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EX-4 - EXHIBIT 4.2 - Bill The Butcher, Inc.exh_42.htm
EX-4 - EXHIBIT 4.1 - Bill The Butcher, Inc.exh_41.htm
EX-32 - EXHIBIT 32.2 - Bill The Butcher, Inc.exh_322.htm
EX-31 - EXHIBIT 31.2 - Bill The Butcher, Inc.exh_312.htm
EX-31 - EXHIBIT 31.1 - Bill The Butcher, Inc.exh_311.htm
EX-32 - EXHIBIT 32.1 - Bill The Butcher, Inc.exh_321.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
Form 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended February 28, 2011
Commission File Number 000-52439
 
BILL THE BUTCHER, INC.
(Exact name of registrant as specified in its charter)
 
     
Nevada
 
20-5449905
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
424 Queen Anne Avenue N., Suite 400, Seattle, WA
 
98109
(Zip Code)
(Address of principal executive offices)
   
 
Registrant’s telephone number, including area code:
(206) 453-4418

    Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ    No   ¨
 
    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ¨        No 
 
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
    Large accelerated filer           Accelerated filer             Non-accelerated filer            Smaller reporting company þ
 
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No þ
 
    As April 4, 2011, there were 23,703,104 shares of the Registrant’s $0.001 par value Class A common stock outstanding.

 
 

 
BILL THE BUTCHER, INC.
QUARTERLY REPORT ON FORM 10-Q
 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2011
TABLE OF CONTENTS
 
 






Item 3 of PART I and Items 1, 3, and 4 of PART II have not been included as they are not applicable.

 
 

 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q  contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements reflect our current views with respect to future events or our financial performance, and involve certain known and unknown risks, uncertainties and other factors, including those identified below, which may cause our actual or future results, levels of activity, performance or achievements to differ materially from those expressed or implied by any forward-looking statements or from historical results. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements include information concerning our possible or assumed future results of operations and statements preceded by, followed by, or that include the words “may,” “will,” “could,” “would,” “should,” “believe,” “expect,” “plan,” “anticipate,” “intend,” “estimate,” “predict,” “potential” or similar expressions.
 
Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. We have no duty to update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform them to actual results, new information, future events or otherwise.
 
The following factors, among others, could cause our future results to differ materially from historical results or those anticipated:

 
 
our ability to obtain additional funding and continue as a going concern;

 
 
our limited operating history and the significant challenges we face in executing our business plan;

 
 
the material deficiency of our internal controls over financial reporting and the more than remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period;

 
 
our ability to increase store revenues and further develop our brand and business model;

 
 
our dependence on the financial performance of stores located in one geographic area;

 
 
costs associated with any litigation; and

 
 
our ability to attract and retain key officer and employees.
 
These and other risk factors discussed in Part II, Item 1A (“Risk Factors”) of this Form 10-Q are among important factors of which we are currently aware that could cause actual results, performance or achievements to differ materially from those expressed in our forward-looking statements. We operate in a continually changing business environment, and new risk factors emerge from time to time. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. We cannot assure you that projected results or events will be achieved or will occur.


 
 

 
PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
 
Bill the Butcher, Inc. and subsidiary
Condensed Consolidated Balance Sheets
(in thousands, except share information)
(Unaudited)  
               
               
     
February 28,
   
August 31,
 
     
2011
   
2010
 
Current assets
             
  Cash and cash equivalents
    $ 142     $ 96  
  Merchandise inventories
      52       126  
  Prepaid expenses and other current assets
      3       14  
          Total current assets
      197       236  
Property and equipment, net
      407       449  
Deposits and other assets
      72       62  
           Total assets
    $ 676     $ 747  
                   
Current liabilities
                 
  Accounts payable
    $ 560     $ 319  
  Accrued liabilities
      254       156  
  Notes payable
      100       100  
  Convertible notes payable, net of discount of $133
      217       -  
  Current portion of obligations under capital lease
      10       11  
          Total current liabilities
      1,141       586  
Obligations under capital lease, net of current portion
      10       14  
Deferred rent
      15       10  
          Total liabilities
      1,166       610  
Commitments and contingencies
                 
Stockholders' equity (deficit)
                 
  Preferred stock, $0.001 par value, 5,000,000 shares authorized
               
    Series A - 2,000,000 shares authorized; none issued or outstanding
               
    Series B - 2,000,000 shares authorized; none issued or outstanding
               
    Series C - 1,000,000 shares authorized; none issued or outstanding
               
  Common stock,Class A, $0.001 par value, 70,000,000 shares authorized;
               
       23,703,104 and 23,043,104 shares issued and outstanding
    24       23  
       Shares issuable: 117,625 shares and 341,875 shares
      138       269  
  Additional paid-in capital
      2,068       1,189  
  Accumulated deficit
      (2,720 )     (1,344 )
     Total stockholders' equity (deficit)
      (490 )     137  
                   
           Total liabilities and stockholders' equity (deficit)
    $ 676     $ 747  


See notes to condensed consolidated financial statements.

 
 

 

Bill the Butcher, Inc. and subsidiary
Condensed Consolidated Statements of Operations
(in thousands, except share and per share information)
(Unaudited)
    Three months ended     Six months ended  
    February 28,     February 28,  
   
2011
   
2010
   
2011
   
2010
 
                         
Sales
  $ 559     $ 152     $ 1,152     $ 207  
Cost of goods sold
    347       103       727       136  
Gross profit
    212       49       425       71  
Operating expenses
                               
  Direct store expenses
    325       73       665       83  
  General and administrative expenses
    551       195       1,097       260  
     Total operating expenses
    876       268       1,762       343  
Loss from operations
    (664 )     (219 )     (1,337 )     (272 )
Interest expense
    35       -       39       1  
Net loss
  $ (699 )   $ (219 )   $ (1,376 )   $ (273 )
                                 
Net loss per share, basic and diluted
  $ (0.03 )   $ (0.01 )   $ (0.06 )   $ (0.01 )
Weighted average shares used in computing
                               
  net loss per common share, basic and diluted
    23,755,779       22,537,169       23,632,112       22,537,169  
 
See notes to condensed consolidated financial statements.
 
