SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
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: 333-132948
American Standard Energy Corp.
(Exact name of registrant as specified in its charter)
| Delaware | 20-2791397 |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
60 East Rio Salado Parkway
Suite 900
Tempe, AZ 85281
(Address of principal executive offices)
(408) 366-5818
(Issuer's telephone number)
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 þ 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 ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting Company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The number of shares outstanding of the issuer's common stock as of November 9, 2010 was 28,540,290.
AMERICAN STANDARD ENERGY CORP.
FORM 10-Q
September 30, 2010
INDEX
| PART I— FINANCIAL INFORMATION | |
| | | |
| Item 1. | Unaudited Financial Statements | F-1 - F-7 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition | 3 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 6 |
| Item 4T. | Control and Procedures | 6 |
| | | |
| PART II— OTHER INFORMATION | |
| | |
| Item 1 | Legal Proceedings | 6 |
| Item 1A | Risk Factors | 7 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 7 |
| Item 3. | Defaults Upon Senior Securities | 7 |
| Item 4. | (Removed and Reserved) | 7 |
| Item 5. | Other Information | 7 |
| Item 6. | Exhibits | 7 |
| | | |
| SIGNATURE | 8 |
PART I— FINANCIAL INFORMATION
Item 1. Financial Statements
Famous Uncle Al's Hot Dogs & Grille, Inc.
Unaudited Balance Sheets
| | | Sept 30, 2010 | | | December 31, 2009 | |
| | | | | | | |
| Assets | | | | | | |
| | | | | | | |
| Current Assets: | | | | | | |
| Cash | | $ | 13 | | | $ | 0 | |
| Prepaid expenses | | | 0 | | | | 0 | |
| Total current assets | | | 13 | | | | 0 | |
| | | | | | | | | |
| Total Assets | | $ | 13 | | | $ | 0 | |
| | | | | | | | | |
| Liabilities and Stockholders' Deficiency | | | | | | | | |
| | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Trade accounts payable | | $ | 103,201 | | | $ | 82,775 | |
| Accrued expenses | | | 0 | | | | 246,307 | |
| Deferred income | | | 0 | | | | 17,500 | |
| Convertible notes due in less than one year | | | 0 | | | | 35,000 | |
| Derivatives at fair value | | | 0 | | | | 15,938 | |
| Current portion of long term debt | | | 0 | | | | 161,283 | |
| Total current liabilities | | | 103,201 | | | | 558,803 | |
| Commitments and contingencies | | | | | | | | |
| Stockholders' Deficiency: | | | | | | | | |
Common stock-70,000,000 authorized $0.001 par value 28,540,290 issued & issuable at September 30, 2010 and 32,247 at December 31, 2009 | | | 28,540 | | | | 32 | |
| Additional paid in capital | | | 3,096,609 | | | | 2,815,181 | |
| Accumulated Deficit | | | (3,228,337 | ) | | | (3,374,016 | ) |
| Total Stockholders' Deficiency | | | (103,188 | ) | | | (558,803 | ) |
| | | | | | | | | |
| Total Liabilities & Stockholders' Deficiency | | $ | 13 | | | $ | 0 | |
See notes to unaudited interim financial statements.
Famous Uncle Al's Hot Dogs & Grille, Inc.
