012 Offering (29)
10.18		Form of Subscription Agreement for June 2013 Offering (30)
10.19		Form of Registration Rights Agreement (31)
10.20		Asset Purchase Agreement by and among Hook & Ladder Draught House, LLC, KOW Leasing Co., LLC and Deepak Devaraj dated August 8, 2013 (32)
10.21		Employment Agreement with Deepak Devaraj dated August 8, 2013 (33)
10.22		Form of Amendment No. 1 to the Advisory Agreement with Dimitri Villard, dated September 6, 2013 (34)
10.23		Form of Amendment No. 1 to the Term Sheet with Wesley K. Clark & Associates, LLC, dated September 6, 2013 (35)
10.24		Form of Amendment No. 1 to the Employment Agreement with Robert Y. Lee, dated September 6, 2013 (36)
10.25		Form of Employment Agreement with Peter Goldstein, dated September 6, 2013 (37)
10.26		Asset Purchase Agreement by and between the Company and American Food Truck Group, LLC, dated September 12, 2013 (38)
10.28		Placement Agent Termination Agreement, dated September 6, 2013 (39)
10.29		Stock Purchase Agreement with Trilogy Capital Partners, dated April 12, 2012 (40)
10.30		Form of Standard Catering Agreement (41)
10.31		Amendment No. 2 to Employment Agreement with Rober Y. Lee, dated November 18, 2014*
10.32		Amendment No. 1 to Employment Agreement with David Danhi, dated November 18, 2014*
10.33		Amendment No. 2 to the Term Sheet with Wesley K. Clark & Associates, LLC, dated November 17, 2014*
10.34		Amendment No. 1 to Employment Agreement with Peter Goldstein, dated November 18, 2014*
10.35		Employment Agreement between Algie Hodges and the Company, dated January 26, 2015 (43)
10.36		Cooperation Agreement between the Company and Orange County Rescue Mission, Inc., dated March 30, 2015*
10.37		Amendment No. 1 to PBNJ Advisory Agreement, dated November 17, 2014*

 

14.1		Code of Conduct and Ethics (42)
31.1		Section 302 Certification of Principal Executive Officer*
31.2		Section 302 Certification of Principal Financial Office*
32.1		Section 906 Certification of Principal Executive Officer and Principal Financial Officer*
101		Interactive Data File (XBRL)*

 

* Filed herewith.

(1) Previously filed as Exhibit 2.1 to Form 8-K filed on October 24, 2012.

(2) Previously filed as Exhibit 3.1 to Form 10-12G/A filed on September 14, 2010.

(3) Previously filed as Exhibit 3.1 to Form 8-K filed on July 6, 2011.

(4) Previously filed as Exhibit 3.1 to Form 8-K filed on April 29, 2013.

(5) Previously filed as Exhibit 3.2 to Form 10-12G/A filed on September 14, 2010.

(6) Previously filed as Exhibit 4.1 to Form 8-K filed on October 24, 2012.

(7) Previously filed as Exhibit 4.2 to Form 8-K filed on October 24, 2012.

(8) Previously filed as Exhibit 4.1 to Form 8-K filed on July 25, 2012.

(9) Previously filed as Exhibit 4.2 to Form 8-K filed on July 25, 2012.

(10) Previously filed as Exhibit 4.1 to Form 8-K filed on June 26, 2013

(11) Previously filed as Exhibit 4.2 to Form 8-K filed on June 26, 2013

 

 

(12) Previously filed as Exhibit 10.2 to Form 8-K filed on August 14, 2013.

(13) Previously filed as Exhibit 10.1 to Form 8-K filed on October 24, 2012.

(14) Previously filed as Exhibit 10.2 to Form 8-K filed on October 24, 2012.

(15) Previously filed as Exhibit 10.3 to Form 8-K filed on October 24, 2012.

(16) Previously filed as Exhibit 10.4 to Form 8-K filed on October 24, 2012.

(17) Previously filed as Exhibit 10.5 to Form 8-K filed on October 24, 2012.

(18) Previously filed as Exhibit 10.6 to Form 8-K filed on October 24, 2012.

(19) Previously filed as Exhibit 10.7 to Form 8-K filed on October 24, 2012.

(20) Previously filed as Exhibit 10.8 to Form 8-K/A filed on December 11, 2012.

(21) Previously filed as Exhibit10.1 to Form 8-K filed on July 25, 2012.

(22) Previously filed as Exhibit 10.2 to Form 8-K filed on July 25, 2012.

(23) Previously filed as Exhibit 10.3 to Form 8-K filed on July 25, 2012.

(24) Previously filed as Exhibit 10.4 to Form 8-K filed on July 25, 2012.

(25) Previously filed as Exhibit 10.5 to Form 8-K filed on July 25, 2012.

(26) Previously filed as Exhibit 10.6 to Form 8-K filed on July 25, 2012.

(27) Previously filed as Exhibit 10.7 to Form 8-K filed on July 25, 2012.

(28) Previously filed as Exhibit 10.8 to Form 8-K filed on July 25, 2012.

(29) Previously filed as Exhibit 10.1 to Form 8-K filed on September 6, 2012.

(30) Previously filed as Exhibit 10.1 to Form 8-K filed on June 26, 2013.

(31) Previously filed as Exhibit 10.2 to Form 8-K filed on June 26, 2013.

(32) Previously filed as Exhibit 10.1 to Form 8-K filed on August 14, 2013

(33) Previously filed as Exhibit 10.3 to Form 8-K filed on August 14, 2013.

(34) Previously filed as Exhibit 10.1 to Form 8-K filed on September 12, 2013.

(35) Previously filed as Exhibit 10.2 to Form 8-K filed on September 12, 2013.

(36) Previously filed as Exhibit 10.3 to Form 8-K filed on September 12, 2013.

(37) Previously filed as Exhibit 10.4 to Form 8-K filed on September 12, 2013.

(38) Previously filed as Exhibit 10.1 to Form 8-K filed on September 18, 2013.

(39) Previously filed as Exhibit 10.28 to Form 10-K filed on April 15, 2014.

(40) Previously filed as Exhibit 10.2 to Form 10-K filed on April 16, 2012.

(41) Previously filed as Exhibit 10.30 to Form 10-K filed on April 15, 2014.

(42) Previously filed as Exhibit 14.1 to Form 10-K filed on April 15, 2014.

(43) Previously filed as Exhibit 10.1 to Form 8-K filed on January 29, 2015.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	THE GRILLED CHEESE TRUCK, INC.
Date: April 14, 2015	By:	/s/ Algie Hodges
		Name: Algie Hodges
		Title: Chief Executive Officer
	By:	/s/ Peter Goldstein
		Name: Peter Goldstein
		Title: Principal Accounting Officer, Interim Chief Financial Officer, President, Treasurer and Secretary

 

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 the capacities and on the dates indicated.

 

Name		Position		Date
/s/ David Danhi		Chief Creative Officer and Director		April 14, 2015
David Danhi
/s/ Robert Y. Lee		Executive Chairman,		April 14, 2015
Robert Y. Lee		Director
/s/ Peter Goldstein		President, Interim Chief Financial Officer (Principal Accounting		April 14, 2015
Peter Goldstein		Officer), Secretary, Treasurer and Director
/s/ General Wesley Clark		Director		April 14, 2015
General Wesley Clark
/s/ Deepak Devaraj		Director		April 14, 2015
Deepak Devaraj
/s/ Algie Hodges		Chief Executive Officer (Principal Executive Officer) and Director		April 14, 2015
Algie Hodges

 

 

 

 

THE GRILLED CHEESE TRUCK, INC.

DECEMBER 31, 2014

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  

 

 

CONTENTS		PAGE NO.
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets at December 31, 2014 and 2013		F-2
Consolidated Statements of Operations for the Years Ended December 31, 2014 and 2013		F-3
Consolidated Statement of Stockholders’ Deficiency for the Two Years Ended December 31, 2014 and 2013		F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014 and 2013		F-5
Notes to the Consolidated Financial Statements		F-6 – F-32

 

  

 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of

The Grilled Cheese Truck, Inc.

 

We have audited the accompanying consolidated balance sheet of The Grilled Cheese Truck, Inc. (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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 financial position of The Grilled Cheese Truck, Inc. at December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2014, 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 2 to the consolidated financial statements, the Company has sustained net losses and has a working capital and stockholder’s deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ RBSM LLP

 

April 14, 2015

 

New York, NY

 

 

 

The Grilled Cheese Truck, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
		December 31,				December 31,
		2014				2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	348,099			$	42,359
Accounts receivable, net			7,966				15,256
Notes receivable			54,780				226,828
Prepaid expenses and other current assets			14,041				25,764
Vehicle held for sale			—				77,390
Total Current Assets			424,886				387,597
Property and equipment, net			240,652				405,218
Deferred finance costs, net			103				236,070
Due from licensee			—				250,000
Other assets			87,755				78,795
TOTAL ASSETS		$	753,396			$	1,357,680
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	953,023			$	963,104
Accounts payable - related parties			213,432				552,416
Payroll tax liabilities and accrued compensation			903,793				134,387
Accrued interest			56,915				330,509
Accrued interest - related parties			—				1,502
Promissory notes			25,000				81,500
Promissory notes - related party			—				12,500
Notes payable			—				53,390
Advances from stockholders			—				311
Deferred asset sale			—				450,000
Convertible notes payable, net of debt discount			246,062				—
Deferred revenue			—				250,000
Total Current Liabilities			2,398,225				2,829,619
Long term portion of convertible notes payable, net			523,124				3,404,492
TOTAL LIABILITIES			2,921,349				6,234,111
Commitments and contingencies			—				—
STOCKHOLDERS' DEFICIT:
Preferred stock,  $0.001 par value, 10,000,000 shares authorized;
0 shares issued and outstanding as of December 31, 2014 and 2013			—				—
Common stock, $0.001 par value, 100,000,000 shares authorized;
19,591,288 and 11,801,257 shares issued and outstanding, respectively			19,591				11,802
Additional paid-in capital			13,441,442				3,028,545
Accumulated deficit			(15,628,986	)			(7,916,778	)
TOTAL STOCKHOLDERS' DEFICIT			(2,167,953	)			(4,876,431	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	753,396			$	1,357,680
The accompanying notes are an integral part of these consolidated financial statements

 

 

 