 

 
 Bill the Butcher, Inc. and subsidiary
 Condensed Consolidated Statement of Stockholders' Equity (Deficit)
 For the six months ended February 28, 2011
 (in thousands, except shares)
(Unaudited)
                                           
                                           
    Class A                    
     Common stock     Common stock issuable     Additional     Accumulated        
   
Shares
   
Amount
   
Shares
   
Amount
   
paid-in capital
   
deficit
   
Total
 
Balance at August 31, 2010
    23,043,104     $ 23       341,875     $ 269     $ 1,189     $ (1,344 )   $ 137  
  Common shares issued for private placements
    325,000                               264               264  
  Common shares issued previously issuable
    335,000       1       (335,000 )     (264 )     263               -  
  Common shares issuable for services
                    110,750       133                       133  
  Stock options issued for services
                                    195               195  
  Fair value of warrants issued with notes payable
                                    157               157  
  Net loss
                                            (1,376 )     (1,376 )
Balance at February 28, 2011
    23,703,104     $ 24       117,625     $ 138     $ 2,068     $ (2,720 )   $ (490 )

See notes to condensed consolidated financial statements

 
 

 
Bill the Butcher, Inc. and subsidiary
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
               
        Six months ended February 28,  
     
2011
   
2010
 
Cash flows from operating activities:
             
 Net loss
    $ (1,376 )   $ (273 )
    Adjustments to reconcile net loss to net cash used by operating activities:
                 
        Depreciation and amortization
      70       4  
        Stock-based compensation expense
      328       -  
        Amortization of debt discount
      24       -  
        Changes in assets and liabilities, net of amounts
                 
         relating to acquisition of business
                 
          Merchandise inventories
      74       (31 )
          Prepaid expenses and other current assets
      7       (30 )
          Deposits and other assets
      6       (55 )
          Accounts payable
      255       (1 )
          Accrued liabilities
      84       -  
       Other
      (9 )     5  
               Net cash used by operating activities
      (537 )     (381 )
Cash flows from investing activities:
                 
     Purchases of property, plant & equipment
      (26 )     (90 )
          Net cash used by investing activities
      (26 )     (90 )
Cash flows from financing activities:
                 
     Proceeds from sale of common stock issued and issuable
      264       700  
     Proceeds from issuance of notes payable
      450       -  
     Repayments of notes payable
      (100 )     -  
     Payments on capital lease obligations
      (5 )     -  
     Repurchase of common stock
      -       (25 )
          Net cash provided  by financing activities
      609       675  
Net increase in cash and cash equivalents
      46       204  
Cash and cash equivalents, beginning of year
      96       -  
Cash and cash equivalents, end of period
    $ 142     $ 204  
                   
Supplemental disclosures of cash flow information:
                 
  Cash paid for interest
    $ 9     $ -  
  Cash paid for income taxes
    $ -     $ -  
Supplemental disclosures of non-cash financing activities:
                 
  Debt discount relating to warrants issued with notes payable
    $ 157     $ -  
 
See notes to condensed consolidated financial statements


 
 

 
Bill the Butcher, Inc. and subsidiary
Notes to Condensed Consolidated Financial Statements
For the six months ended February 28, 2011 (unaudited)

Note 1. Description of Business and Summary of Significant Accounting Policies

Organization and business – Bill the Butcher, Inc. and its wholly owned subsidiary (together, “Bill the Butcher” or the “Company”), is a Seattle, Washington based retailer selling U.S. sourced and ethically raised meats through corporate-owned neighborhood butcher shops.  At February 28, 2011, we operated six stores in the greater Seattle area, including one store opened in September 2010.  We have one operating segment, butcher shops selling organic and natural meat.

In October 2009, J’Amy Owens acquired a majority of the then outstanding shares of common stock of our Company and became the Company’s sole officer and director and principal shareholder.  As disclosed in Note 2, during the fiscal year ended August 31, 2010, we acquired W K, Inc., a business which she co-founded in 2009 to develop the “Bill the Butcher” retail concept.  From an accounting perspective, the transaction is between entities under common control.  Our consolidated results of operations have been retroactively restated for the three and six month periods ended February 28, 2010 to reflect the results of operations of W K, Inc. as of the beginning of the fiscal year ended August 31, 2010.
 
Going concern - The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. We have reported net losses, including a net loss of approximately $1.3 million during the year ended August 31, 2010, and a net loss $1.4 million during the six months ended February 28, 2011.  We expect losses to continue in the near future as we grow and further develop our operations.  At February 28, 2011, we had a working capital deficit of $944,000 and an accumulated deficit of $2.7 million.  We have funded our operations and business development and growth through sales of common stock in private placements and to a lesser extent short-term borrowings. In this regard, during the six months ended February 28, 2011, we raised $264,000 through sales of our common stock and $350,000 through issuances of convertible promissory notes.

We require additional capital to further develop our business, execute our business strategy and to satisfy our near-term working capital requirements.  Our operating expenses will also consume a material amount of our cash resources.  We intend to raise capital from equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be obtained in sufficient amounts necessary to meet our needs. In the event that we cannot obtain additional funds on a timely basis or our operations do not generate sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment.  We may also seek additional loans from security holders or others. However, there can be no assurance that we will be able to consummate any of these transactions, or that these transactions will be consummated on a timely basis or on terms favorable to us.

The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.

Interim financial statements – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete financial statements.  The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements, including the notes thereto, as of and for the fiscal year ended August 31, 2010, included in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission.  The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our consolidated financial position, results of operations and cash flows for each period presented.  The results of operations for the interim periods ended February 28, 2011 are not necessarily indicative of the results for any future period.
 
Use of estimates in the preparation of financial statements - Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The more significant accounting estimates inherent in the preparation of our financial statements include estimates as to the valuation and recoverability of inventories, recoverability of long-lived assets, valuation of equity related instruments, and valuation allowance for deferred income tax assets.

 
 

 
Cash and cash equivalents  - We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Our cash is maintained with high credit quality financial institutions. At times, such balances may be in excess of the FDIC insurance limit. At February 28, 2011, no amounts exceeded the limit.
 
Contingencies - Certain conditions may exist as of the date financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events do or do not occur. Our management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.  If the assessment of a contingency indicates that it is probable that a liability has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable, would be disclosed.
 
Concentrations - All of our operations are currently located in the greater Seattle, Washington area. As a result, we could be particularly susceptible to adverse trends and economic conditions in the area, including labor markets and other occurrences such as local strikes, earthquakes or other natural disasters.  In addition, inasmuch as we are a retailer of meat and related merchandise, adverse publicity and/or trends with respect to the meat industry in general could have a material effect on our operations and financial condition.
 
Fair value measurements – In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.  Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar asset or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.  Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

Fair value of financial instruments – The fair value of our financial instruments, including cash and cash equivalents, accounts payable, accrued liabilities and notes payable approximates the carrying amounts value due to their short maturities.

Inventory - Inventory, which consists primarily of meat and nonperishable products, is stated at the lower of cost or market. Cost is determined by the first-in, first-out method.

Deferred financing costs – We record legal and other fees paid relating to offerings of equity or debt securities as deferred financing costs included in other assets.  Costs relating to debt are deferred and amortized to interest expense over the term of the related debt.  Costs relating to equity are recorded as stock issue costs as a decrease to additional paid-in capital upon sales of equity securities in the financing to which the costs relate.