Unaudited Statement of Operations
| | | Three Months Ended Sept 30, | | | Nine Months Ended Sept 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Ongoing weekly continuation fees | | $ | 0 | | | $ | 5,764 | | | $ | 1,200 | | | $ | 23,653 | |
| Other | | | 0 | | | | 496 | | | | 7,867 | | | | 10,705 | |
| Franchising revenue | | | (0 | ) | | | 6,260 | | | | 9,067 | | | | 34,358 | |
| | | | | | | | | | | | | | | | | |
| Costs & Expenses: | | | | | | | | | | | | | | | | |
| Franchise sales | | | (0 | ) | | | 1,200 | | | | 435 | | | | 18,885 | |
| General & administrative | | | 10,667 | | | | 5,423 | | | | 57,903 | | | | 85,441 | |
| Valuation of derivatives | | | 0 | | | | 0 | | | | (6,700 | ) | | | 0 | |
| Forgiveness of debt | | | 0 | | | | 0 | | | | (188,250 | ) | | | 0 | |
| Interest | | | 0 | | | | 2,362 | | | | 0 | | | | 11,194 | |
| Total Costs & Expenses | | | 10,667 | | | | 8,985 | | | | (136,612 | ) | | | 115,520 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) before income taxes | | | (10,667 | ) | | | (2,725 | ) | | | 145,679 | | | | (81,162 | ) |
| Income taxes | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Net Income (loss) | | $ | (10,667 | ) | | $ | (2,725 | ) | | $ | 145,679 | | | $ | (81,161 | ) |
Basic earnings per share: | | | | | | | | | | | | | | | |
| Net income (loss) per share, basic | | Nil | | | $ | (0.08 | ) | | $ | 0.02 | | | $ | (2.52 | ) |
| Weighted average shares, basic | | | 17,517,327 | | | | 32,302 | | | | 5,924,655 | | | | 32,227 | |
Diluted earnings per share: | | | | | | | | | | | | | | | |
| Net income (loss) per share, diluted | | Nil | | | $ | (0.08 | ) | | $ | 0.02 | | | $ | (2.52 | ) |
| Weighted average shares, diluted | | | 17,517,327 | | | | 32,302 | | | | 8,943,220 | | | | 32,227 | |
See notes to unaudited interim financial statements.
Famous Uncle Al's Hot Dogs & Grille, Inc.
Unaudited Statement of Cash Flows
| | | Nine Months Ended Sept 30, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net Income (Loss) | | $ | 145,679 | | | $ | (81,161 | ) |
| Adjustments required to reconcile net income to cash used in operating activities: | | | | | | | | |
| Depreciation expense | | | 0 | | | | 2,500 | |
| Amortization of debt discount | | | 0 | | | | 8,194 | |
| Expenses paid by related parties | | | 18,445 | | | | 22,492 | |
| Forgiveness of debt | | | (188,250 | ) | | | 0 | |
| Valuation charge on derivative instruments | | | (6,700 | ) | | | 0 | |
| Stock issued for services | | | 1,250 | | | | 0 | |
| Increase (decrease) in accounts payable & accrued expenses | | | 29,589 | | | | 38,500 | |
| Cash flows provided by (used in) operating activities | | | 13 | | | | (9,475 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from issuance of common stock | | | 0 | | | | 8,500 | |
| Cash generated by financing activities | | | 0 | | | | 8,500 | |
| | | | | | | | | |
| Change in cash | | | 13 | | | | (975 | ) |
| Cash-beginning of period | | | 0 | | | | 1,210 | |
| Cash-end of period | | $ | 13 | | | $ | 235 | |
See notes to unaudited interim financial statements.
Famous Uncle Al's Hot Dogs & Grille, Inc.
Unaudited Statement of Stockholders' Deficiency
| | | Common | | | | |
| | | Shares | | | Amount | | | Additional Paid-In Capital | | | Accumulated Deficit | |
| | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | 32,247 | | | $ | 32 | | | $ | 2,815,181 | | | $ | (3,374,016 | ) |
| Stock issued in exchange for payment of expenses | | | 25,000,000 | | | | 25,000 | | | | 4,945 | | | | | |
| Shares issued for services | | | 1,086 | | | | 1 | | | | 1,249 | | | | | |
| Reclassification of derivative to permanent equity | | | | | | | | | | | 9,238 | | | | | |
| Cancellation of related party debt | | | | | | | | | | | 234,503 | | | | | |
| Exercise of warrants | | | 6,957 | | | | 7 | | | | (7 | ) | | | | |
| Exercise of conversion option of notes payable | | | 3,500,000 | | | | 3,500 | | | | 31,500 | | | | | |
| Net Income | | | | | | | | | | | | | | | 145,679 | |
| Balance at September 30, 2010 | | | 28,540,290 | | | $ | 28,540 | | | $ | 3,096,609 | | | $ | (3,228,337 | ) |
| See notes to unaudited interim financial statements. | | | | | | | | | | | | | | | | |
FAMOUS UNCLE AL’S HOT DOGS & GRILLE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
Background: We were incorporated as National Franchise Directors, Inc., under the laws of the State of Delaware on March 4, 2005 and on October 25, 2005 changed our name to Famous Uncle Al’s Hot Dogs & Grille, Inc. (Uncle Al). We were formed for the purpose of obtaining all existing and future restaurant franchising rights from Famous Uncle Al’s Hot Dogs, Inc. We acquired those rights on October 6, 2005. Famous Uncle Al’s Hot Dogs, Inc., owned the exclusive worldwide right to franchise fast casual service restaurants operating under the “Famous Uncle Al’s Hot Dogs” name. Our restaurants serve hot dogs, bratwurst, sausage and other heated sandwiches that use secret recipes and preparation techniques created by Al Stein, the original “Uncle Al”.