The Grilled Cheese Truck, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
		For the Years Ended
		December 31,
		2014				2013
NET REVENUES:
Food truck sales		$	2,392,342			$	1,484,802
Catering and special events			710,446				424,116
Licensing			547,233				120,414
TOTAL REVENUES			3,650,021				2,029,332
COST OF SALES:
Food and beverage			899,847				659,683
Food truck expenses			2,050,453				1,004,571
Commissary and kitchen expenses			417,846				468,805
TOTAL COST OF SALES			3,368,146				2,133,059
Gross Profit (Loss)			281,875				(103,727	)
OPERATING EXPENSES:
General and administrative expenses			7,076,901				2,532,334
Selling costs			211,295				293,648
Consulting expense - related parties			74,357				1,652,087
Depreciation			75,357				12,120
Bad debts			278,551				—
Amortization of intangible assets			—				4,035
Impairment of vehicles			—				142,309
Impairment of intangible assets			—				134,909
TOTAL OPERATING EXPENSES			7,716,461				4,771,442
LOSS FROM OPERATIONS			(7,434,586	)			(4,875,169	)
Other Income (Expense)
Interest expense			(267,553	)			(335,486	)
Interest expense, related party			(17,248	)			(1,521	)
Loss on disposition of equipment			(43,800	)			—
Interest income			11,018				2,784
Other income from asset sale			450,000				—
Amortization of debt discount			(174,072	)			(321,568	)
Amortization of deferred financing costs			(235,967	)			(88,638	)
Amortization of restricted shares			—				(8,000	)
Gain on settlement of debt			—				14,679
TOTAL OTHER INCOME (EXPENSE)			(227,622	)			(737,750	)
LOSS BEFORE PROVISION FOR INCOME TAX			(7,712,208	)			(5,612,919	)
Provision for income tax (expense) benefit			—				—
NET LOSS		$	(7,712,208	)		$	(5,612,919	)
NET LOSS PER SHARE - BASIC AND DILUTED		$	(0.50	)		$	(0.55	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic and diluted			15,524,236				10,176,514
The accompanying notes are an integral part of these consolidated financial statements

  

 

 

 

 

The Grilled Cheese Truck, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

 

			Preferred Stock																Additional
			Series A								Common Stock								Paid in				Accumulated
			Shares				Amount				Shares				Amount				Capital				Deficit				Total
Balances, December 31, 2012			—			$	—				8,442,500			$	8,443			$	79,186			$	(2,303,859	)		$	(2,216,230	)
Beneficial conversion feature of warrants issued concurrent with notes			—				—				—				—				89,743				—				89,743
Fair value of warrants for services			—				—				—				—				422,296				—				422,296
Fair value of options to employee			—				—				—				—				82,394				—				82,394
Shares issued in connection with asset purchase agreement			—				—				500,000				500				499,500				—				500,000
Fair value of warrants in connection with asset purchase agreement			—				—				—				—				128,993				—				128,993
Shares issued for services											25,000				25				24,975				—				25,000
Shares issued in connection with consulting agreements			—				—				766,000				766				742,734				—				743,500
Shares issued in connection with conversion of accounts payable			—				—				56,571				57				56,514				—				56,571
Shares issued in connection with conversion of convertible notes payable			—				—				1,896,833				1,897				663,148				—				665,045
Shares issued in connection with conversion of interest			—				—				2,353				2				1,174				—				1,176
Shares issued in connection with issuance of convertible notes payable			—				—				8,000				8				7,992				—				8,000
Shares issued in connection with subscription agreement			—				—				104,000				104				129,896				—				130,000
Beneficial conversion feature recognized in connection with issuance of convertible notes payable			—				—				—				—				100,000				—				100,000
Net loss			—				—				—				—				—				(5,612,919	)			(5,612,919	)
Balances, December 31, 2013			—				—				11,801,257				11,802				3,028,545				(7,916,778	)			(4,876,431	)
Shares issued in connection with settlement of accounts payable, promissory note, and promissory note - related party			—				—				238,951				239				298,448				—				298,687
Shares issued in connection with private placement			—				—				1,824,500				1,825				2,278,800				—				2,280,625
Shares issued for services			—				—				1,775,880				1,775				2,218,075				—				2,219,850
Shares issued in connection with conversion of convertible notes payable			—				—				3,620,700				3,620				3,617,077				—				3,620,697
Shares issued to satisfy accrued compensation			—				—				330,000				330				412,500				—				412,830
Financing costs			—				—				—				—				(10,000	)			—				(10,000	)
Fair value of warrants for services			—				—				—				—				1,052,762				—				1,052,762
Fair value of warrants in connection with subscription agreement			—				—				—				—				219,500				—				219,500
Fair value of options to employee			—				—				—				—				216,357				—				216,357
Beneficial conversion feature recognized in connection with issuance of convertible notes payable			—				—				—				—				109,378				—				109,378
Net loss			—				—				—				—				—				(7,712,208	)			(7,712,208	)
Balances, December 31, 2014			—			$	—				19,591,288			$	19,591			$	13,441,442			$	(15,628,986	)		$	(2,167,953	)
The accompanying notes are an integral part of these consolidated financial statements

 

 

 

 

 

The Grilled Cheese Truck, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
		For the Years Ended
		December 31,
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(7,712,208	)		$	(5,612,919	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation			75,357				12,120
Amortization of debt discount			174,072				321,568
Amortization of restricted shares			—				8,000
Amortization of deferred financing costs			235,967				88,638
Amortization of intangible assets			—				4,035
Fair value of shares of common stock and warrants exceeding liability satisfied			70,234				—
Fair value of options and warrants issued for services			1,488,617				504,690
Fair value of shares of common stock issued for services			2,219,850				768,500
Fair value of shares of common stock issued for conversion of interest			—				1,176
Loss on disposition of equipment			43,800				—
Bad debt expense			278,551				—
Impairment of intangible asset			—				134,909
Impairment of fixed assets			—				142,309
Gain on settlement of debt			—				(14,679	)
Changes in operating assets and liabilities:
Accounts receivable			(44,433	)			(12,528	)
Notes receivable			(27,780	)			(226,828	)
Prepaid expenses and other current assets			11,723				5,289
Deferred financing costs			—				(179,350	)
Other assets			15,040				(66,895	)
Accounts payable and payroll tax liabilities and accrued compensation			977,623				778,272
Accounts payable - related party			27,149				458,773
Accrued interest			177,455				324,980
Accrued interest - related party			—				1,044
Deferred asset sale and other			(450,000	)			(3,341	)
NET CASH USED IN OPERATING ACTIVITIES			(2,438,983	)			(2,562,237	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of equipment			25,000				—
Proceeds from deferred sale of intangible assets			—				450,000
Purchases of fixed assets			(6,591	)			(52,506	)
NET CASH PROVIDED BY INVESTING ACTIVITIES			18,409				397,494
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable			475,000				1,970,000
Proceeds from promissory note			85,000				44,000
Payment of promissory note			(104,000	)			—
Payment of note payable			(311	)			(12,506	)
Payment of note payable to shareholder			—				(28,626	)
Payment of financing costs			(10,000	)			—
Advance from shareholders			—				26,200
Proceeds from issuances of shares of common stock			2,280,625				130,000
NET CASH PROVIDED BY FINANCING ACTIVITIES			2,726,314				2,129,068
Net increase (decrease) in cash and cash equivalents			305,740				(35,675	)
Cash and cash equivalents, beginning of year			42,359				78,034
Cash and cash equivalents, end of year		$	348,099			$	42,359
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	6,000			$	5,436
Cash paid for income taxes		$	-			$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued to satisfy promissory note and accrued interest related party		$	14,002			$	—
Common stock issued to satisfy promissory note and accrued interest		$	42,852			$	52,545
Common stock issued pursuant to conversion of convertible notes and accrued interest		$	3,620,697			$	612,500
Common stock issued in connection with asset purchase agreement		$	—			$	500,000
Common stock issued for payment of accounts payable, accrued compensation and accounts payable- related party		$	654,665			$	56,571
Warrants issued in connection with asset purchase agreement		$	—			$	128,993
Assets purchased in connection with asset purchase agreement		$	—			$	682,383
Liabilities assumed in connection with asset purchase		$	—			$	53,390
Beneficial conversion feature		$	109,378			$	89,743
Reclassification of property and equipment to vehicles held for sale		$	—			$	77,390
Due from licensee		$	—			$	250,000
Vehicle sold and assignment of note payable		$	53,390			$	—
Note receivable on sale of vehicle		$	51,000			$	—
The accompanying notes are an integral part of these consolidated financial statements

 

 

 

The Grilled Cheese Truck, Inc. and Subsidiaries

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2014 and 2013

  

  

1.

Nature of Business

 

TRIG Acquisition 1, Inc. (the “Company”) was incorporated in the State of Nevada on December 31, 2009 as GSP-1, Inc. The Company was formed as a vehicle to pursue a business combination. On July 6, 2011, the Company filed a Certificate of Amendment to its Articles of Incorporation to change its name from “GSP-1, Inc.” to “TRIG Acquisition 1, Inc.”

 

On October 18, 2012, the Company entered into a share exchange agreement (the “Exchange Agreement”) by and among (i) the Company, (ii) Grilled Cheese, Inc., a California corporation, (“Grilled Cheese”), (iii) GCT, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (“GCT Sub”); (iv) David Danhi, the majority shareholder of Grilled Cheese (“Majority Shareholder”) and (v) Michelle Grant, the minority shareholder of Grilled Cheese (“Minority Shareholder”, together with the Majority Shareholder, the “Grilled Cheese Shareholders”). Pursuant to the terms of the Exchange Agreement: (1) the Majority Shareholder transferred to GCT Sub all of the shares of Grilled Cheese held by such shareholder in exchange for the issuance of 4,275,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”); and (2) the Minority Shareholder transferred all of the shares of Grilled Cheese held by the Minority Shareholder in exchange for $500,000 and 845,000 shares of Common Stock (the “Share Exchange Transaction”).

 

The Share Exchange Transaction has been accounted for as a reverse acquisition of the Company, by Grilled Cheese but in substance as a capital transaction, rather than a business combination since the Company had nominal operations and assets prior to and as of the closing of the Share Exchange Transaction. The former stockholders of Grilled Cheese represent a significant constituency of the Company’s voting power immediately following the Share Exchange Transaction and Grilled Cheese’s management assumed operational, financial and governance control. The transaction is deemed a reverse recapitalization and the accounting is similar to that resulting from a reverse acquisition. For accounting purposes, Grilled Cheese is treated as the surviving entity and accounting acquirer in accordance with ASC 805, Business Combinations although the Company was the legal acquirer. Accordingly, the Company’s historical financial statements are those of Grilled Cheese. The accumulated losses of Grilled Cheese were carried forward after the completion of the Share Exchange Transaction.

 

All reference to Common Stock and per share amounts have been restated to effect the Share Exchange Transaction which occurred on October 18, 2012.

 

On February 19, 2013, following the Share Exchange Transaction, the Company changed its corporate name from “TRIG Acquisition 1, Inc.” to “The Grilled Cheese Truck, Inc.”

 

The Company is a food truck operation that sells various types of gourmet grilled cheese and other comfort foods in the Southern California and Phoenix, Arizona areas. The Company’s food trucks currently make multiple stops per week at prearranged locations. The food preparation occurs at a kitchen which supports streamlined operations within the truck by limiting assembly and grilling, allowing the truck to achieve maximum revenues per hour by delivering our food items including melts, tots, soups and sides efficiently to customers. The Company’s business model includes the use of social media and location booking to attract customers to the truck’s various locations.

 

2.

Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business. The business will require significant amounts of capital to sustain operations and make the investments it needs to execute its longer term business plan. The Company has cash and working capital deficiency of $348,099 and $1,973,339 respectively, at December 31, 2014. The Company has historically relied on proceeds from the issuance of debt and shares of its Common Stock to finance its operations. The Company’s net loss for the year ended December 31, 2014 was $7,712,208 and the deficit accumulated by the Company amounts to $15,628,986 as of December 31, 2014. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

  

In order to continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, additional capital resources.  Management’s plan to continue as a going concern includes raising capital through increased sales and conducting additional financings through debt and equity transactions. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon the management’s ability to successfully implement the plans described above, including securing additional sources of financing and attain profitable operations.   Management also cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for the Company to raise additional capital on an immediate basis. The Company is actively targeting sources of additional financing through debt and equity transactions and other transactions. There can be no assurance that we will be able to continue to raise funds in which case the Company may be unable to meet its obligations. 

 

 

3.

Summary of Significant Accounting Policies

 

a.

Basis of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions are eliminated.

 

b.

Basis of Accounting

 

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for annual financial statements and with Form 10-K and article 8 of the Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Under this basis of accounting, revenues are recorded as earned and expenses are recorded at the time liabilities are incurred.

 

c.

Cash and Cash Equivalents

 

Cash primarily consists of cash on hand and bank deposits. The Company currently has no cash equivalents which would consist of money market accounts and other highly liquid investments with an original maturity of three months or less when purchased.

 

d.

Use of Estimates in Preparation of Financial Statements

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results will differ from those estimates. Included in these estimates are assumptions about collection of accounts and notes receivable, useful life of fixed assets, and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.

  

e.

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is computed on the straight-line method. The depreciation and amortization methods are designed to amortize the cost of the assets over their estimated useful lives, in years, of the respective assets as follows:

 

  

Computers	4 Years
Vehicles	4 Years
Office Equipment	7 Years
Food Service Equipment	7 Years
Furniture and Fixtures	7 Years
Leasehold Improvements	7 Years

 

Amortization of leasehold improvements is computed using the straight-line method over the shorter of the life of the lease or the estimated useful life of the assets. Maintenance and repairs are charged to expense as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.

 

The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment, there was an impairment at December 31, 2013 of $142,309.

 

  

f.

Accounts Receivable

 

Accounts receivable are generally unsecured. The majority of the Company's sales are in cash from truck stop sales. Receivables relate to catering and special event sales. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management's evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts.

 

g.

Revenue Recognition

 

The Company's revenue is derived from three sources. The primary source is from truck stop sales and lesser portions are from catering and event services and licensed truck sales. Truck stop sales are primarily received in cash and revenue for these sales, net of sales tax, is reported at that time.

 

For catering and special event services, customers must sign and deliver the Company's standard catering agreement with a minimum payment of 50% of the agreed upon price of the event. The remaining balance is due by credit card payment within 2 days of the event or cash on the day of the event. The initial 50% deposit is fully refundable until 14 days prior to the event, between 4 and 13 days prior to the event, the deposit is non-refundable and if the customer cancels within 3 days of the event, 100% of the agreed-upon price of the event is due. Revenue is recognized, net of sales tax, at the time good and services are provided.

 

For recurring licensing revenue, which is based on 6% of gross revenue from truck stop sales collected by the licensee, revenue is recognized at the end of each month when the licensee is invoiced and the revenue is booked as a receivable.

 

For area licensing revenue, which is generally a fixed amount, the revenue is recognized when the Company has no remaining obligations or intent, either by agreement, trade practice, or law, to the extent it is collectible.

 

Any amount receivable or received pursuant to licensing revenues, but unrecognized for revenue recognition purpose is recorded as deferred revenues.

 

h.

Advertising Costs

 

Advertising costs, which are included in general and administrative expenses in the accompanying Statements of Operations, are expensed when incurred. These costs consist primarily of printing for signs, menus, and promotional items. Also included are costs of web based advertising. Total advertising expenses for the years ended December 31, 2014 and 2013 amounted to $37,291 and $111,987, respectively. 

  

  

i.

Earnings (loss) per common share

 

The Company utilizes the guidance per FASB Codification “ASC 260 "Earnings per Share". Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the conversion of convertible notes and the exercise of stock options and warrants (calculated using the modified-treasury stock method). Such securities, shown below, presented on a common share equivalent basis and outstanding as of December 31, 2014 and 2013 have been excluded from the per share computations:

 

		As of
		December 31,
		2014				2013
Convertible notes			711,667				3,520,000
Options issued to employee			1,000,000				1,000,000
Warrants			9,710,951				4,866,000
			11,422,618				9,386,000

  

j.

Income Taxes

  

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Penalties and interest on underpayment of income taxes are reflected in the Company’s effective tax rate.

 

 

 

k.

Sales Taxes

 

The Company's revenues in the statements of operations are net of sales taxes.

 

l.

Fair Value of Financial Instruments

 

Effective January 1, 2008, the Company adopted FASB ASC 820-Fair Value Measurements and Disclosures, or ASC 820, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

  

  

Level 1:

Observable inputs such as quoted market prices in active markets for identical assets or liabilities

 

Level 2:

Observable market-based inputs or unobservable inputs that are corroborated by market data

 

Level 3:

Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

The Company did not have any Level 2 or Level 3 assets or liabilities as of December 31, 2014 and 2013, with the exception of its convertible notes payable. The carrying amounts of these liabilities at December 31, 2014 and 2013 approximate their respective fair value based on the Company’s incremental borrowing rate.

 

Additional Disclosures Regarding Fair Value Measurements

 

The carrying value of cash and cash equivalents, accounts receivable, notes receivable, other receivable, accounts payable and accrued expenses, notes payable, promissory notes and due from licensee- including related parties liabilities- approximate their fair value due to the short term maturity of these items.

  

In addition, FASB ASC 825-10-25 Fair Value Option, or ASC 825-10-25, was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.

 

m.

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities.”

 

Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.  Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument.”

 

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 when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” 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. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares 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.

  

ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.

 

  

 

n.

Deferred Financing Costs

 

Costs incurred with obtaining and executing debt arrangements are capitalized and amortized over the term of the related debt using the effective interest method.

 

o.

Impairment of Long-Lived Assets

  

In accordance with ASC 360 “Property, Plant, and Equipment”, we periodically review our long-lived assets, including goodwill and other intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.  We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset.  The amount of impairment is measured as the difference between the estimated fair value and the book value of the underlying asset. An impairment was necessary as of December 31, 2013. The Company fully impaired certain intellectual property comprised of trademarks, patents, domain names, technology rights, inventions etc. valued at $134,909 which was purchased on August 8, 2013 related to an asset purchase agreement. The impairment was recorded as impairment of intangible assets in the Company’s accompanying consolidated statement of operations for the year ended December 31, 2013. Since purchasing the intangible assets, the Company has not realized any benefit and management could not ascertain that the fair value of the intangibles would exceed their carrying value at December 31, 2013 and whether the intangible assets would generate positive cash flows for the foreseeable future. The Level of the fair value hierarchy used by management was Level 3. The intangible assets were re-measured on a non-recurring basis at December 31, 2013. The Company’s executive management undertook to perform the analysis of the valuation of the intangible assets. The highest and best use of the intangible assets does not differ from their current or intended use.

  

In addition, the Company purchased vehicles related to the asset purchase agreement dated August 8, 2013. The Company hired an appraiser to assess the value of the vehicles. The appraiser determined the value of the vehicles and the Company recorded an impairment of $142,309 at December 31, 2013.

  

p.

Intangible Asset

 

In connection with the asset purchase agreement dated August 8, 2013 (see Note 15), the Company identified and recognized an intangible asset of $134,909 representing intellectual property comprised of trademarks, patents, domain names, technology rights, inventions etc. The Company fully impaired the intangible asset at December 31, 2013 (see Note 3 o. - Impairment of Long-Lived Assets).

 

q.

Stock-Based Compensation

 

The Company adopted the provisions of ASC 718. We estimate the fair value of stock options using a binomial model, consistent with the provisions of ASC 718 and SEC Staff Accounting Bulletin No. 107, Share-Based Payment. Option-pricing models require the input of highly subjective assumptions, including the price volatility of the underlying stock. We determined that the use of implied volatility is expected to be more reflective of market conditions and, therefore, could reasonably be expected to be a better indicator of our expected volatility than historical volatility. The expected term assumption used in calculating the estimated fair value of our stock-based compensation awards using the binomial model is based on detailed historical data about employees' exercise behavior, vesting schedules, and death and disability probabilities. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and cancelled. We believe the resulting binomial calculation provides a more refined estimate of the fair value of our employee stock options. For our employee stock purchase plan, we decided to continue to use the Black-Scholes model to calculate the estimated fair value.

  

r.

Reclassifications

 

Certain reclassifications have been made to conform the prior period data to the current presentations. These reclassifications had no effect on the reported results.

 

s.

Recently Issued Accounting Standards

 

The FASB has issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

 

  

 

The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company has not yet determined the effect of the adoption of this standard and it is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations.

 

In August 2014, the FASB issued a new accounting standard which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its consolidated financial statements.

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position or cash flows.

  

4.

Notes Receivable

 

The Company had promissory notes from licensees aggregating $54,780 and $226,828 outstanding at December 31, 2014 and 2013, respectively. The notes receivable bear interest ranging between 0% and 3.25%. The principal amount on the notes receivable are generally due within 12 months from issuance or payable upon demand. The Company recognized $10,790 and $2,772 of interest income in connection with such notes during the years ended December 31, 2014 and 2013, respectively. As of December 31, 2014, due to the uncertainty of collectability, the Company has recorded an allowance of $226,828 against one of the notes.

 

5.

Due from Licensee

  

On September 27, 2013, a licensee issued a promissory note to the Company relating to a one time license fee in the amount of $250,000. The note matures on September 28, 2016 and bears interest at 3% per annum. As of December 31, 2014, due to the uncertainty of collectability the Company has recorded an allowance for the full amount of the note.

 

6.

Property and Equipment and Vehicles Held for Sale

 

Property and equipment consists of the following:

 

		December 31,				December 31,
		2014				2013
POS systems		$	21,358			$	21,358
Food service equipment			39,681				41,691
Truck equipment			5,346				5,346
Vehicles			248,926				567,384
Leasehold improvements			10,703				10,703
Computers			5,334				2,334
Furniture and fixtures			8,924				3,064
Total			340,272				651,880
Impairment of vehicles			-				(142,309	)
Accumulated depreciation			(99,620	)			(26,963	)
Total			240,652				482,608
Vehicles held for sale			-				(77,390	)
Total property and equipment		$	240,652			$	405,218

 

 

 

Depreciation expense for the years ended December 31, 2014 and 2013 amounted to $75,357 and $12,120, respectively. 

 

On August 8, 2013, the Company entered into an Asset Purchase Agreement. As part of the Asset Purchase Agreement, the Company purchased $543,439 worth of equipment and vehicles (see Note 15). The Company had an appraisal performed on the vehicles and recorded an impairment of $142,309, which is recorded as impairment of vehicles in the Company’s accompanying consolidated statement of operations as of December 2013. (see Note 3 o. - Impairment of Long-Lived Assets).