Debt discount – We record fees paid to lenders and the fair value of warrants issued with debt securities as a debt discount, which is presented net of related borrowings on the consolidated balance sheets and amortized as an adjustment to interest expense over the borrowing term.

Cost of goods sold - Cost of goods sold includes the cost of meat and nonperishable products sold and commissary costs.   

Direct store expenses - Direct store expenses consist of store-level expenses such as rent and utilities, salaries and benefits costs of in-store personnel, supplies, depreciation, and other store-specific costs.
 
Stock-based compensation - We use the Black-Scholes-Merton option pricing model as our method of valuation for stock-based awards. Stock-based compensation expense is based on the value of the portion of the award that will vest during the period, adjusted for expected forfeitures. The estimation of awards that will ultimately vest requires judgment, and to the extent actual or updated results differ from our current estimates, such amounts will be recorded in the period the estimates are revised. The Black-Scholes-Merton option pricing model requires the input of highly subjective assumptions, and other reasonable assumptions could provide differing results. Our determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award and expected stock price volatility over the term of the award. Stock-based compensation expense is recognized on a straight-line basis over the applicable vesting period based on the fair value of such stock-based awards on the grant date.
 
Net loss per share - Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period.  Common stock equivalents are excluded as the effect would be anti-dilutive.  The number of shares excluded from net loss per share computations for the interim periods ended February 28, 2011 totaled 3,000,000 shares, comprised of 437,500 shares issuable upon conversion of convertible notes payable, 2,187,500 shares
 
 
 

 
relating to warrants and 375,000 shares relating to stock options.  There were no common stock equivalents outstanding during the comparative prior year periods.
  
Note 2.   Acquisition of Bill the Butcher Business

During the fiscal year ended August 31, 2010, we acquired all of the outstanding equity interests of W K, Inc. pursuant to terms of a Purchase Agreement dated March 26, 2010.   J’Amy Owens, our sole officer and director and principal shareholder, was a founder of W K, Inc.  We determined that the acquisition represented a transaction between entities under common control.  Accordingly, assets and liabilities acquired are recorded at W K, Inc.’s carrying amount in a manner similar to that resulting from “pooling of interest” accounting, and no goodwill or other intangible was recorded.  The recorded carrying amount of assets acquired and liabilities assumed as of the Purchase Agreement date were as follows (in thousands):
 
Inventories
  $ 73  
Prepaid expenses and other assets
    13  
Property and equipment
    39  
Accounts payable and accrued liabilities
    (14 )
      111  
Advances prior to acquisition
    (93 )
Net assets acquired
  $ 18  
 
Note 3.   Merchandise Inventories

Merchandise inventories consisted of the following (in thousands):
   
February 28,
   
August 31,
 
   
2011
   
2010
 
Perishable food
  $ 26     $ 81  
Non-perishables
    26       45  
     Total
  $ 52     $ 126  

Note 4.  Notes Payable

In February 2011, we received cash of  $100,000 and $250,000 from existing shareholders and issued convertible notes payable (the “Convertible Notes”) in such amounts together with warrants to purchase 125,000 and 312,500 shares of our common stock at a per share price of $0.80 that expire in February 2016 (the “Warrants”). The Convertible Notes bear interest at 15% payable at maturity.  The Convertible Note in the principal amount of $100,000 is due April 3, 2011 (subsequently extended – see Note 7 Subsequent Events), and the Convertible Note in the principal amount of $250,000 is due February 12, 2012.  The Convertible Notes are convertible into shares of our common stock at a conversion price of $0.80 per share (i) if we are acquired or (ii) if we elect to prepay all or a portion of the outstanding principal, and therefore, a contingent beneficial conversion feature was not recognized.   The fair value of warrants issued with the Convertible Notes was $326,000 determined using the Black-Scholes-Merton option pricing model with the following assumptions:  contractual term of 5 years , volatility of 75%, zero dividends and interest rate of 2.3%, of which $157,000 was recorded as debt discount.  Discount amortization of $24,000 was recorded as interest expense during the three months ended February 28, 2011, with the remainder to be amortized $84,000 during the next six months of the fiscal year ending August 31, 2011 and $49,000 during the six months ending February 28, 2012.  

In April 2010, we borrowed $100,000 for working capital purposes pursuant to a 7% promissory note payable from an existing shareholder and a warrant holder.  The note was due in 90 days and remained outstanding at February 28, 2011.  While the note is due on demand, the holders have agreed to extend the due date, although no extension date has been established.  Our sole officer and director and principal shareholder is also a co-debtor under the note.

In October 2010, we borrowed $100,000 for working capital purposes pursuant to a 7% promissory note payable due February 15, 2011 to one of the April 2010 note holders, which was repaid in February 2011.  Our sole officer and director and principal shareholder was also a co-debtor on the note.

Note 5.  Stockholders’ Equity

Preferred Stock - We are authorized to issue up to 5,000,000 shares of $0.001 par value preferred stock, including two million shares of preferred stock that would be entitled to ten votes per share, two million shares of preferred stock that would be entitled to two votes per share, and one million shares of preferred stock with no voting rights.  Our Board of Directors has the authority
 
 
 

 
to fix and determine the relative economic rights and preferences of preferred shares, as well as the authority to issue such shares without further stockholder approval.  As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our common stock, and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the common stock.  In addition, shares of preferred stock could be issued with terms designed to delay or prevent a change in control or make removal of management more difficult. 

Common Stock - We are authorized to issue up to 70,000,000 shares of $0.001 par value Class A common stock.  
 
In November 2009, we initiated a private placement for sales of our common stock pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D, promulgated there under. During the six months ended February 28, 2011, we received proceeds of $264,000 from the sale of 330,000 shares of our common stock at $0.80 per share.  
 
Stock Options and Common Stock Issued for Services – Pursuant to terms of an August 2010 services agreement, fees for the first three months were payable in 20,625 shares of our common stock, and during the six months ended February 28, 2011, there were 13,750 shares issuable, which were recognized as expense of $28,000 at fair value based on our closing stock price when issuable.  Additionally, pursuant to terms of the agreement, in November 2010, we granted the service provider an option to purchase 187,500 shares of our common stock at an exercise price of $0.80 per share for five years and recognized expense of $195,000 computed using a Black-Scholes-Merton option pricing model with the following assumptions: contractual term of 5 years, volatility of 75%, zero dividends and interest rate of 1.6%.  

In December 2010, we entered into an agreement with an investor relations firm pursuant to which, among other things, we agreed to issue the firm 5,000 shares of our common stock.  We recorded the 5,000 shares issuable at the closing market price on the agreement date, which resulted in an increase in shares issuable and expense of approximately $7,000.

