Significant Accounting Policies | 12 Months Ended |
Dec. 28, 2014 |
Accounting Policies [Abstract] | |
Significant Accounting Policies | Note 2. Significant Accounting Policies |
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This summary of significant accounting policies is provided to assist the reader in understanding the Company’s financial statements. The financial statements and notes thereto are representations of the Company’s management. The Company’s management is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation of the financial statements. |
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Basis of Presentation |
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The Company’s financial statements have been prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. |
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Estimates |
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The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. |
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Reclassifications |
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Certain amounts in the Company’s financial statements for 2013 have been reclassified to conform to the 2014 presentation. These reclassifications did not result in any change to the previously reported total assets, net loss or stockholders’ deficit. |
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Reverse Stock Split |
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As described in Note 9. Capital Stock, the Company completed a one-for-seven reverse stock split of its shares of common stock on November 4, 2013. All information set forth in the Company’s financial statements and the notes thereto gives effect to the reverse stock split. |
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Fiscal Year |
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The Company utilizes a 52- or 53-week accounting period that ends on the last Sunday in December. Each of the fiscal years ended December 28, 2014 and December 29, 2013 were comprised of 52 weeks. |
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On June 18, 2014, the Company’s board of directors approved a resolution changing the Company’s fiscal year end from the last Sunday in December of the applicable calendar year to December 31st. The change will be effective beginning with the Company’s 2015 fiscal year. Pursuant to Rules 13a-10 and 15d-10 of the Securities Exchange Act of 1934, as amended, the Company is not required to file a transition report in connection with the change of its fiscal year end. |
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Revenue Recognition |
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The Company’s revenue consists primarily of royalty payments, franchise fees and area development fees that it receives from its franchisees. The Company generates revenue by entering into franchise agreements with parties to build and operate restaurants using the Dick’s Wings® brand within a defined geographical area. The agreements have a 10-year term and can be renewed for one additional 10-year term. The Company provides the use of its Dick’s Wings trademarks and Dick’s Wings system, which includes uniform operating procedures, standards for consistency and quality of products, technical knowledge, and procedures for accounting, inventory control and management, in return for the royalty payments, franchise fees and area development fees. |
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Franchisees are required to operate their restaurants in compliance with their franchise agreements, which includes adherence to operating and quality control procedures established by the Company. The Company is not required to provide loans, leases, or guarantees to franchisees or the franchisees’ employees and vendors. If a franchisee becomes financially distressed, the Company is not required to provide financial assistance. If financial distress leads to insolvency of the franchisee or the filing of a petition by or against the franchisee under bankruptcy laws, the Company has the right, but not the obligation, to acquire the franchise at fair value as determined by an independent appraiser selected by the Company. Franchisees generally remit royalty payments weekly for the prior week’s sales. Franchise and area development fees are paid upon the signing of the related agreements. |
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The Company recognizes the royalties, franchise fees and area development fees that it receives as revenue when persuasive evidence of an arrangement exists, delivery or performance has occurred, the sales price is fixed and determinable, and collectability is reasonably assured in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition. Royalties are accrued as earned and are calculated each period based on restaurant sales. Franchise fee revenue from individual franchise sales is recognized upon the opening of the franchised restaurant when all material obligations and initial services to be provided by the Company have been performed. Area development fees are dependent upon the number of restaurants in the territory, as are the Company’s obligations under the area development agreement. Consequently, as obligations are met, area development fees are recognized proportionally with expenses incurred with the opening of each new restaurant and any royalty-free periods. |
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The Company generated revenue of $588,856 and $489,816 during the years ended December 28, 2014 and December 29, 2013, respectively. |
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Cash Equivalents |
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The Company considers all highly liquid investments with an original maturity of 90 days or less on the date of purchase to be cash equivalents in accordance with ASC Topic 305, Cash and Cash Equivalents. The Company had cash and cash equivalents of $5,062 at December 29, 2013. The Company did not have any cash and cash equivalents at December 28, 2014. |
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Accounts Receivable |
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Accounts receivable consists primarily of contractually-determined receivables primarily for franchise fees and royalties due from, but not yet paid by, the Company’s franchisees. Accounts receivable, net of the allowance for doubtful accounts, represents the estimated net realizable value of the Company’s accounts receivable. Provisions for doubtful accounts are recorded based on historical collection experience, the age of the receivables and current economic conditions, and are written off when they are deemed uncollectible, all in accordance with ASC Topic 310, Receivables. The Company had accounts receivable, net of the allowance for doubtful accounts, of $43,033 and $25,524 at December 28, 2014 and December 29, 2013, respectively. |
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The accounts receivable balance at December 28, 2014 was comprised primarily of unpaid royalties due from one of the Company’s franchisees that was behind in its payments, all of which the Company expects to collect in full in early 2015. Accordingly, the allowance for doubtful accounts was zero at December 28, 2014. The accounts receivable balance at December 29, 2013 was comprised primarily of unpaid royalties due from two of the Company’s franchisees that were behind in their payments, all of which the Company expected to collect in full, and did collect in full, in early 2014. Accordingly, the allowance for doubtful accounts was zero at December 29, 2013. |