 

As part of the audit process of its 2013 financial statements, and considering certain of the vehicles the Company had acquired pursuant to the Asset Purchase Agreement were either for sale or were idle, the Company tried to determine whether such vehicles’ fair value was lower than their carrying value. The Company used the services of a qualified appraiser to determine the fair value of such vehicles. The level of the fair value hierarchy used by the appraiser was categorized as Level 3. While the appraisal considered the market value of comparable vehicles sold within the markets within the area the vehicles were located (market approach), the fair value was adjusted for certain customizations (e.g., kitchen equipment) which either increased or decreased its fair value. Additionally, the appraiser made allowances for the additional options a given vehicle has or its conditions.

 

The vehicles were re-measured on a non-recurring basis at December 31, 2013. The Company’s executive management undertook to hire the appraiser who would ultimately perform the valuation of the vehicles. The highest and best use of the vehicles does not differ from their current or intended use.

 

During the year ended December 31, 2014, the Company sold four vehicles with an aggregate carrying value of $173,190, two of which were classified for sale with an aggregate carrying value of $77,390 at December 31, 2013. In consideration for the disposition, one of the buyers assumed the obligations under a note payable which had a carrying value of $53,390, another buyer owes the Company $24,000 at December 31, 2014, which is recorded as notes receivable, the third buyer paid $20,000 and issued a note receivable of $27,000, of which $19,990 is outstanding at December 31, 2014, and the fourth buyer paid $5,000, and resulted in loss on disposition of asset of $43,800 during the year ended December 31, 2014.

  

  

7.

Convertible Notes

 

The Company’s convertible promissory notes at December 31, 2014 and 2013 are as follows:

 

		December 31,				December 31,
		2014				2013
Convertible notes payable, bearing interest at 10%, maturing between October 2015 and March 2016, principal and accrued interest convertible at the holder’s option following the effectiveness of the Company’s registration statement or mandatory conversion at their maturity date, at a price of $1.00 per share		$	370,000			$	3,520,000
Convertible note payable, bearing interest at 10%, maturing May 2015,  principal and accrued interest convertible at the holder’s option at a price of $0.75 per share			125,000				—
Convertible note payable, bearing interest at 10%, maturing June 30, 2016, principal and accrued interest convertible at the holder’s option at a price of $2.00 per share			350,000				—
Unamortized debt discount			(75,814	)			(115,508	)
Total			769,186				3,404,492
Less: Current portion			(246,062	)			—
Long-term portion		$	523,124			$	3,404,492

  

The Company generated proceeds of $475,000 and $1,970,000 from the issuance of convertible promissory notes during the years ended December 31, 2014 and 2013, respectively.

 

The Company issued 3,620,700 and 1,896,833 shares of its common stock to satisfy its obligations pursuant to convertible notes during the year ended December 31, 2014 and 2013, respectively. The aggregate amount of principal and accrued interest satisfied by the issuance of shares of common stock amounted to $3,620,697 and $665,045 during the years ended December 31, 2014 and 2013, respectively.

 

 

 

In connection with the issuance of the convertible notes payable issued during the year ended December 31, 2014, the Company granted 341,667 non-detachable warrants to the noteholder, issuable upon conversion of such note. The warrants are exercisable at a price of $1.50-$4.00 per share and will mature within 3 years from their issuance date.

 

In connection with the issuance of the convertible notes payable issued during the year ended December 31, 2013, the Company issued 935,000 warrants to the noteholders and 352,000 warrants to its placement agent. The warrants issued to the noteholders and the placement agent are exercisable at a price of $2.00 and $2.40 per share, respectively and mature within 3 years from their issuance date.

 

The beneficial conversion feature of the convertible notes and related warrants issued to the noteholders amounted to $109,378 and $89,743 during the years ended December 31, 2014 and 2013, respectively, and was recorded as debt discount of the corresponding debt.

 

The Company recognized interest expense of $677,592 and $745,692, including amortization of debt discount of $174,071 and $321,568 and amortization of deferred financing costs of $235,968 and $88,638, during the years ended December 31, 2014 and 2013, respectively.

  

8.

Promissory Notes Payable

 

On September 21, 2012, September 24, 2012 and October 1, 2012, the Company entered into three secured promissory notes totaling $37,500 due on December 6, 2012 and bearing interest at 12% per annum. In March 2013, the note holders agreed to extend the maturity date of the notes to September 30, 2013. These notes were in default at December 31, 2013. At January 23, 2014, the Company satisfied its obligations under such promissory notes by issuing 75,000 shares of its Common Stock as well as 9,375 warrants. The fair value attributed to the consideration given by the Company to satisfy such obligations was based on the pricing of its subscription agreement (which are priced at $1.25 per share including the warrant) which is contemporaneous to this transaction. The excess of the fair value of the consideration given by the Company, which amounted to $93,750, over the carrying value of the promissory notes and related interest payable, which amounted to $42,852, was recognized as interest expense of $50,898 in the accompanying consolidated statements of operations during the year ended December 31, 2014.

 

On December 27, 2013, the Company entered into an unsecured promissory note totaling $44,000 bearing interest at 10% per annum. The Company satisfied its obligations under the note by repaying it in January 2014.

 

On May 23, 2014, the Company issued a promissory note payable of $5,000. The Company satisfied its obligations under such the note payable by repaying it in June 2014.

 

On December 10, 2014, the Company issued an unsecured promissory note payable of $25,000 bearing interest at 10% per annum and maturing upon the next closing of the Company’s financing. During the year ended December 31, 2014, the Company recognized interest expense of $1,193 and is included in the accompanying consolidated statements of operations.

 

Promissory Notes Payable – Related Party

 

On September 12, 2012, the Company entered into a secured promissory note (the “Chord Note”) with Chord Advisors, LLC. The Chord Note totaled $12,500, was due on December 6, 2012 and bears interest at 12% per annum. In March 2013, Chord Advisors, LLC agreed to extend the maturity date of the note to December 31, 2013. The Company’s former Chief Financial Officer, David Horin, is the President of Chord Advisors, LLC. This note was in default at December 31, 2013. At January 23, 2014, the Company satisfied its obligations under such promissory notes by issuing 25,000 shares of its Common Stock as well as 3,125 warrants. The fair value attributed to the consideration given by the Company to satisfy such obligations was based on the pricing of its subscription agreement (which are priced at $1.25 per share including the warrants) which is contemporaneous to this transaction. The excess of the fair value of the consideration given by the Company, which amounted to $31,250, over the carrying value of the promissory notes and related interest payable, which amounted to $14,002, was recognized as interest expense of $17,248 in the accompanying consolidated statements of operations during the year ended December 31, 2014.

   

9.

Notes Payable

 

Notes payable at December 31, 2014 and 2013 consists of the following:

 

		December 31,				December 31,
		2014				2013
Notes payable		$	-			$	65,986
Less payments			-				(12,506	)
Total		$	-			$	53,390

 

 

  

 

On August 8, 2013, the Company entered into an Asset Purchase Agreement. As part of the Asset Purchase Agreement, the Company

 

assumed a liability totaling $53,390 for a finance arrangement relating to the purchase of a vehicle (see Note 15). In January 2014, the Company sold the vehicle to pay-off the above note (see Note 6). As of December 31, 2013, the Company reclassified the vehicles from property and equipment to vehicles held for sale.

 

10.

Warrants

 

The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s Common Stock issued to shareholders at December 31, 2014:

 

Warrants Outstanding

Warrants Exercisable

Weighted Average

Weighted

Weighted

Exercise

Number

Remaining Contractual

Average

Number

Average

Price

Outstanding

Life (years)

Exercise price

Exercisable

Exercise Price

$

1.00-4.00

9,710,951

2.30

$

2.08

9,710,951

$

2.08

 

Transactions involving the Company’s warrant issuance are summarized as follows:

 

					Weighted
		Number of			Average
		Shares			Price Per Share
Outstanding at December 31, 2012		2,725,000		$	2.00
Issued		2,141,000			1.74
Exercised		-			-
Expired		-			-
Outstanding at December 31, 2013		4,866,000			1.89
Issued		4,844,951			2.28
Exercised		-			-
Expired		-			-
Outstanding at December 31, 2014		9,710,951		$	2.08

 

 

Warrants issued concurrent with convertible notes:

  

In connection with the issuance of its convertible notes, the Company issued 341,667 and 1,287,000 warrants to the noteholders during the years ended December 31, 2014 and 2013, respectively. The Company accounts for the warrant valuation in accordance with FASB ASC 470-20, Debt with Conversion and Other Options. The Company records the fair value of warrants issued in connection with those instruments. The discount recorded in connection with the warrant valuation is recognized as non-cash interest expense and is amortized over the term of the convertible note. The fair value of the warrants, which amounted to $109,378 and $89,743 during the years ended December 31, 2014 and 2013, respectively, has been recognized as beneficial conversion feature and debt discount.

 

  

The fair value of these warrants issued and the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:

 

Significant assumptions :		2014		2013
Risk-free interest rate at grant date		0.76%-1.10%		0.60%-0.91%
Expected stock price volatility		80%		80%
Expected dividend payout		—		—
Expected option life-years		(a)		(a)

  

(a) All warrants issued expire in 3-5 years. The remaining life of the warrants is 2.30 years.

 

 

 

Warrants issued pursuant to Private Placement

 

The Company issued 1,824,500 warrants in connection with a private placement consisting of shares of common stock during the year ended December 31, 2014. The warrants expire in three years from their issuance date and are exercisable at price of $2.50 per share.

 

Warrants issued pursuant to Settlement of Promissory notes

 

The Company issued 9,375 and 3,125 warrants pursuant to the settlement of certain promissory notes and promissory notes-related party in January 2014. The warrants expire in January 2017 and are exercisable at a price of $2.00 per share (see Note 8).

 

Warrants issued pursuant to Settlement of Payables to Vendors, Officers, and Directors

 

The Company issued 330,000 warrants pursuant to the settlement of certain accounts payable and accounts payable-related party during the year ended December 31, 2014. The warrants expire in May 2017 and are exercisable at a price of $1.25 per share.

 

The Company issued 120,951 warrants pursuant to the settlement of certain accounts payable and accounts payable-related party during the year ended December 31, 2014. The warrants expire in June 2017 and are exercisable at a price of $1.25 per share.

 

The warrants were issued to the following parties:

 

Party (ies)		Number of warrants issued
Certain Vendors			80,951
Company’s Chief Executive Officer			112,000
Company’s Chief Financial Officer			36,000
Company’s Creative Officer			70,000
One of the Company’s Directors			112,000
A relative of one of the Company’s Directors			40,000

 

The relative of one of the Company’s directors performed advisory services in connection with veteran affairs, separate from the Clark Group Agreement.

 

Warrants issued for services

 

During the year ended December 31, 2014, the Company issued 1,882,000 warrants valued at $993,212 for services rendered. The warrants expire between April and December 2019 and are exercisable at a price ranging between $1.00 and $3.00 per share.

