COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2013

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 6 - COMMITMENTS AND CONTINGENCIES

Commitments:

Franchise agreement

The Company operates its restaurant property under a franchise agreement with the Franchisor under an initial ten-year term, renewable for two additional five-year terms. Pursuant to the franchise agreement, the Company is to pay royalty fees based on a percentage of gross revenues (generally between 3% and 5% of gross sales, as defined), plus additional fees and costs for marketing, training, inventory and other franchisor costs. Two officers of the Company have personally guaranteed royalty payments to the Franchisor.

On September 23, 2013, Smokin Concepts Development Corporation and its subsidiaries (the "Company") amended the Franchise Agreement ("FA") with SH Franchising & Licensing LLC (the "Franchisor"). The amendment to the FA resulted in a substantial reduction in the royalty fees for the Company's Denver restaurant to be paid to the Franchisor beginning January 1, 2014. The reduced rate is 2.5% of gross sales, subject to a monthly floor of $5,000.

For the three and nine months ended September 30, 2013, the Company incurred franchise royalty expense of $27,700 and $71,200, respectively.

Lease agreement 

In April 2012, the Company entered into a ten-year, non-cancellable lease for the restaurant in Denver, Colorado. This lease provides for two, five-year renewal options. Rent payments are approximately $16,000 per month plus certain common area maintenance charges, as defined, and are subject to escalation provisions.  Lease expense was approximately $47,000 and $189,000 for the three and nine months ended September 30, 2013, respectively, and $62,600 and $131,000 for the three and nine months ended September 30, 2012.

During the three months ended September 30, 2013, the Company and its general contractor were in a dispute regarding the final payment on the leasehold improvements on the restaurant. The general contractor recorded a lien against the premises. This lien caused the Company to be in default of its lease agreement. In July 2013, the Company and its landlord entered into an agreement to satisfy the dispute with the general contractor so the full lien will be released.  In turn, the entire lien was released on August 2, 2013.  The Company made payments totaling $144,000 in full by September 30, 2013.

The Company also paid rent and rent-related expenses to Accredited Members Acquisition Corporation ("AMAC"), a related party (Note 9), on a month-to-month basis for office space at the AMAC corporate headquarters in Colorado Springs, Colorado. This arrangement began in October 2011 and terminated July 31, 2013, as the Management Service Agreement terminated. Base rental payments were approximately $3,500 per month. Related party rent expense was approximately $4,800 and $33,400 for the three and nine months ended September 30, 2013, respectively, and $10,900 and $36,300 for the three and nine months ended September 30, 2012, respectively.

Contingencies:

From time to time, the Company may become party to litigation and other claims in the ordinary course of business. To the extent that such claims and litigation arise, management provides for them if upon the advice of counsel, losses are determined to be both probable and reasonably estimable.