Debt Obligations | 6 Months Ended |
Jun. 29, 2014 |
Debt Disclosure [Abstract] | ' |
Debt Obligations | ' |
Note 8. Debt Obligations |
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The carrying value of the Company’s outstanding promissory notes, net of unamortized discount, was $248,411 and $138,772 at June 29, 2014 and December 29, 2013, respectively, of which $11,000 was in default on those dates. Accrued interest under the Company’s outstanding promissory notes was $8,289 and $1,255 at June 29, 2014 and December 29, 2013, respectively. |
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A summary of the terms of the promissory notes that were outstanding during the six-month period ended June 29, 2014 and the year ended December 29, 2013 is provided below. |
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In October 2008, the Company entered into a loan agreement with Bank of America, N.A. (“Bank of America”) for an original principal amount of $338,138 pursuant to which the Company consolidated five separate loans that Bank of America had made to the Company prior to that date. The loan bore interest at a rate of 7% per annum and required equal monthly payments of principal and interest of $6,711 per month until November 3, 2013. The loan was secured by substantially all of the Company’s assets and was guaranteed by Michael Rosenberger, Rosalie Rosenberger and Hot Wings Concepts, Inc. (“Hot Wings Concepts”). In February 2010, the Company entered into a forbearance agreement with Bank of America pursuant to which the Company agreed to pay $50,000 towards the outstanding balance of the loan and make monthly interest payments until November 15, 2010, at which time the entire loan would become due and payable. In February 2011, the Company entered into an amendment to the forbearance agreement with Bank of America pursuant to which the Company agreed to make monthly payments of interest only until December 3, 2011, at which time the entire loan would become due and payable, and agreed to pay a forbearance extension fee of $5,000. In June 2011, Bank of America agreed to accept payments of $2,000 per month to be applied towards the outstanding principal until January 8, 2012, at which time the full balance of the loan was required to be paid off in full. |
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In March 2013, the Company entered into a settlement and release agreement with Bank of America pursuant to which the Company paid $50,000 to Bank of America in full and final settlement of all outstanding principal, accrued but unpaid interest, and all other claims and amounts owed to Bank of America in connection with the loan. As part of the settlement agreement, the Company and the guarantors of the loan, on the one hand, and Bank of America, on the other hand, granted each other a release from any and all current and future claims related to the loan and the loan agreement. The Company owed a total of $370,798 of principal, accrued interest and other claims to Bank of America in connection with the loan on the date the settlement agreement was executed. Accordingly, the Company recognized a gain on settlement of debt of $320,798 in connection therewith during the six-month period ended June 30, 2013. |
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During the fourth quarter of 2008, the Company issued promissory notes to four investors for a total original principal amount of $11,000 in return for aggregate cash proceeds of $11,000. The notes bear interest at a rate of 6% per annum and provide for the payment of all principal and interest three years after the date of the respective notes. The notes provide for the payment of a penalty in an amount equal to 10% of the principal amount of the notes in the event they are not paid by the end of the term. These notes are currently in default. |
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In January 2012, the Company issued a promissory note to The Carl Collins Trust for an original principal amount of $50,000 in return for aggregate gross cash proceeds of $50,000. The note bore interest in an amount equal to $5,000 and provided for the payment of all principal and interest on March 6, 2012. The note was secured by: (i) all royalties payable to the Company by its franchisees that accrued prior to December 2, 2011, but had not been paid to the Company by January 6, 2012, and (ii) 142,858 shares of the Company’s common stock that had been issued to Raymond H. Oliver. |
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On October 4, 2013, the note was assigned by The Carl Collins Trust to Brusta Investments, LLC (“Brusta Investments”) and D. Dale Thevenet. |
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On November 1, 2013, the Company entered into a settlement agreement and release with Brusta Investments and Mr. Thevenet. Under the terms of the Settlement Agreement, the Company agreed to issue 21,429 shares of its common stock to Brusta Investments and 7,143 shares of its common stock to Mr. Thevenet in full payment of all principal and accrued interest and all other amounts due and payable under the note. In addition, Brusta Investments and Mr. Thevent agreed to release the Company from any and all claims that they may have against the Company with respect to the note. A total of $55,000 of principal and accrued interest was outstanding under the note on November 1, 2013. No gain or loss was recognized in connection with the repayment of the note during the year ended December 29, 2013 because the value of the shares of common stock issued to Brusta Investments and Mr. Thevenet was equal to the value of the principal, accrued interest and all other amounts due and payable under the note. |
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From January 2012 to September 13, 2013, Blue Victory made loans to the Company for a total of $415,316. The loans were interest free and payable on demand. |