In February 2011, we entered into a one-year agreement with an investor and public relations firm pursuant to which, among other things, we agreed to pay at the beginning of each three month period $15,000 and issue to the firm 92,000 shares of our common stock.  We may terminate the agreement at the end of a three month period with no amounts payable after termination.  During the three months ended February 28, 2011, we recorded 92,000 shares issuable at the closing market price on the agreement date, which resulted in an increase in shares issuable and expense of approximately $98,000.
 
Note 6.  Commitments and Contingencies

Stock Purchase Agreements - Pursuant to two separate stock purchase agreements dated March 26, 2010, our sole officer and director agreed to sell 6,270,000 shares of common stock to the former sole stockowner of W K, Inc. for $16,500, and 1,558,000 shares for $4,100 to a former employee who has commenced a lawsuit against the Company for wrongful discharge.   The stock sales were never completed.  The parties commenced negotiations to amend the respective stock purchase agreements, but were unable to reach agreement.  The former employee has asserted a claim against Ms. Owens, personally, for breach of the stock purchase agreement.

Leases - In February 2011, we entered into an eighteen-month lease agreement for a commissary.

Legal Proceedings - In October 2010, a former employee commenced a lawsuit in the Superior Court of the State of Washington against the Company, its sole officer and director, and certain advisors to the Company.  The complaint alleges that the Company breached its employment agreement with the plaintiff and that the plaintiff was wrongfully discharged in violation of public policy.  The plaintiff seeks damages in an undefined amount, injunctive relief, and attorneys’ fees. As noted above, the plaintiff also has asserted a claim against our sole officer and director, personally, for breach of a stock purchase agreement.   A trial date has been set in March 2012.  We have rejected the claims, filed a counterclaim and intend to defend the lawsuit vigorously.
 
From time to time, we may be subject to various legal proceedings and claims that may arise in the ordinary course of business. Our management currently believes that resolution of such legal matters will not have a material adverse impact on our consolidated financial position, results of operations or cash flows.
 
Note 7.  Subsequent Events

In March 2011, we received cash of  $50,000 and issued a Convertible Note in such amount together with warrants to purchase 50,000 shares of our common stock at a per share price of $0.80 that expire in February 2016 (the Warrants”).  The Convertible Note bears interest at 15%, and together with interest is due one year from issuance.  The Convertible Note is convertible into
 
 
 

 
shares of our common stock at a conversion price of $0.80 per shares (i) if we are acquired or (ii) if we elect to prepay all or a portion of the outstanding principal, and therefore a contingent beneficial conversion feature is not recognized.

In March 2011, we agreed with the holder of the $100,000 Convertible Note due April 3, 2011 to revise the due date to May 3, 2011.  In consideration for agreeing to extend the maturity date of the loan, the company has agreed to issue 10,000 shares of Class A common stock to the note holder.

In March 2011, we entered into a six-month consulting services agreement , pursuant to which an individual will serve as our Vice President of Finance and Chief Financial Officer at a salary of $2,000 per month.  Additionally, if and to the extent we complete debt or equity financings, or a merger, acquisition or asset disposition, with counterparties first introduced to the Company by the officer, the officer will be eligible to certain transaction-based compensation.
 
 
 

 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Statements contained herein that are not historical fact may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are subject to a variety of risks and uncertainties.  Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Item 1A. Risk Factors in Part II, under the caption “Forward-Looking Statements,” and in other sections of this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission.
 
The following management’s discussion and analysis is intended to provide information necessary to understand our unaudited condensed consolidated financial statements and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and operating results of our business during the interim periods ended February 28, 2011.  The following discussion and analysis of the financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and accompanying notes thereto appearing in our Annual Report on Form 10-K/A for the fiscal year ended August 31, 2010 (the “Form 10-K”).

Overview - Founded in 2009, Bill the Butcher is a gourmet food company selling organic and natural grass-fed meat, (including pasture-raised beef, pork, chicken, lamb, and turkey) with complementary and thematic sundry food items via corporate owned neighborhood butcher shops.  We launched the concept in the greater Seattle, Washington area and the Company is also headquartered there.

We believe that the reason for our success to date stems in part from our cost-effective roll out strategy.  We have opened six stores averaging approximately 1,300 square feet per butcher shop at an average cost for build-out and equipment of $85,000.  
 
Our early success has been generated from some key strategic advantages.  These advantages include our Chief Executive Officer’s industry experience and extensive background in launching retail concepts.  Another key has been our ability to keep the initial capital costs of opening an individual store very low.  Our concept is to generate high revenue and high margins by deploying very low cost and strategically placed neighborhood butcher shops in local communities.  The low cost deployment provides multiple benefits including a quicker return on investment and also supports the ability for aggressive growth.

The first “Bill the Butcher” store was opened in August 2009 in Woodinville, Washington, a city in the greater Seattle area.  Five additional store locations opened throughout 2010 in other Seattle neighborhoods (Laurelhurst, Madison Valley and Magnolia) and cities in the greater Seattle area (Redmond and Bellevue).  We will be opening a seventh store in Edmonds, Washington. In addition, we operate a commissary that provides limited processing and distribution services for our retail butcher shops
Management believes that our ongoing efforts will tend to raise margins and improve gross profits. There is no assurance that we will realize the objectives of our efforts, both from an operating and financing perspective, certain of which are dependent on our receiving additional capital, and there is no assurance that such funding will be available. To the extent that additional resources are not received, or to the extent our management is not successful in executing on objectives for improving margins, then margins are not likely to improve.  Further, in the absence of additional capital infusions, it is unlikely that we can continue to support our growth.

Business Plan - Our strategies for successfully executing our business plan include the following:

Low capital to open stores To keep the initial capital cost of our butcher shops low, we primarily use recycled, reused and reclaimed materials.  All large animal carcass break-down, as well as other pre-processes are completed in a centralized commissary rather than in the Company’s shops.  Therefore there is no need for store-based band saws, large smokers, expensive exhaust hoods, fire evacuation systems and other high cost capital expenses associated with food stores. We have opened our butcher shops at an average capital cost of less than $85,000 each. The individual butcher shops carve sub-primals, dry age, make sausage and grinds and prepare many value added products such as sausage, meat loaf and specialty grinds.

Low labor cost to operate stores – The strategy is to keep the Butcher and the sales clerk, who is called a “Tenderizer”, focused on selling the product and educating and entertaining the customer, rather than on less productive or labor-intensive tasks. This is the primary beneficial outcome of the central commissary.  Store hours are 12:00 noon to 7:00 PM daily.  Our stores operate full-time with an average of 2.5 employees per store.
 