The Financial Statements presented herein have been prepared by us in accordance with the accounting policies described in our December 31, 2009 Annual Report on Form 10-K and should be read in conjunction with the Notes to Financial Statements which appear in that report.
The preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related intangible assets, income taxes, insurance obligations and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates under different assumptions or conditions.
In the opinion of management, the information furnished in this Form 10-Q reflects all adjustments necessary for a fair statement of the financial position and results of operations and cash flows as of and for the three and nine-month periods ended September 30, 2010 and 2009. All such adjustments are of a normal recurring nature. The financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include some information and notes necessary to conform with annual reporting requirements.
| 2. | Earnings/Loss Per Share |
Basic earnings per share is computed by dividing income available to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. Diluted earnings per share assume that any dilutive convertible securities outstanding were converted, with related preferred stock dividend requirements and outstanding common shares adjusted accordingly. It also assumes that outstanding common shares were increased by shares issuable upon exercise of those stock options for which market price exceeds the exercise price, less shares which could have been purchased by us with the related proceeds. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive. All per share disclosures retroactively reflect shares outstanding or issuable as though the July 13, 2010 1 for 460 reverse split (see Note 4) had occurred January 1, 2009.
| 3. | New Accounting Standards |
In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010.
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.
Reverse Stock Split: On July 13, 2010 our Board of Directors approved a 1 for 460 reverse stock split. The reverse stock split was effective July 29, 2010 for holders of record at July 29, 2010. We did not issue scrip or purchase fractional shares. Instead, all calculations that would have resulted in the issuance of a fractional share were rounded up to the next whole number. Except as otherwise noted, all share, option and warrant numbers have been restated to give retroactive effect to this reverse split. All per share disclosures retroactively reflect shares outstanding or issuable as though the reverse split had occurred January 1, 2009.
In 2010 we settled approximately $123,000, net, of amounts due related parties through mutual agreement. We also derecognized approximately $111,000 of notes payable of which we determined are barred by the statute of limitations. The notes were informally assumed as part of our original capitalization and at the request of our management at that time. Such amounts were considered capital transactions.
On August 2, 2010 we issued 25,000,000 shares of common stock in exchange for the payment of expenses on our behalf aggregating $29,945. We issued 6,957 shares of stock upon the exercise of cashless warrants. All common shares issued are restricted as to transferability.
At December 31, 2009, the Company determined that the default conversion feature of the 8% Convertible Notes converted to a formula that was no longer fixed and determinate. Accordingly, the embedded conversion feature was adjusted to fair value as required by derivative accounting treatment. On July 13, 2010 the conversion feature was modified and the $35,000 debt was subsequently converted to common stock. Accordingly, the $9,238 fair value of the related derivative conversion feature was classified to permanent equity.
Pursuant to the Share Exchange Agreement (see Note 6), on October 1, 2010, a private entity acquired 21,999,997 common shares of Uncle Al’s. Such securities were not registered under the Securities Act. These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance of securities by us did not involve a public offering.
In 2010 we derecognized accruals for payroll taxes, payroll and other accruals totaling $112,500. The payroll related accruals of $95,000 were based on 2005 estimates no longer deemed accurate. We also renegotiated the amount due Al Stein under our licensing agreement. The renegotiated amount of $2,000 resulted in de-recognition of $75,750, the excess amount due under the original agreement.
In 2010 we settled approximately $132,913 of amounts due related parties through mutual agreement and a one-time payment of $9,500. $73,557 of this amount was accrued interest on notes converted in previous years. The balance of $59,356 was due our former president for payments made by him on our behalf. Such amounts were considered capital transactions.
We also derecognized $111,090 of notes payable of which we determined are barred by the statute of limitations. The notes were informally assumed as part of our original capitalization and at the request of our management at that time. Such amounts were considered capital transactions.
