COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Commitments:

Franchise agreement

The Company operates its Denver 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, as amended, the Company is to pay royalty fees based on a percentage of gross revenues (2.5%, subject to a monthly floor of $5,000) , 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 December 30, 2014, SHD entered into a Fifth Amendment to its FA with the Franchisor in connection with the opening of a new Southern Hospitality restaurant in Lone Tree, Colorado. Under the FA, SHD partially assigned its rights to SHLT to use the Franchisor’s marks, business methods, proprietary products, confidential information and intellectual property to operate a Southern Hospitality restaurant. In addition, pursuant to the FA, the Franchisor waived certain initial fees in connection with SHLT opening a restaurant in Lone Tree, Colorado.

On February 13, 2015, SHD entered into a Sixth Amendment to its FA with the Franchisor in connection with the potential for opening two Southern Hospitality restaurants in Colorado Springs, Colorado.  Under the FA, SHD partially assigned its rights to SHSK, a 51%-owned subsidiary of the Company, and Southern Hospitality Tejon, LLC, a wholly-owned subsidiary of the Company, to use the Franchisor's marks, business methods, proprietary products, confidential information and intellectual property to operate a Southern Hospitality restaurant.

For the years ended December 31, 2015 and 2014, the Company incurred franchise royalty expense of approximately $139,300 and $59,000, respectively.

Leases:

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 $188,800 and $194,120 for the years ended December 31, 2015 and 2014, respectively.  

The Company has a ten-year lease with HIA, a related party, for the real property in connection with the restaurant location in Colorado Springs.  The lease commenced upon taking possession of the premises in January 2014.  Rent is approximately $33,340 per month for the first 60 months, and thereafter is subject to adjustment every 60 months. This lease provides for one, ten-year renewal option.  Related party lease expense was approximately $401,000 and $383,000 for each of the years ended December 31, 2015 and 2014, respectively.

The Company has a ten-year, non-cancellable lease for the restaurant in Lone Tree, Colorado. The lease provides for an initial lease term of ten years and for two, five-year renewal options.  Rent payments are approximately $8,900 per month plus certain common area maintenance charges, and are subject to escalation provisions.  In addition to base rent, this lease requires contingent rent payments equal to 5% of gross sales above predetermined thresholds, as defined. This location opened April 27, 2015, at which time the lease commenced.  Lease expense was approximately $74,400 for the year ended December 31, 2015 (none in 2014).

In April 2015, CARVEG entered into a non-cancellable lease for the Company’s first fast casual restaurant in Glendale, Colorado. The initial term of this lease provides for expiration on July 31, 2020. This lease includes three, five-year extension options. Rent payments are approximately $11,100 per month, which includes certain common area maintenance charges, and are subject to escalation provisions.  This location opened November 5, 2015. Lease expense was approximately $84,960 for the year ended December 31, 2015 (none in 2014).

On January 1, 2014, the Company assumed a lease from a related party for the corporate office in Colorado Springs.  The lease is for 78 months with an unaffiliated party.  Monthly rent is $5,800 per month escalating up to $6,000 per month in year six.  The initial term of the lease provides for expiration on December 31, 2016. Lease expense for the years ended December 31, 2015 and 2014 was $71,200 and $69,600, respectively.

The future minimum lease payments are as follows:

	Third Party		Related Party		Total
2016	$	492,089	$	401,092	$	893,181
2017		424,843		401,092		825,935
2018		431,206		401,092		832,298
2019		437,761		401,092		838,853
2020		409,629		401,092		810,721
Thereafter		893,731		1,219,988		2,113,719
	$	3,089,259	$	3,225,448	$	6,314,707

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 estimable.