Utilization of a CommissaryOur operating model utilizes a central commissary where meat can be butchered from whole and half carcass, prepared, and efficiently distributed to local Bill the Butcher shops. A commissary can be opened for less than
 
 
 

 
$150,000 and the capital investment and is projected to support up to 20 butcher shops.  There are multiple benefits to the centralized commissary concept including the following:

·  
Meat can be purchased as a whole animal, therefore reducing the cost per pound.
·  
Meat can be butchered at the commissary from whole animal to sub primal, therefore eliminating the need for the store to provide added labor.  This allows stores to have minimal staff and the staff can be dedicated to selling the product.
·  
Whole animal purchasing typically creates a fair amount of waste from the butchering process. Our commissary can turn this waste into high yield and high margin products.  This includes such processes as boiling bones to produce an organic or natural soup stock. The commissary also turns the less desirable cuts of meat into dried sausages and organic and natural beef jerky, which are some of the highest margin items we sell.  This process represents the most sustainable solution for the farmer, as the Company is able to purchase the whole animal.
·  
Shipping and processing of meat can be centralized and therefore better controlled, thus minimizing shrink and maximizing yield by managing the inventory turn of any given product at the butcher shop level.

Inventory Tracking and Management – Our butcher shops have a state-of –the-art inventory tracking and management system that is used by other large retailers.  This system allows for accurate tracking of margins, waste, yield, and other factors related to costs from the highest levels of buying and planning, down to the individual cuts of meat at store level. with the ability to track products from farms to commissary to stores.  Each of our butcher shops, commissary and our headquarters office have current inventory information available online.
 
Our business and growth strategy is described below in two stages.  We are currently well into stage one.

Stage One - The first stage is to open 20 stores and move from the existing commissary to a new and more fully functional commissary in the Seattle area.  The plan is to bring stores to full sales and profit levels and therefore improve the scalable model.  We believe the successful execution of this stage will generate positive cash flows from operations.  We now have six stores open, with store seven under construction, and have leases in negotiation for three additional locations in the area. Proceeds from our financing activities are expected to be used to:

·
Improve the commissary and store operating model.
·
Open Store #7 in Edmonds, Washington.
·
Open 13 additional Bill the Bucher shops in the greater Seattle area, bringing our store count to 20 by the end of 2011.
·
Advertise and market the brand.  We generated significant sales in fiscal 2010, but spent less than $40,000 on advertising and marketing.  We believe the potential for increasing sales is very strong with an advertising and marketing campaign to let the local community know of the Bill the Butcher shop’s presence and product offering.
·
Initiate educational programs to inspire customers about the cause of sustainability as well as preparation and cooking.
·
Improve gross margins by purchasing in greater quantities and increasing inventory turns.  Management believes this can bring an additional 8% to 10% of gross margin on non-perishable products and 5% to 8% on perishable products.
·
Establish a fully operating commissary.  Management believes this would provide for greater whole animal purchases resulting in additional cost savings and potential gross margin improvements from as much as 8% to 12%.
·
Purchase equipment to prepare and sell large volumes of high margin products such as organic and natural broth as well as organic and natural beef jerky.  These products have high margins, which management believes can bring the average gross margin up another 3% to 5%.

Stage TwoThe second stage of our growth plan will require substantial additional financing to fund a regional rollout.  We anticipate a regional store expansion with 120 to 150 company-owned Bill the Butcher stores west of the Mississippi.

Going Concern and Capital Resources - As of February 28, 2011, we had cash and cash equivalents of $142,000 and an accumulated deficit of approximately $2.7 million.  Our net loss for the six months ended February 28, 2011 was approximately $1.4 million and we expect to incur additional losses in the near future. Our operating activities used cash of $537,000 during the six months ended February 28, 2011, and our working capital deficit (excess of current liabilities over current assets) was $944,000 as of February 28, 2011. The report of our independent registered public accounting firm on our audited August 31, 2010 consolidated financial statements included in our Form 10-K/A included a comment noting these and other factors raise substantial doubt regarding our ability to continue as a going concern.
 
We have prepared our consolidated financial statements assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business.  We have funded our losses primarily through sales of common stock in private placements and borrowings from related parties and other investors.  We require additional capital to further develop our business, execute our business strategy and to satisfy our near-term working capital requirements.  Our operating expenses will also consume a material amount of our cash resources.  We intend to raise capital from equity financing to fund future operations and to provide additional working capital. However, there is no assurance that
 
 
 

 
such financing will be obtained in sufficient amounts necessary to meet our needs. In the event that we cannot obtain additional funds on a timely basis or our operations do not generate sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment.  We may also seek additional loans from security holders or others. However, there can be no assurance that we will be able to consummate any of these transactions, or that these transactions will be consummated in sufficient amounts, on a timely basis or on terms favorable to us. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.

Results of Operations –Results of operations reported in our February 28, 2010 Form 10-Q did not include results of operations for W K, Inc. from the beginning of the fiscal year ended August 31, 2010.   Our consolidated results of operations for the fiscal year ended August 31, 2010, include those of W K, Inc. as of the beginning of the fiscal year.  As a result, our consolidated statements of operations for the first three and six months ended February 28, 2010 are different than those originally reported in the Form 10-Q.  Following is a summary of our operating results and other information (dollars in thousands):
 
     Quarter ended February 28,    
Six months ended February 28,
 
   
2011
   
2010
   
2011
   
2010
 
Sales
  $ 559     $ 152     $ 1,152     $ 207  
Cost of goods sold
    347       103       727       136  
Gross profit
    212       49       425       71  
Direct store expenses
    325       73       665       83  
General and administrative
    551       195       1,097       260  
Loss  from operations
    (664 )     (219 )     (1,337 )     (272 )
Interest expense
    35       -       39       1  
Net loss
  $ (699 )   $ (219 )   $ (1,376 )   $ (273 )
Number of stores open at period end
    6       2       6       2  
                                 
         as percentage of sales  
Sales
    100 %     100 %     100 %     100 %
Gross profit
    38 %     32 %     37 %     34 %
Direct store expenses
    58 %     48 %     58 %     40 %
 
Quarter and Six months ended February 28, 2011

Sales for the quarter ended February 28, 2011 were $559,000 as compared to sales of $152,000 for the comparative prior year period.  We had six butcher shops open at February 28, 2011 and two open at February 28, 2010.  Sales for the six months ended February 28, 2011 were $1.2 million as compared to sales for the comparative prior year period of $207,000.  Increases in sales were due to the increased number of stores open during the respective periods.

Cost of goods sold includes the cost of meat and nonperishable products sold and commissary costs.  Cost of goods sold was $347,000 during the quarter ended February 28, 2011, resulting in a gross profit of $212,000, or approximately 38% of sales.  Cost of goods sold was $103,000 during the quarter ended February 28, 2010, resulting in a gross profit of $49,000, or 32% of sales.  Cost of goods sold was $727,000 during the six months ended February 28, 2011, resulting in a gross profit of $425,000, or approximately 37% of sales, as compared to $136,000, or 34% of sales, during the comparative prior year period.  The increase in gross profit in dollars, is primarily due to increased sales, and as percentage is primarily due to our ability to decrease costs of goods sold as sales volumes increase.