 

During the year ended December 31, 2014, the Company issued 500,000 warrants valued at $219,500 in connection with subscription agreement. The warrants expire in December 2017 and are exercisable at $2.50 per share.

 

During the year ended December 31, 2013, the Company issued 500,000 warrants valued at $259,119 to one of its directors in connection with its compensation arrangement. The warrants expire in September 2016 and are exercisable at a price of $1.00 per share.

 

The fair value of the detachable warrants issued for services, in connection with the issuance of convertible notes payable and in connection with the asset purchase agreement and the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:

 

		Year Ended
		December 31, 2014				December 31, 2013
Significant assumptions
Exercise Price			$1.00-$3.00				$1.00-$2.40
Market Price		$	1.25			$	1.00
Expected stock volatility			80	%			80	%
Expected dividend payout			0	%			0	%
Risk-free interest rate			0.76-1.10%				0.60-0.91%
Terms (years)			3-5				3-5

 

Warrants issued pursuant to asset purchase

 

During the year ended December 31, 2013, the Company issued 250,000 warrants valued at $128,993 pursuant to an asset purchase agreement. The warrants expire in August 2016 and are exercisable at a price of $1.00 per share.

 

  

 

 

11.

Commitments and Contingencies

  

Operating Leases

 

On September 1, 2013 the Company leased a facility (“commissary kitchen”) in Los Angeles, California under a five year term totaling $345,132. Under the terms of the lease the Company paid a deposit of $10,620 which has been recorded in Other Assets. Rental expense for the commissary kitchen for the year ended December 31, 2014 and 2013 totaled $64,992 and $31,860, respectively and over the remaining term was as follows: $67,590 for 2015; $70,302 for 2016; $73,116 for 2017; and $37,272 for 2018.

 

On July 1, 2010 the Company leased a facility (“commissary kitchen”) in Los Angeles, California under an informal lease letter agreement directly with the Landlord. The rental terms of the lease are on a month to month basis.

 

On October 21, 2009 the Company executed a Vehicle and Maintenance Agreement with a Los Angeles based mobile food truck vendor. The agreement provides for rental of one or more mobile food trucks on a month to month basis after an initial six minimum month term per truck where rent is payable daily upon return of the truck to the vendor's service and parking facility.

 

Combined rental expense for kitchen facilities and food truck rental for the year ended December 31, 2014 and 2013 were $441,764 and $269,039, respectively.

 

Litigation

 

The Company is subject to certain legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.

 

12.

Stockholders’ Deficit

 

Preferred Stock

 

The Company is authorized to issue 10,000,000 shares of preferred stock consisting of 1,000,000 shares of Series A Convertible Preferred Stock $0.001 par value per share ("Series A Preferred Stock"), and 9,000,000 shares of blank check preferred stock, $0.001 par value per share.

 

Outstanding shares of Series A Preferred Stock, if any, shall automatically be converted into shares of Common Stock upon the earlier of (i) one year from the date of initial issuance of any shares of the Series A Preferred Stock at a conversion rate equal to $0.50 per share of Common Stock or (ii) the effectiveness of a registration statement filed with the SEC covering the resale of Common Stock issued by the Company in its next PIPE transaction (the "PIPE"). 

 

As of December 31, 2014 and 2013, no preferred stock was issued and outstanding.

 

Common Stock

 

The Company is authorized to issue 100,000,000 shares of Common Stock.

 

Shares issued pursuant to Private Placement

 

The Company generated gross proceeds of $2,280,625 by issuing 1,824,500 shares of its Common Stock pursuant to a private placement during the year ended December 31, 2014.

 

On October 8, 2013, the Company commenced an offering of up to $5,000,000 representing 4,000,000 Units for $1.25 per unit. Each Unit consists of: (i) one share (the “Shares”) of Company common stock, par value $ 0.001 per share (“Common Stock”) and (ii) a warrant (the “Warrants”) to purchase one share of Common Stock (the “Warrant Shares”). The Warrants may be exercised until October 31, 2016 at an exercise price of $2.50 per Warrant Share. Through December 31, 2013, the Company issued 104,000 shares of common stock in connection with such closings.

 

Shares issued pursuant to Settlement of Promissory Notes

 

The Company satisfied its obligations under $37,500 and $12,500 promissory notes and promissory notes-related party and accrued interest by issuing 100,000 shares of its Common Stock valued at $125,000 during the year ended December 31, 2014.

 

  

 

On December 31, 2013, the Company converted a $100,000 note to 200,000 shares and $1,176 of interest to 2,353 shares at a price of $0.50 per share.

 

On December 31, 2013, the Company issued 8,000 valued at $1.25 per share in connection with the issuance of a promissory note totaling $40,000.

 

Shares issued pursuant to Satisfaction of Accounts Payable and Accrued Compensation

 

The Company satisfied its obligations with certain parties during the year ended December 31, 2014, as follows:

 

		Shares of				Carrying value of
Party (ies)		common stock issued				liability satisfied
Certain Vendors			98,951			$	123,689
Company's Chief Executive Officer			112,000				140,000
Company's Chief Financial Officer			36,000				45,000
Company's Chief Creative Officer			70,000				87,500
One of the Company's Directors			112,000				140,000
A relative of one of the Company's Directors			40,000				50,000

 

The fair value of the price per share for the aforementioned transactions was based on the price per share of its private placement, which occurred contemporaneously with such transactions.

 

The relative of one of the Company’s directors performed advisory services in connection with veteran affairs, separate from the Clark Group agreement.

 

In September 2013, the Company issued 56,571 shares of common stock valued at $1.00 per share in satisfaction of accounts payable totaling $56,571.

 

Shares issued pursuant to Charitable Contributions

 

On November 17, 2014, the Company issued 1,000,000 restricted shares of its Common Stock to charitable foundations that assist veterans. The issuance of the restricted shares of Common Stock to the charitable foundations is subject to the following resale restriction: no more than 1/12^th of the shares initially donated may be sold in any given month following the eligibility for resale either pursuant to 1) a registration statement filed by the Company to register such shares or 2) pursuant to Rule 144. The fair value of the shares amounted to $1,250,000 and was based on the price per share of its private placement during the corresponding periods, which occurred contemporaneously with such transactions.

 

Shares issued pursuant to Services

  

The Company issued to certain consultants 744,130 and 768,500 shares of its Common Stock in consideration for services rendered during the years ended December 31, 2014 and 2013, respectively. The fair value of the shares amounted to $930,163 and $768,500 during the years ended December 31, 2014 and 2013, respectively. The fair value of the price per share for the aforementioned transactions was based on the price per share of its private placement during the corresponding periods, which occurred contemporaneously with such transactions.

   

The Company issued to a former board member 31,750 shares of its Common Stock in consideration for services rendered during the year ended December 31, 2014. The fair value of the shares amounted to $39,688 during the year ended December 31, 2014. The fair value of the price per share for the aforementioned transactions was based on the price per share of its private placement during the corresponding periods, which occurred contemporaneously with such transactions.

 

Shares issued pursuant to Conversion of Convertible Note Payable

 

The Company issued 3,620,700 shares of its common stock valued at $3,620,697 upon conversion of convertible notes payable of $3,150,000 and accrued interest of $470,697 during the year ended December 31, 2014.

 

In May 2013, the Company issued 1,696,833 shares of its Common Stock as a result of converting $512,500 of principal and $52,545 of interest of its pre reverse merger convertible notes holders.

 

Shares issued pursuant to Asset Purchase Agreement

 

During the year ended December 31, 2013, the Company issued 500,000 shares of its Common Stock in connection with an asset purchase agreement. The fair value of the shares amounted to $500,000.

 

 

Stock Compensation Plan

  

During September 2013, the Company adopted the 2013 Equity Plan ("2013 Plan"). An aggregate of 4,000,000 shares of our Common Stock are reserved for issuance under the 2013 Plan. The 2013 Plan may be administered, interpreted and constructed by the Board or a committee designated by the Board (the “Designee”). The 2013 Plan allows the Designee to grant stock options to employees, directors, senior management and consultants (under certain circumstances described in the 2013 Plan).

 

The Company recorded share-based payment expenses amounting to $216,356 and $82,394 during the years ended December 31, 2014 and 2013 in connection with all options outstanding respectively. The amortization of share-based payment was recorded in general and administrative expenses.

 

The Company granted 1,000,000 options in September 2013, as follows: (i) 250,000 options with an exercise price of $2.00 per share (ii) 250,000 options with an exercise price of $3.00 per share (iii) 250,000 options with an exercise price of $4.00 per share, and (iv) 250,000 options with an exercise price of $5.00 per share. Each of the options are exercisable for a term of 10 years. These were the only options granted and outstanding at December 31, 2014 and 2013, respectively.

 

 The fair value of the options granted during the year ended December 31, 2013 are based on the Black Scholes Model using the following assumptions:

 

Exercise price:		$	1.00
Market price at date of grant:			$ 1.00 (1)
Volatility:			80	%
Expected dividend rate:			0
Expected terms (years):			10
Risk-free interest rate:			0.03	%

 

(1) The Company used fair value of the Company’s common stock as the market price to value stock options which were granted. The fair value was determined based on valuation performed by Management, which took into consideration, where applicable, cash received , market participant inputs, estimated cash flows based on entity specific criteria, purchase multiples paid in other comparable third-party transactions, market conditions, liquidity, operating results and other qualitative and quantitative factors. The fair value of the Company’s common stock on each grant date are adjusted to estimated fair value and the volatility in general economic conditions, stock markets, earnings or revenue multiples of comparable companies and other qualitative and quantitative factors may result in significant changes in the estimated fair value of the Company’s common stock from period to period.

 

 

A summary of the activity during 2014 and 2013 of the Company’s stock option plan is presented below:

 

						Weighted				Aggregate
						Average				Intrinsic
		Options				Exercise Price				Value
Outstanding at January 1, 2013			—			$	—
Granted			1,000,000				3.50
Exercised
Expired or cancelled
Outstanding at December 31, 2013			1,000,000			$	3.50			$	—
Granted			—				—
Exercised			—				—
Expired or cancelled			—				—
Outstanding at December 31, 2014			1,000,000			$	3.50			$	—

 

 

The total compensation cost related to options not yet recognized amounted to $350,319 and $566,675 at December 31, 2014 and 2013 respectively, and the Company expects that it will be recognized over the remaining period of 20 months.

 

13.

Related Party Transactions

 

The related party transactions for the years ended December 31, 2014 and 2013, are summarized below:

 

Stockholders advance funds to the Company from time to time to provide financing for operations.

 

 

 

		December 31				December 31,
		2014				2013
Advances from stockholders		$	-			$	311

 

Advances from stockholders carry no interest, have no terms of repayment or maturity, and are payable on demand.

 

a.