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Property and Equipment |
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Property and equipment is stated at cost, less accumulated depreciation and amortization, in accordance with ASC Topic 360, Property, Plant and Equipment (“ASC 360”). Depreciation and amortization are calculated using the straight-line basis over the estimated useful lives of the related assets. The cost of major improvements to the Company’s property and equipment are capitalized. The cost of maintenance and repairs that do not improve or extend the life of the applicable assets is expensed as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reported in the period realized. |
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The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable in accordance with ASC 360. Recoverability is measured by comparison of the carrying amount of the assets to the future undiscounted net cash flows that the assets are expected to generate. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company had property and equipment of $4,674 and accumulated depreciation of $4,674 at December 28, 2014 and December 29, 2013. |
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Long-Lived Assets |
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The Company reviews long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable in accordance with ASC 360. Recoverability is measured by comparison of the carrying amount of the assets to the future undiscounted net cash flows that the assets are expected to generate. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company did not have any long-lived assets at December 28, 2014 and December 29, 2013. |
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Financial Instruments |
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The Company accounts for its financial instruments in accordance with ASC Topic 825, Financial Instruments, which requires the disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and other short-term liabilities approximates their respective fair values due to the short-term maturities of these instruments. The carrying amounts of the notes receivable and notes payable also approximates their respective fair values since their terms are similar to those in the lending market for comparable loans with comparable risks. The fair value of related-party transactions is not determinable due to their related-party nature. None of these instruments are held for trading purposes. |
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Debt Discounts, Deferred Financing Costs and Imputed Interest |
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The Company accounts for debt discounts and deferred financing costs in accordance with ASC Topic 470, Debt (“ASC 470”). Debt discounts and deferred financing costs are amortized through periodic charges to interest expense over the maximum term of the related financial instrument using the effective interest method. The Company did not incur any amortization of debt discounts and deferred financing costs during the years ended December 28, 2014 and December 29, 2013. |
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The Company accounts for imputed interest in accordance with ASC Topic 835, Interest. During the years ended December 28, 2014 and December 29, 2013, the Company borrowed funds from related parties pursuant to loans that were interest free and payable on demand. The loans did not have a definite term. Based upon the interest rates charged to the Company for comparable loans made to the Company in the recent past, the Company applied an imputed interest rate of 6% to the loans. In addition, since the loans did not have a definite term, the Company was unable to calculate a discount associated with the loans. As a result, the Company accounted for imputed interest with respect to the loans by recording interest expense as it was incurred. The Company incurred $75 and $11,686 of imputed interest during the years ended December 28, 2014 and December 29, 2013, respectively, which was credited to additional paid-in capital since the interest was not payable. |
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Fair Value Measurements |
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Fair value is the price that would be received to sell an asset or paid to transfer a liability in the Company’s principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. In accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), the Company determines fair value using a fair value hierarchy that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the Company, and the Company’s own assumptions about market participant assumptions developed based on the best information available in the circumstances. |
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The levels of fair value hierarchy are: |
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Level 1: Quoted prices in active markets for identical assets and liabilities at the measurement date; |
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Level 2: Observable inputs other than quoted prices included in Level 1, such as: (i) quoted prices for similar assets and liabilities in active markets, (ii) quoted prices for identical or similar assets and liabilities in markets that are not active, and (iii) other inputs that are observable or can be corroborated by observable market data; and |
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Level 3: Unobservable inputs for which there is little or no market data available. |
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A financial instrument’s level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Company. The Company considers observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. In contrast, the Company considers unobservable data to be data that reflects the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. |
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Investments |
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On January 20, 2014, the Company purchased a 50% ownership interest in Paradise on Wings Franchise Group, LLC, a Utah limited liability company that is the franchisor of the Wing Nutz® brand of restaurants (“Paradise on Wings”). A description of the investment in Paradise on Wings is set forth herein under Note 4. Investment in Paradise on Wings. |
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The Company accounted for its investment in Paradise on Wings under the equity method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 323, Investments – Equity Method and Joint Ventures (“ASC 323”). ASC 323 provides that investments be accounted for under the equity method of accounting when the investor has the ability to exert significant influence, but not control, over the operating and financial policies of the investee. The determination of the level of influence that an investor has over each equity method investment involves consideration of such factors as the investor’s ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. Investments accounted for under the equity method are recorded at the fair value amount of the investor’s initial investment on the balance sheet and adjusted each period for the investor’s share of the investee’s income or loss. The investor’s share of the income or losses from equity investments is reported as a component of other income / (expense) in the statements of operations. Contributions paid to, and distributions received from, equity investees are recorded as additions or reductions, respectively, to the respective investment balance. |
