News Column


June 16, 2014

The nature of our business makes predicting the future trends of our revenues, expenses, and net income difficult. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. The risks and uncertainties involved in our business could affect the matters referred to in any forward-looking statements and it is possible that our actual results may differ materially from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the factors discussed in the section entitled "Risk Factors" and the following:

The effect of political, economic, and market conditions and Geopolitical


Legislative and regulatory changes that affect our business;

The availability of funds and working capital;

The actions and initiatives of current and potential competitors;

Investor sentiment; and Our reputation.

We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by any forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto as filed with the SEC and other financial information contained elsewhere in this Form 10-K.


With the acquisition of the operation of Carmela's Pizzeria in October 2013, our operations now consist of Carmela's Pizzeria's, which presently has three Dayton, Ohio area locations offering authentic New York style pizza. Carmela's offers a full service menu for Dine In, Carry out and Delivery as well as pizza buffets in select stores. Carmela's has been noted in Dayton Daily News as one of "The Best Pizzerias" in Dayton.

Effective with the acquisition, Carmela's is treated as the continuing reporting entity that acquired the Company. The quarterly and annual reports filed after the transaction, beginning with this report, have been prepared as if Carmela's (accounting acquirer) were the legal successor to the Company's reporting obligation as of the date of the acquisition. Therefore, all financial statements filed subsequent to the transaction reflect the historical financial condition, results of operations and cash flows of Carmela's for all periods prior to the share exchange; and consolidated with the Company from the date of the share Exchange. All share and per share amounts of Carmela's have been retroactively adjusted to reflect the legal capital structure of the Company.

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We had a net loss of $520,850 for the year ended December 31, 2013 as compared to a loss of $183,019 for the year ended December 31, 2012. Our gross sales in 2013 were $1,189,471 with cost of goods sold of $955,848 for a gross profit of $233,631. This compared to gross revenues of $1,339,660, costs of goods sold of $1,207,109 and gross profit of $132,551 for the year ended December 31, 2012. Our sales in the 2013 period decreased $150,181, or approximately 11% in 2013 versus 2012 as a result of Carmela's relocating the Eaton store to Centerville and two months of lost sales associated with that relocation. However, the cost of goods sold decreased by approximately 21% so the gross profit as a percentage of total sales increased to just under 20% in 2013 from approximately 10% in 2012. This resulted in large part from increased attention by Carmela's to shift management and employee overhead along with measures to reduce food costs associated with waste at its buffet restaurants.

Total operating expenses were $455,426 for the year ended December 31, 2013 versus $315,078 for the year ended December 31, 2012 resulting in loss from operations of $221,795 and $182,527 in the 2013 and 2012 periods, respectively. The single most significant factor for the increase in operating expenses was the consolidation of the operations of Carmela's with that of the Company and the costs of operating a publicly traded entity. This included $10,000 in stock based compensation and a roughly $60,000 increase in legal, accounting and professional fees that are primarily related to the Carmela's acquisition.

Other expenses were $299,055 for the year ended December 31, 2013 as compared to $492 for the year ended December 31, 2012. This significant increase is due to the addition of convertible promissory notes in the 2013 period with the combination of Carmela's and the Company, as Carmela's had no convertible debt prior to the transaction in October 2013. The primary expense for the corresponding derivative liability includes derivative expense of $193,079, and amortization expense on discount of debt of $29,314 along with loss on conversion of debt of $130,642. This expense will continue in future periods as the Company continues to issue convertible notes and those notes experience changes in derivative liabilities with changes in the market price of the Company's common stock; and those notes are converted at discounts to market causing losses on conversion.


GENERAL. Overall, we had a net loss of $520,850 for the year ended December 31, 2013 as compared to $183,019 for the year ended December 31, 2012. During the year ended December 31, 2013, we had cash flow used by operations of $117,546, net cash used in investing activities of $28,233, and cash flows provided by financing activities of $146,712. At December 31, 2013, our cash balance was $5,022.

For the year ended December 31, 2012, we had a net loss of $183,019 with cash flow used by operations of $148,831, net cash provided by investing activities of $0, and cash flows provided by financing activities of $151,728. At December 31, 2012, our cash balance was $4,089.

CASH FLOWS FROM OPERATING ACTIVITIES. Net cash flow used in operating activities was $117,546 which was primarily attributable to our net loss of $520,850, offset by non-cash adjustments to derivative liabilities from convertible notes payable totaling $219,475 as well as $10,000 in expense for stock issued for services and $130,642 for loss on conversion of debt. The adjustments to reconcile the net loss to net cash for the period ended December 31, 2013 also included depreciation expense of $18,093.

CASH FLOWS FROM INVESTING ACTIVITIES. For the year ended December 31, 2013, cash flows used in investing activities was $28,233 primarily from $22,985 in equipment purchases for our restaurant locations.

CASH FLOWS FROM FINANCING ACTIVITIES. For the year ended December 31, 2013, cash flows from financing activities were $146,712, which consisted of proceeds from issuance of notes and convertible notes payable totaling 183,882 that was offset by distribution payments to the members of COHP prior to the transaction between the Company and Carmela's of $31,500 as well as payments on capital leases of $5,670.

For the year ended December 31, 2012, we had cash used in operating activities of $148,831 including $17,725 in depreciation expense along with a total of $16,463 from changes in assets and liabilities.

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Cash flows from financing activities provided $151,728 primarily from proceeds from various notes payable from related parties totaling $164,172.

EXTERNAL SOURCES OF LIQUIDITY. We intend to pursue all potential financing options in 2014 as we look to secure additional funds to both stabilize and grow our business operations and work on franchising efforts for Carmela's. Our management will review any financing options at their disposal and will judge each potential source of funds on its individual merits. We cannot assure you that we will be able to secure additional funds from debt or equity financing, as and when we need to or if we can, that the terms of such financing will be favorable to us or our existing shareholders. Additionally, we will most likely need to rely on debt financing that is convertible into shares of our common stock that will result in significant dilution to our stockholders due to the conversion of that debt at significant discounts to the market price of our common stock.

INFLATION. Our management believes that inflation has not had a material effect on our results of operations, and does not expect that it will in fiscal year 2014.

OFF-BALANCE SHEET ARRANGEMENTS. We do not have any off-balance sheet arrangements.

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Source: Edgar Glimpses

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