We acquired American Standard Energy Corp., an oil exploration and production company, in accordance with a Share Exchange Agreement dated October 1, 2010 by and among Uncle Al’s Famous Hot Dogs & Grille, Inc., American Standard Energy Corp. (“American Standard” or “ASEC”) and the shareholders of American Standard. The closing of the transaction took place on October 1, 2010. On the Closing Date, we acquired 100% of the outstanding shares of common stock of American Standard and additional consideration of $25,000 from the American Standard Shareholders. In exchange for the American Standard Stock and the additional consideration, the American Standard Shareholders acquired from us 21,999,997 post reverse shares of our common stock.
American Standard is a Nevada corporation formed for the purpose of acquiring certain oil and gas properties from certain of its related parties and making capital investments in acreage acquisitions and working interests in existing or planned hydrocarbon production with a special focus on productive oil and natural gas prospects. Its initial focus will be on acquiring and developing assets within the states of North Dakota and Texas. Notwithstanding this initial focus, American Standard will pursue the acquisition of property and assets within other geographic areas that meet our general investment guidelines and targets.
ASEC currently holds working interests in seven producing leaseholds in the Permian Basin of West Texas. These working interests grant us the right as the lessee of the property to explore for and to produce and own oil, gas or other minerals, while also bearing any related exploration, development, and operating costs. American Standard also holds working interests in over 10,000 acres of undeveloped leaseholds.
Upon closing, American Standard became a wholly-owned subsidiary of the Company. In exchange, the American Standard Shareholders acquired shares representing approximately 86.1% of our Common Stock after the cancellation of the Pope Shares. The directors of the Company have approved the Share Exchange Agreement and the transactions contemplated under the Share Exchange Agreement. The directors of American Standard have approved the Share Exchange Agreement.
Concurrent with closing, the Company entered into a Stock Cancellation Agreement with Troy Pope, the principal shareholder of the Company. Pursuant to the terms of the Stock Cancellation Agreement, Mr. Pope cancelled his 25,000,000 shares of restricted common stock for the aggregate sum of $25,000. Additionally, as consideration for extinguishing all outstanding liabilities of the Company as of the Closing Date, the Company is required to transfer its restaurant franchising rights to Famous Uncle Al’s Hot Dogs & Grille, LLC, a Nevada Company, within thirty days of the Closing.
As a further condition of the Merger, Mr. Valentino and Mr. Esposito, the current officers and directors of the Company resigned and Scott Feldhacker and Richard MacQueen were appointed as the new directors and the following persons were appointed as officers:
| NAME | | POSITION |
| | | |
| Scott Feldhacker | | Chief Executive Officer |
| Richard MacQueen | | President |
| Andrew Wall, Esq. | | Secretary and General Counsel |
Scott Mahoney Randall Capps | | Chief Financial Officer Board of Directors |
The Company was the legal acquirer in the combination. American Standard had substantially more assets (we had virtually no assets, tangible or intangible, or operating revenue). The financial statements hereafter are expected to be those of American Standard carried forward at historical cost and accounted for as a recapitalization.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). For example, statements included in this report regarding our financial position, business strategy and other plans and objectives for future operations, and assumptions and predictions about future product demand, supply, manufacturing, costs, marketing and pricing factors are all forward-looking statements. When we use words like "intend," "anticipate," “will,” “may,” “should,” “could,” “predict,” “potential,” "believe," "estimate," "plan" or "expect," we are making forward-looking statements. We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, based on information available to us on the date hereof, but we cannot assure you that these assumptions and expectations will prove to have been correct or that we will take any action that we may presently be planning. We have disclosed certain important factors that could cause our actual results to differ materially from our current expectations elsewhere in this report. You should understand that forward-looking statements made in this report are necessarily qualified by these factors. We are not undertaking to publicly update or revise any forward-looking statement if we obtain new information or upon the occurrence of future events or otherwise.
Description of Business
Famous Uncle Al’s Hot Dogs & Grille, Inc. was originally incorporated in the State of Delaware on March 4, 2005. We were formed for the purpose of receiving future and existing restaurant franchising rights from Famous Uncle Al’s Hot Dogs, Inc., also a Delaware corporation. Famous Uncle Al’s Hot Dogs, Inc. owned the exclusive worldwide right to franchise quick service restaurants operating under the “Famous Uncle Al’s Hot Dogs” name. The Famous Uncle Al’s Hot Dogs restaurants serve hot dogs and other style sandwiches that use “secret recipes” and preparation techniques created by Al Stein, the original “Uncle Al”. Our address is 282 Katonah Ave, # 137, Katonah, NY 10536, and our telephone number is (203) 616-2930. Our common stock is currently traded on the OTC Bulletin board.