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The Company reviews its investment in Paradise on Wings for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable in accordance with ASC 323. The standard for determining whether an impairment must be recorded under ASC 323 is whether an “other-than-temporary” decline in value of the investment has occurred. The evaluation and measurement of impairments under ASC 323 involves quantitative and qualitative factors and circumstances surrounding the investment, such as recurring operating losses, credit defaults and subsequent rounds of financing. If an unrealized loss on the investment is considered to be other-than-temporary, the loss is recognized in the period the determination is made and the value of the investment is reduced by the amount of the loss. |
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Stock-Based Compensation |
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The Company accounts for employee stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation (“ASC 718”), using the modified prospective transition method. Under this method, compensation expense includes: (a) compensation expense for all stock-based payments granted, but not yet vested, as of January 1, 2006 based on the grant-date fair value, and (b) compensation expense for all stock-based payments granted subsequent to January 1, 2006 based on the grant-date fair value. Such amounts have been reduced to reflect the Company’s estimate of forfeitures of all unvested awards. |
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The Company accounts for non-employee stock-based compensation in accordance with ASC 718 and ASC Topic 505, Equity (“ASC 505”). ASC 718 and ASC 505 require that the Company recognize compensation expense based on the estimated fair value of stock-based compensation granted to non-employees over the vesting period, which is generally the period during which services are rendered by non-employees. |
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The Company uses the Black-Scholes pricing model to determine the fair value of the stock-based compensation that it grants to employees and non-employees. The Black-Scholes pricing model takes into consideration such factors as the estimated term of the securities, the conversion or exercise price of the securities, the volatility of the price of the Company’s common stock, interest rates, and the probability that the securities will be converted or exercised to determine the fair value of the securities. The selection of these criteria requires management’s judgment and may impact the Company’s net income or loss. The computation of volatility is intended to produce a volatility value that is representative of the Company’s expectations about the future volatility of the price of its common stock over an expected term. The Company used its share price history to determine volatility and cannot predict what the price of its shares of common stock will be in the future. As a result, the volatility value that the Company calculated may differ from the actual volatility of the price of its shares of common stock in the future. |
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The Company recognized stock compensation expense of $70,373 and $99,080 during the years ended December 28, 2014 and December 29, 2013, respectively. |
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Income Taxes |
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The Company uses the liability method of accounting for income taxes in accordance with ASC Topic 740, Income Taxes, under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized in the future. |
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Net deferred tax assets consisted of the following components at December 28, 2014 and December 29, 2013: |
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| | December 28, | | | December 29, | |
| | 2014 | | | 2013 | |
Deferred tax assets: | | | | | | |
Net operating loss carryforwards | | $ | 850,235 | | | $ | 784,758 | |
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Deferred tax liabilities | | | --- | | | | --- | |
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Valuation allowance | | (850,235 | ) | | | (784,758 | ) |
Net deferred tax asset | | $ | --- | | | $ | --- | |
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The Company had net operating loss carry-forwards of approximately $2,231,587 and $2,059,733 at December 28, 2014 and December 29, 2013, respectively, that may be offset against future taxable income between the years of 2022 and 2032. No tax benefit has been reported in the December 28, 2014 and December 29, 2013 financial statements because the potential tax benefit is offset by a valuation allowance of the same amount. The Company had no uncertain tax positions at December 28, 2014 and December 29, 2013. |
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Utilization of net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations contained in the Internal Revenue Code of 1986, as amended, as well as similar state and foreign provisions. These ownership changes may limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income and tax, respectively. On November 2, 2012, William D. Leopold purchased 2,218,572 shares of the Company’s common stock, which represented approximately 41.2% of the outstanding shares of the Company’s common stock on that date, from Michael Rosenberger, who was then serving as the Company’s Chief Executive Officer, Chief Financial Officer, Secretary and sole member of the Company’s board of directors. This transaction could be deemed to have resulted in a change in ownership of the Company. Subsequent ownership changes could further affect the limitation in future years. These annual limitation provisions may result in the expiration of certain net operating losses and credits before utilization. |
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Recent Accounting Pronouncements |
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In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue with Contracts from Customers (“ASU 2014-09”). ASU 2014-09 supersedes the current revenue recognition guidance, including industry-specific guidance. The guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual periods beginning after December 15, 2016 and early adoption is not permitted. The Company is currently evaluating the impact of the updated guidance but it does not believe the adoption of ASU 2014-09 will have a significant impact on its financial statements. |
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In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This update requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding on certain principles that are currently in U.S. auditing standards. Specifically, ASU 2014-15: (i) provides a definition of the term substantial doubt, (ii) requires an evaluation every reporting period including interim periods, (iii) provides principles for considering the mitigating effects of management’s plans, (iv) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (v) requires an express statement and other disclosures when substantial doubt is not alleviated, and (vi) requires an assessment for a period of one year after the date that the financial statements are issued or available to be issued. This update is effective for the fiscal years ending after December 15, 2016 and for annual periods and interim periods thereafter. Early application is permitted. The Company has evaluated ASU 2014-15 and determined that it will not have a material impact on the Company’s financial statements. |