Direct store expenses consist of store salaries and benefits costs for in-store employees, rent and other occupancy costs, supplies, depreciation, and other store-specific costs. Direct store expenses were $325,000 during the quarter ended February 28, 2011, or 58% of sales, compared to $73,000, or 48%, during the prior year period.  Our direct store expenses increased in total due primarily to having more butcher shops operating during the current fiscal year.  Direct store expenses were $665,000 during the six months ended February 28, 2011, or 58% of sales, compared to $83,000, or 40%, during the prior period.  During the six months ended February 28, 2010, the second store opened in late February.

General and administrative expenses include compensation and related costs not included in direct store expenses, professional fees for investor and public relations, legal and accounting, advertising and marketing expenses, and facilities and other office related costs.  General and administrative expenses were $551,000 during the quarter ended February 28, 2011, or 98% of sales,
 
 
 

 
compared to $195,000 during the comparative prior year period, or 128% of sales.  General and administrative expenses were $1.1 million during the six months ended February 28, 2011, or 95% of sales, compared to $260,000 during the comparative prior year period, or 126% of sales.  Included in general and administrative expenses during the quarter and six months ended February 28, 2011 are investor and public relations fees of $168,000 and $416,000, respectively, of which $105,000 and $300,000 was non-cash stock-based compensation expense relating to stock options granted and common stock issuable to professional service providers. Other professional fees include legal and accounting of $192,000 and $278,000 during the quarter and six months ended February 28, 2011, respectively.  Professional service expenses were not relatively significant during the quarter and six months ended February 28, 2010.  We expect general and administrative costs, including compensation for non-store compensation and professional fees and other costs associated with being a public reporting company to continue to be significant in the future.

As a result of the above, our net loss and basic and diluted loss per common shares for the quarter ended February 28, 2011 was $699,000 and $(0.03), respectively, and $1.4 million and $(0.06) for the respective six month periods.  Our net loss and basic and diluted loss per common shares for the quarter ended February 28, 2010 was $219,000 and $(0.01), respectively, and $273,000 and $(0.01) for the respective six month periods.

Cash Flows - Following is a summary of cash flow information (dollars in thousands):

    Six months ended February 28,  
   
2011
   
2010
 
Net cash used by operating activities
  $ (537 )   $ (381 )
Net cash used by investing activities
    (26 )     (90 )
Net cash provided by investing activities
    609       675  
    Net increase in cash
    46       204  
Cash at beginning of period
    96       -  
Cash at end of period
  $ 142     $ 204  
 
Operating activities used cash of $537,000 during the six months ended February 28, 2011 as compared to $381,000 during the comparative prior year period. Cash used in operating activities relates primarily to funding net losses and the net change in operating assets and liabilities, which decreased cash used by operating activities by $420,000 during the six months ended February 28, 2011, as compared to an increase in cash used of $116,000 during the comparative prior year period.  We expect operating activities to continue to use cash in the near future.

Our investing activities used cash for purchases of property and equipment of $26,000 during the six months ended February 28, 2011, as compared to a use of cash of $90,000 during the comparative prior year period.  Uses of cash for investing activities are expected to increase as we open new stores and commissary as cash from financing activities becomes available.
 
Our financing activities provided cash of $609,000 during the six months ended February 28, 2011,  through sales of our common stock, which provided $264,000, and convertible note payable borrowings of $350,000.    We also repaid $100,000 of notes payable in February upon maturity.  Financing activities are expected to increase as we raise capital from equity financing to fund future operations and to provide additional working capital.

Critical Accounting Policies and Estimates - The preparation of financial statements included in this Quarterly Report on Form 10-Q requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experiences and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  The more significant accounting estimates inherent in the preparation of our consolidated financial statements include estimates as to the valuation and recovery of inventory, recovery of long-lived assets, valuation of equity related instruments and valuation allowance for deferred income tax assets.  At this early stage of our business and operations we have not yet been involved in many transactions having significant accounting complexity or reporting alternatives.  Our accounting policies are described in notes to consolidated financial statements included in our Annual Report on Form 10-K/A and this Quarterly Report on Form 10-Q, and include disclosures regarding recent accounting pronouncements.
 
Off-Balance Sheet Arrangements - As of February 28, 2011, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

 
 

 
 
ITEM 4 — CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures.  As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information that we are required to disclose in reports filed under the Securities Exchange Act of 1934, as amended.
 
Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during the fiscal quarter ended February 28, 2011, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 

 
 

 
 
PART II — OTHER INFORMATION

ITEM 1A – RISK FACTORS

Risks Related to our Business and Operations

We have a limited operating history and face significant challenges in executing our business plan.  We have a limited operating history and face all of the challenges inherent in operating a new business, including limited capital and management resources.
 
We have a history of losses and expect to incur losses in the future.  We incurred a net loss of approximately $1.4 million during the six months ended February 28, 2011, and a net loss of $1.3 million during the fiscal year ended August 31, 2010, and likely will incur losses in future periods.   We expect to use significant amounts of our cash resources to fund our net losses, working capital, and store expansion needs.
 
 
We need to raise additional capital to fund our business and continue as a going concern.  Our ability to continue as a going concern is contingent upon our ability to raise additional capital to fund our working capital requirements and execute our operating plan.  Financing alternatives available to us could be highly dilutive to our existing shareholders and may involve significant interest and other costs.  There can be no assurance that any equity or debt financing arrangement will be available to us when needed on acceptable terms, if at all.  In addition, there can be no assurance that any financing alternative would provide us with sufficient funds to meet our capital requirements.  If we are unable to secure additional financing to fund our needs, we could be required to significantly alter our operating plan and curtail our operations.
 
Our internal controls over financial reporting are materially deficient and, as a result, there is more than a remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period.  Management has determined that, as of August 31, 2010, there were deficiencies in both the design and the effectiveness of our internal controls over financial reporting, including:

·       
Inadequate entity-level controls;
·       
Deficiencies pertaining to inadequate segregation of duties consistent with control objectives;
·       
Deficiencies pertaining to insufficiently skilled personnel and a lack of human resources within our finance and accounting reporting functions;
·       
Insufficient oversight of financially significant processes and systems, including deficiencies relating to monitoring and oversight of the work performed by our finance and accounting personnel;
·       
Deficiencies relating to insufficient analysis, documentation and review of the selection and application of generally accepted accounting principles, or GAAP, to significant non-routine transactions, including the preparation of financial statement disclosures relating thereto; and
·       
An inability to demonstrate through testing that our internal control over financial reporting was effective as of August 31, 2010.
 