The Famous Uncle Al’s restaurant concept has been in operation since 1985 when the original “Uncle Al”, Al Stein, opened the first restaurant in Virginia Beach, VA. That restaurant continues to operate successfully under Al Stein’s management. Seven additional Famous Uncle Al’s Hot Dogs restaurants were opened by independent operators in the Virginia Beach area under various licensing agreements with Al Stein and continue to operate. One store is owned and operated by Mr. Stein’s son and one by a former employee.
The franchise assignor sold several regional franchise territories prior to assigning the franchise to us. The Company came into those agreements under the global type of arrangement provided for under the Settlement Agreement of October 6, 2006, under which the Company agreed to assume the debts, liabilities and obligations of the company from which we were acquiring the franchise license in exchange for licensing rights.
On October 1, 2010, we acquired American Standard Energy Corp., an oil exploration and production company, in accordance with a Share Exchange Agreement among Uncle Al’s Famous Hot Dogs & Grille, Inc, American Standard Energy Corp. (“American Standard” or “ASEC”) and the shareholders of American Standard. Pursuant to the Share Exchange Agreement, we acquired 100% of the outstanding shares of common stock of American Standard and additional consideration of $25,000 from the American Standard Shareholders. In exchange for the American Standard Stock and the additional consideration, the American Standard Shareholders acquired from us 21,999,997 post reverse shares of our common stock. As such, immediately following the merger, the American Standard shareholders hold 86.1% of the total issued and outstanding stock of the Company.
| B. | Current status of business |
As of October 1, 2010, the primary focus of our business changed from selling Famous Uncle Al’s Hot Dogs & Grille Franchised restaurants to making capital investments in acreage acquisitions and working interests in existing or planned hydrocarbon production with a special focus on productive oil and natural gas prospects. The Company is currently focused on acquiring and developing assets within the states of North Dakota and Texas. Notwithstanding this initial focus, American Standard will pursue the acquisition of property and assets within other geographic areas that meet our general investment guidelines and targets.
ASEC currently holds working interests in seven producing leaseholds in the Permian Basin of West Texas. These working interests grant us the right as the lessee of the property to explore for and to produce and own oil, gas or other minerals, while also bearing any related exploration, development, and operating costs. American Standard also holds working interests in over 10,000 acres of undeveloped leaseholds.
On July 9, 2010, the Company’s Board of Directors approved a partial assignment of the existing sublicensed franchises to Famous Uncle Al’s Hot Dogs, Inc., a Delaware corporation. The former franchises were not paying any royalty fees during the prior fiscal year. Under the terms of the assignment, Famous Uncle Al’s Hot Dogs, Inc., assumed all potential liabilities related to the franchises. The Company reserved and maintained all rights to issue future sublicenses.
On November 5, 2010, the Board of Directors approved a partial assignment of the remaining License Agreement to Famous Uncle Al’s Hot Dogs, LLC, (“FUA NV”) a Nevada Limited Liability corporation. Pursuant to the partial assignment, FUA NV assumed all the prior debt related to the operations of the Company through September 30, 2010.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company may not have adequate readily available resources to fund operations through December 31, 2010. This raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The following discussion and analysis provides information, which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with the financial statements and related notes that appear elsewhere in this report.
Nine months ended September 30, 2010 and September 30, 2009
Profit/Loss
The Company realized net income of $ 145,679 in the first nine months of 2010 compared to a net loss of $ 81,162 for the first nine months of 2009. The net income in 2010 was due primarily to settlement and payoff of liabilities.
Revenue
Total revenue for the first nine months of 2010 was $ 9,067 compared to $ 34,358 for the first nine months of 2009 resulting in a decrease in revenue of $25,291 or a 74% decrease. The decrease in revenue was due primarily to decreased franchise sales and reduced royalties due to store closings.