Cohen Advisory Agreement

 

On June 15, 2012, the Company entered into an advisory agreement with Richard M. Cohen Consultants, Inc. (the “Advisor”). The parties agreed that from June 15, 2012 until June 14, 2013, the Advisor would perform advisory and consulting services for the Company. The Company will pay the Advisor $120,000, consisting of: (i) $60,000 of shares of the Company’s Common Stock to be based on the per share price of the Common Stock sold in a 2012 private placement offering, and (ii) $60,000 of cash to be paid in monthly payments of $5,000 pursuant to the terms of the agreement. The agreement may be terminated by the Company for cause, as defined in the agreement. Richard M. Cohen is also the Chairman of Chord Advisors LLC (“Chord”) and David Horin, our former Chief Financial officer, is the President of Chord. The advisory agreement contains a share provision, whereby the Company will issue 60,000 shares over the requisite service period based upon a $1.00 per share price of Common Stock sold in a 2012 private placement offering. For the year ended December 31, 2013, the Company incurred fees of $90,000 and issued 60,000 shares of its Common Stock with a fair value of $60,000 and has an accounts payable balance of $0 as of December 31, 2014 and 2013. This agreement expired on June 14, 2013 and was not renewed.

 

 

b.

TRIG Capital Advisory Agreement

 

On July 16, 2012, the Company entered into a advisory agreement with TRIG Capital Group, LLC whose members are Alfonso J. Cervantes, a shareholder and the Company’s former President, Secretary and a director of the Company, Robert Lee, the Executive Chairman, Principal Financial Officer and a director of the Company and Peter Goldstein, a shareholder and financial advisor to the Company, at that time. The term of the agreement shall begin on the effective date and continue until such agreement is terminated by the parties. Pursuant to the advisory agreement, TRIG Capital will provide the Company with foreign and domestic marketing services, management advice and support regarding operations, administrative services, and assist with business development as required by the Company. In addition, TRIG Capital will assist management in establishing its franchising operations and assisting in the sale of these franchises. Under the advisory agreement, TRIG Capital may engage third parties reasonably acceptable to the Company to assist in its efforts to satisfy the terms of the Agreement, but TRIG Capital shall be liable for any such payments made to third parties engaged by TRIG Capital.

 

As compensation for such services, the Company granted TRIG Capital the TRIG Warrant to purchase 1,800,000 shares of Common Stock. The TRIG Warrant is exercisable until July 16, 2017. The TRIG Warrant is exercisable at $2.00 or on a cashless basis if the market price of the Company’s Common Stock is less than the exercise price or $2.00. The 1,800,000 warrants were subsequently transferred to Mr. Cervantes, Mr. Goldstein and Mr. Lee, equally. In addition to the warrant, the Company will pay TRIG Capital a cash bonus of ten (10%) percent of the purchase price of any franchises that TRIG Capital may sell on behalf of the Company after completion of the Share Exchange Transaction for a period of five (5) years. Additionally, TRIG Capital will receive a monthly fee of $7,000 on the last day of each month for a period of no less than 18 months. During the years ended December 31, 2014 and 2013, the Company incurred fees of $0 and $84,000, respectively. The Company has an accounts payable balance of $58,451 as of December 31, 2014 and 2013. This agreement lapsed in January 2014.

   

c.

Trilogy IR Agreement

 

On July 16, 2012 the Company entered into the Investor Relations Agreement with Trilogy. The parties agreed to an eighteen (18) month contract, whereby Trilogy will provide the Company with the services to develop and implement a proactive financial communications program designed to increase the investor awareness of the Company in the investment community. In addition, Trilogy will assist the Company in preparing and disseminating investor relations documents, materials, and Company presentations, including press releases, online communications, and the Company’s website.

 

The Company will pay Trilogy $10,000 per month for these services. In addition, the Company paid Trilogy $25,000 as an engagement fee. Additionally, the Company paid Trilogy $40,000 upon the consummation of the initial closing of a 2012 private placement offering and an additional $40,000 upon the final closing of a 2012 private placement offering. This agreement lapsed in January 2014.

 

During the years ending December 31, 2014 and 2013, the Company incurred fees of $0 and $120,000 and has no accounts payable at December 31, 2014 and $50,000 at December 31, 2013. Our former President, Secretary and director and current shareholder, Alfonso J. Cervantes, owns a 100% equity interest in Trilogy.

 

  

 

d.

Villard Advisory Agreement

 

On July 16, 2012, the Company entered into an advisory agreement (the “Villard Advisory Agreement”) with Dimitri Villard (the“Advisor”). The parties agreed that from July 1, 2012 until June 30, 2013, the Advisor would perform advisory services for the Company, as well as serving as member of the Company’s Board. The Advisor will devote, on a non-exclusive basis, the necessary time, energy and efforts to the business of the Company and to use his best efforts and abilities to faithfully and diligently promote the Company’s business interests. The Company will pay the Advisor $45,000, consisting of: (i) $22,500 of shares of the Company’s Common Stock to be issued equally on a monthly basis pursuant to the terms of the Villard Advisory Agreement, and (ii) $22,500 of cash to be paid in monthly payments of $1,875 pursuant to the terms of the Villard Advisory Agreement. The Villard Advisory Agreement contains a share provision, whereby the Company will issue $22,500 of shares or 45,000 shares over the requisite service period based upon a 50% discount of the $1.00 per share price of Common Stock sold in the 2012 private placement offering. On September 6, 2013, the Company amended the Villard Advisory Agreement by extending the term of the agreement through February 28, 2014. During the years ended December 31, 2014 and 2013, the Company incurred fees of $11,250 and $71,250, respectively, and has an accounts payable of $16,375 and $54,375 at December 31, 2014 and 2013, respectively. During the year ended December 31, 2014, the Company issued 13,100 shares of its Common Stock to satisfy certain obligations to Mr. Villard amounting to $16,375. Additionally, the Company issued 31,750 and 45,000 shares of its Common Stock to Mr. Villard for services rendered during the years ended December 31, 2014 and 2013, respectively. The fair value of the shares amounted to $39,688 and $22,500. On September 6, 2013, Mr. Villard resigned from the Board. His resignation was not the result of any disagreement with the Company on any matter relating to its operation, policies (including accounting or financial policies) or practices.

  

e.

Grandview Capital Advisory Agreement

 

On July 16, 2012, the Company entered into the Grandview Advisory Agreement with Grandview Capital Partners, Inc. (‘Grandview”) whose majority shareholder is Peter Goldstein, a shareholder and financial advisor to the Company at that time. Pursuant to the Grandview Advisory Agreement, Grandview will provide the Company primarily with assistance and advice in seeking out a potential merger or acquisition partner or target.

 

The Company will pay Grandview $10,000 per month for a period of 18 months. In the event that the Company enters into any transaction involving a sale of the Company or the sale of any substantial or material assets within 36 months of the date of the Grandview Advisory Agreement, Grandview will receive a fee between two (2%) and ten (10%) percent of the total transaction, depending on the transaction value, as defined in the Grandview Advisory Agreement. Additionally, the Company paid Grandview a cash success fee of $40,000 upon the consummation of the initial closing of the 2012 private placement offering and an additional cash success fee of $40,000 upon the final closing of the 2012 private placement offering. During the year ended December 31, 2013, the Company incurred fees of $90,000 and has an accounts payable balance of $53,912 and $106,789 as of December 31, 2014 and 2013, respectively. Additionally, the Company issued 330,000 warrants to Grandview as one of the private placement agents during the year ended December 31, 2013. The fair value of the warrants amounted to $152,978.

 

On September 6, 2013, the Company entered into the Termination Agreement, whereby the company terminated the Grandview Advisory Agreement with Grandview. The Grandview Advisory Agreement was mutually terminated by the parties because Mr. Goldstein’s relationship with the Company changed. As provided in the Grandview Advisory Agreement and the Termination Agreement, the Company agreed that the provisions relating to the payment of fees (including but not limited to the tail fees specified in the Grandview Advisory Agreement relating to any entities or individuals Grandview introduced to the Company prior to the execution of the Termination Agreement), reimbursement of expenses, indemnification and contribution, independent contractor, conflicts, confidentiality and waiver of the right to trial by jury survive such termination. Peter Goldstein, the recently appointed President, interim Chief Financial Officer, Secretary and Director of the Company, is the founder, chairman, chief executive officer and registered principal of Grandview. Mr. Goldstein was also the Company’s founder and served as President and Director of the Company from December 31, 2009 to April 12, 2012. Mr. Goldstein did not hold any officer or director positions with the Company when the Grandview Advisory Agreement was consummated and through the Company’s 2013 private placement offering related to its debentures.

 

f. Peter Goldstein Agreement

 

On November 18, 2014, the Company entered into Amendment No. 1 to its employment agreement with Peter Goldstein (the "Amended Goldstein Agreement"), which amends Mr. Goldstein's employment agreement dated September 6, 2013. The Amended Goldstein Agreement provides that Mr. Goldstein will serve as Treasurer of the Company in addition to his roles as President, Interim Chief Financial Officer and Secretary of the Company. The Amended Goldstein Agreement has a term ending December 31, 2015 and provides that in the event that the Company completes a private placement offering commencing in May 2013, Mr. Goldstein shall receive a cash payment of $100,000 if the Company raises a minimum of $5,000,000 in that offering. Also, pursuant to the Amended Goldstein Agreement, the Company shall pay Mr. Goldstein a success fee, if the Company closes on an acquisition, merger or joint venture or similar transaction, payable in the same form of consideration paid by the Company, in the amount of (i) 2.5% of the first $5,000,000 of total consideration paid, or any part; (ii) plus, 2% of the second $5,000,000 of total consideration paid, or any part; (iii) plus, 1.5% of the third $5,000,000 of total consideration, or any part; (iv) plus, 1% of the next $5,000,000 of total consideration, or any part; (v) plus, 0.5% of the balance of total consideration paid. No other material amendments were made to Mr. Goldstein's employment agreement.

 

 

 

g.

Clark Group Agreement

 

On August 15, 2012, the Company entered into the Clark Group Agreement with Wesley K. Clark & Associates, LLC (the “Clark Group”). General Wesley K. Clark currently serves as Chairman and CEO of the Clark Group and as one of the Company’s directors. The agreement commenced upon the completion of the Share Exchange Transaction and will continue for a period of two years. This agreement was amended on September 6, 2013.

 

On November 18, 2014, the Company entered into Amendment No. 2 to the term sheet (the "Second Amended Clark Agreement") with the Clark Group, which amends the term sheet with the Clark Group originally dated August 15, 2012 (the "Clark Agreement"), as amended by Amendment No. 1 dated September 6, 2013 (the "Amended Clark Agreement"). The Second Amended Clark Agreement provides that as of the date thereof, the Company shall issue to the Clark Group 500,000 warrants to purchase Common Stock, such warrants exercisable through December 31, 2016 at a price of $1.00 per share and without the condition that a certain number of veteran franchise agreements be executed (as set forth in the Clark Agreement). The Second Amended Clark Agreement has a term that continues through December 31, 2015. No other material amendments were made to Clark Group's agreement with the Company.