As a result of the foregoing, future reports of our results of operations and financial condition may be unreliable.  We cannot be certain when or if we will be able to adequately remedy these deficiencies.

We rely on independent certification for a number of our food products, the loss of which would diminish our market position and harm our business.  We rely on independent certification, such as certifications of our products as “organic” or “natural” to differentiate our products from mass-market, commercially-produced products.  The loss of any independent certifications could adversely affect our market position as a natural and organic food company, which could harm our business.

We must comply with the requirements of independent organizations or certification authorities, such as the Washington State Department of Agriculture (“WSDA”) Organic Food Program, in order to label our products as certified organic.  For example, we can lose an “organic” certification if (i) a supplier does not maintain its certification as a U.S. Department of Agriculture (“USDA”) certified supplier, (ii) a supplier electing to follow organic practices is not able to fully comply with standard organic practices, or (iii) a commissary becomes contaminated with non-organic materials or if it is not properly cleaned after a production run.  In addition, all raw materials must be certified organic.

Governmental regulations could impose material costs.  Our operations are subject to extensive federal, state and local laws and regulations by authorities that oversee food safety standards and processing, packaging, storage, distribution, advertising, labeling and export of our products. Our facilities for processing meats are subject to a variety of federal, state and local laws relating to the protection of the environment, including provisions relating to the discharge of materials into the environment, and to the health and safety of our employees.  In addition, our products are subject to inspection prior to distribution, primarily by the
 
 
 

 
USDA, WSDA and the U.S. Food and Drug Administration.  The Federal Meat inspection Act requires that meat sold through retail channels be slaughtered or harvested at plants inspected by the USDA Food Safety and Inspection Service.  Claims or enforcement proceedings could be brought against us in the future.  Loss of or failure to obtain necessary USDA/WSDA permits and registrations could delay or prevent us from meeting our current product demand, introducing new products, or building new facilities and could adversely affect our operating results.  In addition, as a distributor and manufacturer of natural and organic meats, we are subject to increasing governmental scrutiny of and public awareness regarding food safety and the sale, packaging and marketing of natural and organic products, such as the WSDA Organic Foods Program.  Compliance with these laws may impose a significant burden on our operations.  We are also routinely subject to new or modified laws, regulations and accounting standards.  If we are found to be out of compliance with applicable laws and regulations in these other areas, we could be subject to civil remedies, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have an adverse effect on our financial results.
 
We may not be successful in implementing our growth plan, which would have a material adverse impact on our business and financial results.  Our business plan contemplates that we will open new Bill the Butcher stores, sustain and improve comparable store sales and margins, and expand into new geographic locations.  Our ability to successfully implement any or all of these initiatives is uncertain. Our growth plans will present operational and competitive challenges, and may strain our management, operational and financial resources. Our inability to successfully achieve or manage our growth, or to successfully implement our business strategy, could have a material adverse effect on our business, results of operations, and financial condition. Even if we successfully implement our growth strategy, we may discover that our growth strategy does not deliver the results that we currently anticipate.
 
We are dependent on the financial performance of stores located in one geographic area.  Our financial performance is dependent on stores located in the Seattle, Washington area. In recent years Washington has been adversely impacted, as has most of the United States, due to the declining economic climate. If the Seattle area continues to experience significant economic pressures, our sales and operating results could be negatively impacted.

Our management team has limited support.  J’Amy Owens, our sole full-time officer and sole director and principal shareholder, performs multiple management functions for us and many key responsibilities of our business have been assigned to a relatively few employees.  In addition, our management team has limited experience operating a multi-store retail business.  The management team needs additional support in operations, finance, and administration, among other areas, in order for us to be successful.   If we are unable to recruit, retain, and motivate skilled managers and other employees to work together effectively to implement our strategies, manage our operations, and accomplish our business objectives, our ability to grow our business and successfully meet operational challenges could be significantly impaired.

We are dependent on our sole full-time officer and sole director and we may not be able to meet our strategic objectives if she is unavailable to us.  J'Amy Owens, our sole full-time officer and sole director and principal shareholder, is involved in a number of community and business endeavors unrelated to our business. If Ms. Owens focuses her time and attention on these other endeavors without also dedicating the necessary time and efforts to our business, or if Ms. Owens is unavailable to us due to death, disability or any other reason, it could have a significant impact on our efforts to achieve our business goals.

We do not currently employ a full-time Chief Financial Officer.  We do not currently employ a full-time chief financial officer and therefore have limited, full-time accounting personnel and other resources with which to address our internal controls and procedures.  The individual currently serving those functions is retained by us on a contract basis and provides similar services to other businesses.  There is no assurance that we will be able to promptly find and hire a qualified, full-time chief financial officer.  Our inability to find a full-time, qualified person to serve as our chief financial officer may adversely impact the quality of our internal controls, or may negatively impact the preparation of our financial statements.
 
If we are not able to differentiate ourselves and compete effectively against meat purveyors with greater resources and established customer bases, our prospects for future success will be jeopardized.   Our competitors include but are not limited to local, regional, and national supermarkets, natural food stores, warehouse membership clubs, small specialty stores, and to some degree, traditional butchers. These businesses compete with us for products, customers, and in some instances store locations.  Some of our largest competitors are expanding aggressively in marketing a range of natural and organic foods, including meat.  We expect competition to intensify in the future as the market for ethically and organically raised meat products develops and matures.

Most of these potential competitors have longer operating histories, larger customer bases, better brand recognition, and significantly greater financial, marketing, technical, and other resources than us.  Some of our competitors may be able to devote significant resources to marketing and promotional campaigns, adopt more aggressive pricing policies, and devote substantially more resources to business development than us.   As we open new stores or enter new geographic locations, competition may
 
 
 

 
intensify, which may result in reduced operating margins, an inability to establish a local market, and diminished value in our brand.  
 
Expansion into new geographic markets presents increased risks.  Our business plan contemplates expansion into new geographic areas in the United States. Our future results depend on various factors, including successful selection and expansion into these new geographic markets and market acceptance of our products and retail experience. Those markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our existing market. As a result, stores in new geographic locations may be less successful than stores in our existing market. Consumers in a new market likely will not be familiar with the Bill the Butcher brand, and we will need to build brand awareness in that market through greater investments in advertising and promotional activity than we originally planned.  Stores opened in new markets may also have lower average store revenue than stores opened in existing markets, and may have higher construction, occupancy or operating costs than stores in existing markets. Furthermore, we may have difficulty in finding reliable suppliers or distributors or ones that can provide us, either initially or over time, with adequate supplies of meat and other products that satisfy our quality standards.
 