Royalty and other revenue, which includes marketing contributions from vendors, for the first nine months of 2010 was $ 1,200 compared to $23,653 in the first nine months of 2009 resulting in a 95% decrease of $ 22,453. The stores have suspended royalty payments due to the difficult economic climate. We have determined not to pursue collection of theses royalties.
No revenues were earned from Franchise (unit agreements) and Regional Franchise (developer agreements) in the first nine months of 2010 or 2009.
Expenses
Expenses for the first nine months of 2010 represented a credit of $ 136,612 compared to a debit of $ 115,520 for the first nine months in 2009. The benefit in 2010 was due primarily to settling existing debt.
Three Months ended September 30, 2010, and September 30, 2009
Profit/Loss
The Company realized a net loss of $ 10,667 in the third quarter of 2010 compared to a net loss of $ 2,725 for the third quarter of 2009 resulting in an increased loss of $ 7,942. The increase in loss was due primarily to a lack of revenues as a result of the suspension of all ongoing services and sales operations. We have released all our support staff and terminated franchise sales indefinitely.
Revenue
Total revenue for the third quarter of 2010 was $ 0 compared to $ 6,260 for the third quarter in 2009 resulting in a decrease in revenue of $ 6,260 or a 100% decrease. All stores have suspended royalty payments due to the difficult economic climate. We have determined not to pursue collection of theses royalties.
No Franchise (unit agreements) and Regional Franchise (developer agreements) revenue for the third quarter of 2010 or 2009 was recognized. The company has suspended all franchise sales initiatives at this time.
| D. | Liquidity and Capital Resources |
Capital Resources
The Company is experiencing a burn rate of approximately $ 15,200 per month for the first nine months of 2010. The Company has not developed sufficient ongoing royalty revenue to support operations. Until the Company develops sufficient ongoing revenue from royalties, the Company will be dependent on franchise and regional franchise fees to support operations. In lieu of such sales materializing, the Company is dependent on loans and alternative sources of revenue.
In 2010, we issued 25,000,000 shares of common stock in exchange for the payment of expenses on our behalf aggregating to $29,945. We issued 6,957 shares of common stock upon the cashless exercise of warrants. All common shares issued are restricted as to transferability.
The Company believes that regional franchise sales are critical to the success of the Company. Failure of these sales to materialize will have a detrimental effect on the Company. Failure to either secure additional funding or generate revenue through regional franchise and franchise fees will have a detrimental effect on the Company’s ability to support ongoing operations. We have been unsuccessful in raising the required capital in 2010.
Each regional franchisee fee is $50,000. Regional franchises are designated geographic territories. Each regional franchisee is responsible for developing individual franchised restaurants in the territory. The Company believes there are at least 49 suitable regions available for sale.
A regional franchisee purchases a defined geographic area and is obligated to develop Famous Uncle Al’s Hot Dogs & Grille restaurants in their defined territory. Regional franchisees endeavor to sell the individual franchise opportunity to prospects. The Company benefits in the short term by receiving a one-time fee from the regional franchisee and a one-time fee from each individual franchisee that the regional franchisee sells. The Company benefits long term from the weekly ongoing royalties collected from each individual franchise. This structure is designed to create a network of regional franchisees that serve as a sales force for the Company. Regional franchisees are compensated on a commission basis only. The Company believes that this structure will allow the Company to develop a dedicated national sales and marketing infrastructure without incurring the financial liability of supporting employed sales persons
Research and Development and Expenditures
No direct costs have been incurred for research and development in the last 2 years. The Company believes that the basic restaurant concept has been developed but continues to work to enhance menu selection and products. The Company does not maintain research and development facilities and utilizes existing franchised restaurants to test menu items and vendors to develop products.
Patents and Trademarks
The Company markets itself under its Famous Uncle Al’s Hot Dogs trademark. The Company has received trademark and service mark protection of this name and related designs from the United States Patent and Trademark Office and considers these trademarks and service marks to be important to its business. The Company received the right to this trademark by virtue of its application to the U.S. Patent and Trademark Office, and the approved assignment of it to us, dated August 16, 2005. The continuing right to license under this assignment is considered essential by the Company.
Reports to Security Holders
At this time, the Company has not provided annual reports to security holders. However, shareholders and the general public may view copies of all of our filings with the SEC, by visiting the SEC website (http://www.sec.gov) and performing a search of Famous Uncle Al’s Hot Dogs & Grille, Inc.’s electronic filings.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of our financial assets consist of bank deposits and we own no portfolio investments that would expose our Company to the type of risks described in Item 304 of Regulation S-K.