 

General Clark will supervise the development and implementation of recruitment and “vetting” for prospective veteran franchisees. Wesley Clark, Jr.’s responsibilities will be the supervision and administration of the selection process for prospective veteran franchisees, working directly with, and reporting to, Wesley Clark, Sr. in the execution of that process. During the years ended December 31, 2014 and 2013, the Company incurred fees of $240,000 and $425,787, respectively and had an accounts payable balance of $90,734 and $106,668 as of December 31, 2014 and 2013, respectively. The Company issued 112,000 shares of its Common Stock to General Clark in satisfaction of liabilities amounting to $140,000 during the year ended December 31, 2014.

  

h.

Chord Advisors Agreement

 

On August 15, 2012, the Company entered into an agreement (the “Chord Agreement”) with Chord. Pursuant to the Chord Agreement, Chord will provide the Company with comprehensive outsourced accounting solutions. The Company will pay Chord $6,250 per month for a period of 12 months. In addition, on September 1, 2012, the Company granted Chord 100,000 warrants with a term of three (3) years and an exercise price of $2.00. Our former Chief Financial Officer, David Horin, is the President of Chord. During the year ended December 31, 2013, the Company incurred fees of $12,500 and has an accounts payable balance of $0 as of December 31, 2014 and 2013. As of June 30, 2013, this agreement was terminated.

 

i.

Issuance of shares to the Company’s officers

 

During the year ended December 31, 2014, the Company satisfied the following liabilities with certain officers of the Company by issuing shares of its Common Stock as follows:

 

		Shares of
		Common stock				Carrying value of
Party (ies)		and warrants issued				liability satisfied
Company's Chief Executive Officer			112,000				$140,000
Company's Chief Financial Officer			36,000				45,000
Company's Chief Creative Officer			70,000				87,500
A relative of one the Company's directors			40,000				50,000

 

Additionally, the Company issued to one of its former Board members 31,750 shares of its Common Stock during the year ended December 31, 2014. The fair value of the shares amounted to $39,688.

 

The relative of one of the Company’s directors performed advisory services in connection with veteran affairs, separate from the Clark Group agreement.

 

j.

Robert Y. Lee Agreement

 

On November 18, 2014, the Company entered into Amendment No. 2 to its employment agreement with Robert Y. Lee (the "Second Amended Lee Agreement"), which amends Mr. Lee's employment agreement originally dated July 16, 2013, as amended by Amendment No. 1 dated September 6, 2013. The Second Amended Lee Agreement has a term ending December 31, 2015 and provides that in the event that the Company completes a private placement offering commencing in May 2013, Mr. Lee shall receive a cash payment of $100,000 if the Company raises a minimum of $5,000,000 in that offering. Also, the Company shall pay Mr. Lee a success fee, if it closes on an acquisition, merger or joint venture or similar transaction, payable in the same form of consideration paid by the Company in the amount of (i) 2.5% of the first $5,000,000 of total consideration paid, or any part; (ii) plus, 2% of the second $5,000,000 of total consideration paid, or any part; (iii) plus, 1.5% of the third $5,000,000 of total consideration paid, or any part; (iv) plus, 1% of the next $5,000,000 of total consideration paid, or any part; (v) plus, 0.5% of the balance of total consideration paid. No other material amendments were made to Mr. Lee's employment agreement.

 

 

 

k.

David Danhi Agreement

 

On November 18, 2014, the Company entered into Amendment No. 1 to its employment agreement with David Danhi (the "Amended Danhi Agreement"), which amends Mr. Danhi's employment agreement dated October 18, 2012. The Amended Danhi Agreement provides that if Mr. Danhi and the Company enter into a services agreement with a third party, pursuant to which Mr. Danhi provides services to a third party for which the Company receives a fee, the Company shall pay a bonus to Mr. Danhi equal to 100% of such fee, in cash or shares of Common Stock, provided that such bonus shall not be greater than $25,000. In addition, Mr. Danhi shall receive a cash payment of $160,000 if the Company raises a minimum of $5,000,000 in a private placement financing. No other material amendments were made to Mr. Danhi's employment agreement.

 

l.

PBNJ Advisory Agreement

 

On November 18, 2014, the Company entered into Amendment No. 1 to its advisory agreement (the "Amended PBNJ Agreement") with PBNJ Advisors, Inc. ("PBNJ"), which amends PBNJ's advisory agreement dated April 14, 2014. The Amended PBNJ Agreement has a term that continues through December 31, 2015 and provides for compensation to PBNJ in the amount of 75,000 shares of Common Stock and 75,000 warrants to purchase Common Stock, such warrants exercisable for a period of 3 years at price of $2.00 per share. The Amended PBNJ Agreement also provides that both parties may terminate the agreement upon 30 days written notice. No other material amendments were made to PBNJ's advisory agreement. On December 31, 2014, the Company entered into Amendment No. 2 to its advisory agreement (the "Amended #2 PBNJ Agreement") with PBNJ, which amends PBNJ's advisory agreement dated April 14, 2014. The Amended #2 PBNJ Agreement provides for compensation to PBNJ in the amount of 20,000 shares of Common Stock.

 

14.

Concentrations

 

The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s cost of goods sold for the years ended December 31, 2014 and 2013, respectively.

 

Suppliers		Year ended December 31, 2014				Year ended December 31,2013
A			32	%			19	%
B			-				-

 

For the year ended December 31, 2014, the Company had one supplier who accounted for approximately $618,000 of their purchases used for production or approximately 18% of total cost of sales for the year then ended. The amount payable to supplier A at December 31, 2014 amounted to $39,237.

 

For the year ended December 31, 2013, the Company had one supplier who accounted for approximately $244,000 of their purchases used for production or approximately 19% of total cost of sales for the year then ended. The amount payable to supplier A at December 31, 2013 was $32,532.

 

  

15.

Asset Purchase Agreements

 

On August 8, 2013, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), by and among Hook & Ladder Draught House, LLC, a Texas limited liability company (“HL”), KOW Leasing Co., LLC, a Texas limited liability company (“KOW”), Mr. Devaraj, as sole member of HL and KOW, respectively (“Mr. Devaraj” together with HL and KOW, the “Sellers”), the Company and GCT Texas Master, LLC, a Nevada limited liability company and a licensee of the Company (“GCT-TX”, together with the Company, the “Buyer”).  HL is a mobile food service business that provides food and alcohol out of renovated fire engines.  Pursuant to the Asset Purchase Agreement, the Company agreed to purchase substantially all of the Seller’s rights, title and interests in and to certain assets, properties and rights of every kind, nature and description, tangible and intangible, real, personal or mixed, accrued and contingent, which are owned or leased by Sellers and used in the Seller’s business, including but not limited to all equipment, customer contracts, property leases, intellectual property, vehicles, books and records, licenses and corporate and trade names.

 

As consideration for the Seller to enter into the Asset Purchase Agreement, the Company agreed to: (i) issue to Sellers 500,000 shares of the Company’s Common Stock, and (ii) issue a warrant to Sellers to purchase up to 250,000 shares of Common Stock (the “HL Warrant”).  The 500,000 shares of Common Stock issued to the Sellers under the Asset Purchase Agreement are subject to customary piggy-back registration rights and were valued at $1.00 per share. The HL Warrant is exercisable at a price of $1.00 per share, contains customary piggyback registration rights and shall be exercisable for a period of three (3) years. In total the value of the common shares issued were $500,000 and the value of the warrants issued were $128,993 for total consideration of $628,993.

 

 

 The assets purchased were fixed assets of equipment and vehicles totaling $543,439, which initially were recorded at the carrying value, which at the time the Company estimated to approximate their fair market value and intellectual property valued at $138,944. The fair value allocation of intellectual property is based on management estimates. At December 31, 2013, the Company determined a full impairment of the identifiable intellectual property, including but not limited to all customer contracts, property leases, intellectual property, vehicles, books and records, licenses and corporate and trade names, was necessary. In addition the Company assumed a liability totaling $53,390 for a finance arrangement relating to the purchase of a vehicle which it sold in January 2014 (see Note 6).

 

The Company also agreed to appoint Mr. Devaraj to the Company’s Board, and, for so long as Mr. Devaraj holds any shares of Common Stock, the Board shall take all reasonable actions such that Mr. Devaraj shall be nominated to serve as a member of the Board. Additionally, the Company entered into an employment agreement with Mr. Devaraj, whereby Mr. Devaraj will be employed by the Company as the Director of Business Development for a period of three (3) years.

 

On August 8, 2013, HL and KOW (assignors) and the Company (assignee) entered into assignment agreement to ensure that all the intellectual property subject of the Asset Purchase Agreement is properly transferred to assignee.

 

On August 8, 2013, H&L (assignor) and the Company (assignee) entered into assignment and assumption of sublease agreement to assign and transfer to assignee all of right, title and interest in tenant under sublease. Assignor is the holder of tenant’s interest in that certain sublease dated as of March 1, 2013 between KOW as landlord and assignor as a tenant.

 

On August 8, 2013, KOW (assignor) and the Company (assignee) entered into assignment and assumption of lease agreement to assign and transfer to assignee all of right, title and interest as tenant in lease and desires to succeed to the interest of assignor under the lease and to assume the obligation of assignor. Assignor is the holder of tenant’s interest in that certain lease dated as of May 17, 2012 between Southern Methodist University as landlord and assignor as a tenant.

 

On November 13, 2013, the Company and AFT closed (the “AFT Closing”) the transactions contemplated by the Asset Sale Agreement. At the AFT Closing, the Company transferred to AFT certain intellectual property that was developed and owned by KOW, which was part of the assets purchased by the Company from KOW pursuant to that certain Asset Purchase Agreement, dated August 8, 2013, between the Company, KOW, HL and Mr. Devaraj. The Company sold to AFT one domain name, hookandladder.biz, which had nominal value and did not include any of the other intellectual property acquired on August 8, 2013 by the Company. The domain name was carried on the Company's balance sheet at $-0-. In consideration, AFT paid the Company an aggregate cash payment of $450,000 and issued to the Company membership interests equal to a twenty percent (20%) interest of the issued and outstanding membership interests in AFT. In addition, at the AFT Closing, the Company and AFT agreed to enter into a truck rental lease agreement pursuant to which AFT shall lease to the Company, franchise or licensed operators of the Seller, One Hundred (100) new Food trucks, at prevailing market rates and on such other terms and conditions as substantially set forth in the Truck Rental Lease Agreement (the “ Truck Rental Agreement ”), in accordance with the lease commencement schedule as follows: (i) Twenty (20) trucks on or before March 31, 2014; and (ii) a minimum of Ten (10) trucks per month after March 31, 2014. The Company recorded the full $450,000 as a deferred sale since AFT has not yet delivered any of the twenty trucks agreed to be leased by the Company from AFT before June 30, 2014.  On December 15, 2014, the Company and AFT entered into an amendment to the original agreement, cancelling the issuance of Company membership interests equal to a twenty percent (20%) interest of the issued and outstanding membership interests in AFT and agreed to enter into the Truck Rental Lease Agreement. Since this amendment released the Company from any ongoing liabilities related to the asset sale, the Company recognized the related $450,000 deferred sale as other income during the year ending December 31, 2014.