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On September 13, 2013, the Company entered into a loan agreement with Blue Victory pursuant to which Blue Victory agreed to extend a revolving line of credit facility to the Company for up to $1 million. Under the terms of the loan agreement, Blue Victory agreed to make loans to the Company in such amounts as the Company may request from time to time, provided that the total amount of loans requested in any calendar month may not exceed $150,000. All loan requests are subject to approval by Blue Victory. The Company may use the proceeds from the credit facility for general working capital purposes. |
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The credit facility is unsecured, accrues interest at a rate of 6% per annum, and will terminate upon the earlier to occur of the fifth anniversary of the loan agreement or the occurrence of an event of default (the “Termination Date”). The outstanding principal balance of the credit facility and any accrued and unpaid interest thereon are payable in full on the Termination Date. Loans may be prepaid by the Company without penalty and borrowed again at any time prior to the Termination Date. The obligation of the Company to pay the outstanding balance of the credit facility is evidenced by a promissory note that was issued by the Company to Blue Victory on September 13, 2013. |
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Blue Victory has the right, at any time on or after September 13, 2013, to convert all or any portion of the outstanding principal of the credit facility, together with accrued interest payable thereon, into shares of the Company’s common stock at a conversion rate equal to: (i) the closing price of the common stock on the date immediately preceding the conversion date if the common stock is then listed on the OTC Bulletin Board or a national securities exchange, (ii) the average of the most recent bid and ask prices on the date immediately preceding the conversion date if the common stock is then listed on any of the tiers of the OTC Markets Group, Inc., or (iii) in all other cases, the fair market value of the common stock as determined by the Company and Blue Victory. Notwithstanding the above, in the event the Company does not have adequate shares of common stock authorized and available for issuance to be able to fulfill a conversion request, or the Company would breach its obligations under the rules or regulations of any trading market on which its shares of common stock are then listed if it fulfilled a conversion request, Blue Victory will amend the conversion notice to reduce the amount of principal and/or interest for which the conversion was requested to that amount for which an adequate number of shares of common stock is authorized and available for issuance by the Company. |
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As of September 13, 2013, the Company had outstanding loans from Blue Victory that were interest free and payable on demand in the aggregate amount of $415,316. Pursuant to the terms of the loan agreement, these loans were reflected as loans outstanding under the loan agreement. Accordingly, the outstanding principal amount of the credit facility on September 13, 2013 was $415,316. |
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Between September 14, 2013 and November 5, 2013, the Company borrowed an additional $56,971 under the credit facility. |
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On November 5, 2013, the Company had a total of $475,626 of principal and accrued but unpaid interest outstanding under the credit facility. On that date, Blue Victory converted all of the outstanding principal and accrued interest into a total of 243,911 shares of the Company’s common stock. No gain or loss was recognized in connection with the conversion because the conversion was made in accordance with the terms of the credit facility. |
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Between November 6, 2013 and January 21, 2014, the Company borrowed an additional $567,662 under the credit facility. |
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On January 21, 2014, the Company had a total of $570,529 of principal and accrued but unpaid interest outstanding under the credit facility. On that date, Blue Victory converted all of the outstanding principal and accrued interest into a total of 326,017 shares of the Company’s common stock. No gain or loss was recognized in connection with the conversion because the conversion was made in accordance with the terms of the credit facility. |
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Between January 22, 2014 and June 29, 2014, the Company borrowed an additional $237,411 under the credit facility. Accordingly, as of June 29, 2014, the outstanding principal amount of the credit facility was $237,411. |
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In December 2013, the Company borrowed $5,000 from Star Brands II, a Louisiana limited liability company. The loan was interest free and payable on demand. The loan was paid off in full by Blue Victory during the six-month period ended June 29, 2014. The payment was made by Blue Victory in the form of a loan under the revolving line of credit facility that Blue Victory extended to the Company in September 2013. A description of the credit facility is set forth herein under Note 8. Debt Obligations. |
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The carrying value of the Company’s outstanding promissory notes, net of unamortized discount, was $248,411 and $138,772 at June 29, 2014 and December 29, 2013, respectively, as follows: |
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| | June 29, | | | December 29, | |
| | 2014 | | | 2013 | |
Notes payable – related party | | $ | 237,411 | | | $ | 127,772 | |
Notes payable – in default | | | 11,000 | | | | 11,000 | |
Total notes payable, net | | $ | 248,411 | | | $ | 138,772 | |