ITEM 4T CONTROLS AND PROCEDURES
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2010. This evaluation was accomplished under the supervision and with the participation of our chief executive officer, principal executive officer, chief financial officer/principal accounting officer who concluded that our disclosure controls and procedures are not effective to ensure that all material information required to be filed in the quarterly report on Form 10-Q has been made known to him.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based upon an evaluation conducted for the period ended September 30, 2010, Paul Esposito, who served as our Chief Executive Officer and Chief Financial Officer (which duties include that of principal accounting officer) as of September 30, 2010, and the date of this Report, has concluded that as of the end of the period covered by this report, we have identified the following material weakness of our internal controls:
Reliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material non-standard transactions.
Lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control.
In order to remedy our existing internal control deficiencies, as soon as our finances allow, we will hire a Chief Financial Officer who will be sufficiently versed in public Company accounting to implement appropriate procedures for timely and accurate disclosures
Changes in internal control over financial reporting
We have not yet made any changes in our internal control over financial reporting during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
ITEM 1A RISK FACTORS
Our Risk Factors have been revised pursuant to our merger with American Standard Energy Corp. on October 1, 2010 and disclosed in our Form 8-K filed on October 4, 2010.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 13, 2010, the Company entered into settlement agreements with the holders of the August 7, 2008 and November 28, 2008 convertible notes. Pursuant to the settlement agreements, the Company issued 3,500,000 shares of common stock on August 23, 2010. As a result of the settlements, the Convertible Notes were extinguished.
On July 15, 2010, the Company entered into a settlement agreement with N. Scott Fine and Scarsdale Securities, LLC. As previously reported on Form 8-K as filed on November 8, 2007, the Company retained N. Scott Fine and Scarsdale Equities, LLC as consultants and financial advisors. As compensation in 2007, the Company agreed to issue common stock purchase warrants for a period of seven (7) years at $.40 per share. The warrant contained cashless exercise provisions. Pursuant to the mutual release and Settlement Agreement, the Company issued 2,000,000 pre-split shares (4,348 post-split shares) of restricted common stock for cancellation of the outstanding Warrants to Purchase Common Stock.
On July 15, 2010, the Company converted the JARS FAMILY GROUP, LLC warrants into 1,000,000 pre-split shares (2,174 post-split shares) of the Company’s common stock.
On July 15, 2010, the Company converted the C.C.R.I. Corporation, a Colorado corporation, warrants into 200,000 pre-split shares (435 post-split shares) of the Company’s common stock.
As a result of the above issuances, the Company no longer has any outstanding warrants for the purchase of the Company’s common stock.
On July 15, 2010, the Company granted Troy Pope a one year stock option to purchase up to 25,000,000 non-dilutable restricted shares of common stock at par value for monies advanced and paid in excess of services related to the settlement of a number of our debts with full releases from various creditors, vendors, warrant holders, shareholders, and our Licensor holder. In exchange for the option to Troy Pope, the Company will not be obligated to reimburse Mr. Pope. On October 1, 2010, Troy Pope and the Company entered into a Stock Cancellation Agreement in which Mr. Pope agreed to cancel the 25,000,000 upon receipt of his $25,000 advancement for expenses during the quarter.
On October 1, 2010, the Company issued 21,999,997 shares of restricted common stock to shareholders of American Standard Energy Corp.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 (REMOVED AND RESERVED)
ITEM 5 OTHER INFORMATION
On October 29, 2010, we filed a Certificate of Amendment to our Certificate of Incorporation changing our name to American Standard Energy Corp.
ITEM 6 EXHIBITS
Exhibit Number | | Description | | |
| | | | | |
| 31 | | Certification pursuant to Section 301 of the Sarbanes-Oxley Act of 2002 | | Included |
| | | | | |
| 32 | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | Included |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN STANDARD ENERGY CORP.
| By: | /s/ Scott Feldhacker | | Chief Executive Officer, Principal Executive | Dated: November 15, 2010 |
| | Scott Feldhacker | | Officer | |
| | | | |
| By: | /s/ Scott Mahoney | | Chief Financial Officer, Principal Financial | Dated: November 15, 2010 |
| Scott Mahoney | | Officer | |