 

16. Income Taxes

 

The Company accounts for income taxes under ASC 740, “Expenses – Income Taxes”. ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carry forwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.

 

Through October 18, 2012, Grilled Cheese Truck Inc. was an S Corporation that operated out of the State of California. Tax returns were filed as an S Corporation, which is a ‘pass through entity’ for tax purposes. Taxable income flowed through to members, and income taxes were not imposed at the company level, except in special circumstances. Subsequent to the Reverse Acquisition Agreement on October 18, 2012, operations are consolidated with those of TRIG Acquisition 1, Inc., a Nevada corporation, which is subject to both Federal and State income taxes.

 

  

The table below summarizes the reconciliation of the Company’s income tax provision (benefit) computed at the statutory U.S. Federal rate and the actual tax provision:

 

		Year Ended
		December 31,
		2014				2013
Income tax (benefit) provision at the Federal statutory rate		$	(2,622,151	)		$	(1,908,000	)
State income taxes, net of Federal benefit			(391,934	)			(285,000	)
Benefit of loss (tax liability)  not realized due to the Company status as a “pass through entity” for tax proposes			—				—
Amortization of debt discount and deferred financing costs			160,251				129,000
Common stock issued for services			867,562				300,000
Other			—				—
Valuation tax asset allowance			1,986,272				1,764,000
Tax provision		$	—			$	—

 

The net operating loss carryforwards available amount to approximately $9.5 million at December 31, 2014, of which approximately $1.1 million is subject to limitation for change in ownership, for purposes of utilization of the Company’s NOL’s under Section 382, may have occurred with the reverse merger that was entered into on October 18, 2012. Subsequent to the reverse merger on October 18, 2012, the Company has assumed the net operating loss (“NOL”) carry forward of TRIG Acquisition 1, Inc. This NOL will be expiring through the year 2033.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Included in the deferred tax asset is the aforementioned NOL. The Company is not able to predict if such future taxable income will be more likely than not sufficient to utilize the benefit. As such, the Company does not believe the benefit is more likely than not to be realized and they have recognized a full valuation allowance for these deferred tax assets.

 

The Company’s deferred tax asset as of December 31, 2014 and 2013 is as follows:

 

		December 31,
		2014				2013
Net operating losses		$	3,701,723			$	2,294,000
Fair value of compensatory options and warrants			581,781				197,000
Deferred revenues			—				(98,000	)
			4,283,504				2,393,000
Valuation allowance			(4,283,504	)			(2,393,000	)
Deferred tax asset, net of allowance		$	—			$	—

 

The Company has not filed its applicable Federal and State tax returns for the years ended December 31, 2010 through 2013 and may be subject to penalties for noncompliance. The Company has filed an extension for the 2014 filing.

 

Contingency related to outstanding payroll tax liabilities:

 

As of December 31, 2014, the Company has payroll tax liabilities of approximately $763,000 due to federal and various state taxing authorities, which is included in payroll tax liabilities and accrued compensation on the consolidated balance sheets. If the Company does not satisfy these liabilities, the taxing authorities may place liens on its bank accounts which would have a negative impact on its ability to operate. Further, the actual liability may be higher due to interest or penalties assessed by same taxing authorities.

 

17. Subsequent Events

 

Employment agreement:

 

On January 26, 2015, the Company entered into an employment agreement (the “Hodges Employment Agreement”) with Algie Hodges. Pursuant to the Hodges Employment Agreement, Mr. Hodges will serve as the Chief Executive Officer of the Company. Mr. Hodges will be paid a salary of $300,000 per annum, plus other benefits including reimbursement for reasonable expenses, a car allowance and certain insurance coverage in accordance with the Company’s policies, for his role with the Company.

 

Effective upon satisfactory completion of services for the first ninety (90) days of employment, and based upon certain goals and objectives agreed to with the Board of Directors, Mr. Hodges will also be entitled to an annual bonus of up to 100% of his annual base salary based on the Company. Further, upon completion of services for the first ninety (90) days of employment, the Company shall grant to Mr. Hodges 1,000,000 stock options to be issued under the Company’s 2013 Equity Plan. Such stock options shall vest over a period of three (3) years at a rate of 333,333 after completion of the first year of employment, 333,333 after completion of the second year of employment and 333,334 after the third year of employment. Each stock option shall be exercisable until the fifth (5^th) anniversary of the date of grant at a price of $3.00 per share.

 

The Hodges Employment Agreement has a term of three years and will automatically renew for successive one (1) year periods thereafter unless 3 months written notice is provided by either party. The Hodges Employment Agreement may be terminated by us upon death, disability, or for cause (as such term is defined in the Hodges Employment Agreement). In the event the Company terminates Mr. Hodges’ employment before the end of initial term without cause, or if Mr. Hodges terminates his employment before the initial term for good reason (as such term is defined in the Hodges Employment Agreement), the Company shall pay Mr. Hodges the greater of six month’s salary or the amount of salary that remains to be paid for the rest of the unexpired initial term, and shall provide Mr. Hodges an annual bonus pro-rated on the basis of the number of whole months Mr. Hodges has worked in the year of the termination of employment. In the event the Company terminates Mr. Hodges’ employment before the end of the initial term for cause, or Mr. Hodges resigns without good reason, Mr. Hodges will be entitled to the salary and benefits he has accrued up until the date of termination.

 

  

Letter of Intent:

 

On January 27, 2015, The Grilled Cheese Truck, Inc. (the “Company”) entered into a letter of intent (the “Brinton LOI”) with DJ Brinton Lake, LLC, a Pennsylvania limited liability company (“Brinton”), whereby the Company intends to acquire all, or substantially all, of the related assets of Brinton (the “Brinton Assets”). Pursuant to the terms of the Brinton LOI, the parties agreed that until March 31, 2015, Brinton will not negotiate with, or agree to sell or otherwise dispose of, directly or indirectly, any of the Brinton Assets to any other third party. In addition, the Brinton LOI included a non-binding term sheet describing terms of the acquisition and that the parties agreed to further negotiate and reduce such terms to a definitive purchase agreement. The execution and delivery of the definitive purchase agreement will be subject to certain conditions contained in the definitive purchase agreement, including but not limited to, Brinton obtaining any necessary consent to sell such Brinton Assets to the Company from Brinton’s franchisor or termination of any agreement that may prohibit the sale of the Brinton Assets. On March 31, 2015, the Company entered into an amendment to the Brinton LOI (the “Brinton Amendment”) between the Company and Brinton, pursuant to which the Company intends to acquire all, or substantially all, of the related assets of Brinton (the “Brinton Assets”). Pursuant to the Brinton LOI, the parties agreed that until March 31, 2015 (the “Expiration Date”), Brinton will not enter into negotiations with any third party for the sale of the Brinton Assets. Under the Brinton Amendment, the parties agreed to extend the Expiration Date until May 31, 2015. The remaining terms and conditions of the Brinton LOI remain unchanged.

 

On January 27, 2015, the Company also entered into a letter of intent (the “King LOI”) with DJR King of Prussia, Inc., a Pennsylvania corporation (“King”), whereby the Company intends to acquire all, or substantially all, of the related assets of King (the “King Assets”). Pursuant to the terms of the King LOI, the parties agreed that until March 31, 2015, King will not negotiate with, or agree to sell or otherwise dispose of, directly or indirectly, any of the King Assets to any other third party. In addition, the King LOI included a non-binding term sheet describing terms of the acquisition and that the parties agreed to further negotiate and reduce such terms to a definitive purchase agreement. The execution and delivery of the definitive purchase agreement will be subject to certain conditions contained in the definitive purchase agreement, including but not limited to, King obtaining any necessary consent to sell such King Assets to the Company from King’s franchisor or termination of any agreement that may prohibit the sale of the King Assets. On March 31, 2015, the Company also entered into an amendment to the King LOI (the “King Amendment”) between the Company and King, pursuant to which the Company intends to acquire all, or substantially all, of the related assets of King (the “King Assets”). Pursuant to the King LOI, the parties agreed that until March 31, 2015 (the “Expiration Date”), King will not enter into negotiations with any third party for the sale of the King Assets. Under the King Amendment, the parties agreed to extend the Expiration Date until May 31, 2015. The remaining terms and conditions of the King LOI remain unchanged.

 

On January 27, 2015, the Company also entered into a letter of intent (the “Square LOI”) with DJR Suburban Square, Inc., a Pennsylvania corporation (“Square”), whereby the Company intends to acquire all, or substantially all, of the related assets of Square (the “Square Assets”). Pursuant to the terms of the Square LOI, the parties agreed that until March 31, 2015, Square will not negotiate with, or agree to sell or otherwise dispose of, directly or indirectly, any of the Square Assets to any other third party. In addition, the Square LOI included a non-binding term sheet describing terms of the acquisition and that the parties agreed to further negotiate and reduce such terms to a definitive purchase agreement. The execution and delivery of the definitive purchase agreement will be subject to certain conditions contained in the definitive purchase agreement, including but not limited to, Square obtaining any necessary consent to sell such Square Assets to the Company from Square’s franchisor or termination of any agreement that may prohibit the sale of the Square Assets. On March 31, 2015, the Company also entered into an amendment to the Square LOI (the “Square Amendment”) between the Company and Square, pursuant to which the Company intends to acquire all, or substantially all, of the related assets of Square (the “Square Assets”). Pursuant to the Square LOI, the parties agreed that until March 31, 2015 (the “Expiration Date”), Square will not enter into negotiations with any third party for the sale of the Square Assets. Under the Square Amendment, the parties agreed to extend the Expiration Date until May 31, 2015. The remaining terms and conditions of the Square LOI remain unchanged. 

 

Issuance of notes payable and shares:

 

On February 28, 2015, the holder of the $50,000 convertible note payable elected to convert the entire principal amount and accrued interest into 62,640 shares of common stock at a rate of $1.00 per share.

 

On February 26, 2015, 12,500 warrants were exercised to purchase 12,500 shares of Common Stock valued at $2.00 per share, or $25,000.

 

On March 11, 2015, 12,500 warrants were exercised to purchase 12,500 shares of Common Stock valued at $2.00 per share, or $25,000.

 

On March 11, 2015, the Company issued a $600,000 convertible note payable, bearing interest at 10% and maturing June 30, 2016. The principal and accrued interest is convertible at the holder’s option at a price of $2.00 per share.

 

On March 11, 2015, the Company issued a $25,000 convertible note payable, bearing interest at 10% and maturing June 30, 2016. The principal and accrued interest is convertible at the holder’s option at a price of $2.00 per share.

 

On March 12, 2015, 12,500 warrants were exercised to purchase 12,500 shares of Common Stock valued at $2.00 per share, or $25,000.

 

On March 16, 2015, the Company issued 75,000 warrants commencing on December 31, 2015 and expiring on December 31, 2018. The warrants are exercisable at $2.00 per share.

 

 

 

F-25

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