Revenue at stores opened in new markets may take longer to ramp up and reach expected revenue levels, and may never do so. As with the experience of other retail concepts that have tried to expand nationally, we may find that the Bill the Butcher concept has limited or no appeal to customers in new markets or we may experience a decline in the popularity of the Bill the Butcher experience. Newly opened stores may not succeed, future markets and stores may not be successful and, even if we are successful, our average store revenue may not increase and may even decline.
 
We occupy our stores under leases, and we may be unable to renew leases at the end of the lease periods or obtain new leases on acceptable terms.  All of our stores are located on leased premises or locations otherwise controlled by third parties. Most of our leases are non-cancelable and typically have terms of three to five years, with renewal options for additional three to five year terms.  We could be required to continue lease payments for a store that we would otherwise wish to terminate. We also may not have the right or option to renew some of our existing leases beyond renewal terms. We face intense competition from other specialty retailers for suitable sites for new stores, and if we are unable to renew an existing lease, we would be obligated either to find a new location or close the store. If we negotiate a new lease or lease extension at an existing location, the rent may increase substantially. In either case, our existing operations and operating results could be adversely affected. We intend to lease other premises in connection with the planned expansion of our operations, and we believe leases that we enter into in the future likely will also be non-cancelable. Additionally, because we compete with other retailers for store sites, we may not be able to obtain new leases or renew existing leases on acceptable terms. These factors could adversely affect our ability to execute our growth strategy.
  
Economic conditions that adversely affect consumer confidence and discretionary spending could substantially decrease our revenues and may adversely impact our ability to implement our business strategy.  Our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income.  Current and future economic conditions affecting disposable consumer income such as employment levels, business conditions, changes in housing market conditions, the availability of credit, interest rates, tax rates, fuel and energy costs, the impact of natural disasters or acts of terrorism, and other matters could reduce consumer spending or cause consumers to shift their spending to lower-priced products and competitors.
 
Food safety concerns and instances of food-borne illnesses could harm our customers, result in negative publicity and cause the temporary closure of some stores and, in some cases, could adversely affect the price and availability of meat and other products, any of which could harm our brand reputation, result in a decline in revenue or an increase in costs.  We consider food safety a top priority and seek to ensure that our customers enjoy high-quality, safe, and wholesome products.  However, we cannot guarantee that our internal controls and training will be fully effective in preventing all food-borne illnesses. Furthermore, our reliance on third-party food suppliers increases the risk that food-borne illness incidents could occur outside of our control and at multiple locations. Instances of food-borne illnesses, whether real or perceived, and whether at our stores or those of our competitors, could harm customers and otherwise result in negative publicity about us or the products we serve, which could adversely affect revenue. If there is an incident involving our stores serving contaminated products, our customers may be harmed, our revenue may decrease and our brand name may be impaired. If our customers become ill from food-borne illnesses, we could be forced to temporarily close one or more stores.
 
Food safety concerns and instances of food-borne illnesses and injuries caused by food contamination have in the past, and could in the future, adversely affect the price and availability of affected products and cause customers to shift their preferences, particularly if we choose to pass any higher costs along to consumers. As a result, our costs may increase and our revenue may decline.  A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a change in our product mix or a temporary closure of any of our stores, could materially harm our business.
 
 
 

 
If our products become contaminated, we may be subject to product liability claims and product recalls.  Our products may be subject to contamination by disease-producing organisms or pathogens, such as Listeria monocytogenes, Salmonella and generic E. coli.  These organisms and pathogens are found generally in the environment; therefore, there is a risk that one or more, as a result of food processing, could be present in our products.  These pathogens can also be introduced as a result of improper handling by our customers or third parties after we have sold the products.  We seek to control these risks through careful processing of our products, but we cannot entirely eliminate them.  We have no control over handling of our products once they are sold.  Nevertheless, contamination that results from improper handling by customers or third parties may be blamed on us.  Any publicity regarding contamination or resulting illness or death could adversely affect us even if we did not cause the contamination and could have a material adverse effect on our business, reputation and future prospects.  We could be required to recall our products if they are contaminated or damaged and product liability claims could be asserted against us.
 
Outbreaks of livestock disease can adversely impact our ability to conduct our operations and demand for our products. Demand for our products can be adversely impacted by outbreaks of livestock disease, which can have a significant impact on our financial results.  Efforts are taken to control disease risks by adherence to good production practices and extensive precautionary measures designated to ensure the health of the livestock we purchase from our suppliers.  However, outbreaks of disease and other events, which may be beyond our control could significantly affect demand for our products, consumer perceptions of certain products, the availability of livestock for purchase by us and our ability to conduct our operations.  Furthermore, any outbreak of disease could result in governmental restrictions on the purchase and sale of our products to or from our suppliers, facilities or customers.  This could also result in negative publicity that may have an adverse effect on our ability to market our products successfully and on our financial results.
 
Negative publicity surrounding the consumption of meat generally or shifts in consumer tastes could reduce our sales and make our brand less valuable.  Negative publicity resulting from poor food quality, food-related illness, and other health concerns, whether related to our stores or to the beef, pork, or poultry industries generally, could diminish the appeal of our products and reduce demand.  In addition, shifts in consumer preferences away from meat and meat products, whether because of dietary or other health concerns or otherwise, would adversely affect our sales and operations.
 
Changes in the availability of quality natural and organic products could adversely affect our business.  We purchase ethically-raised and organic meats from a limited number of third-party suppliers.  There is no assurance that locally sourced and ethically raised meat, poultry and wild game will be available to meet our future needs.  We do not have any material or long-term contracts with any of our suppliers.  If these suppliers are unable to  provide us with products that meet our quality standards, or if one or more were to terminate its arrangements with us, we could be unable to adequately provision our stores or satisfy customer demand, which would harm our reputation and brand.   If we had to replace or supplement our current suppliers, qualifying alternative suppliers on acceptable terms would be costly and time-consuming.  The loss of several of our suppliers could interrupt our supply chain and affect our ability to deliver products to our customers, which would have a material adverse effect on our net sales and profitability.  In addition, our reliance on organic meat suppliers involves certain risks, including a lack of direct control over production capacity and delivery schedules, quality assurance, and production costs.  Interruptions in several suppliers operations could result in shipment delays to us, lost sales, and damage to our reputation, all of which would adversely affect our business.

Moreover, if our competitors were to significantly increase their locally-sourced and ethically-raised product offerings or if new laws were to require alternative certification of certain products, the supply of these products to us could be constrained.   Any significant disruption in the supply of locally-sourced and ethically-raised meat, poultry and wild game could have a material impact on our overall sales and cost of goods sold.

Perishable foods product losses could materially affect our results.  Because nearly all of the products we sell are perishable, we may incur significant product inventory losses in the event of extended power outages, natural disasters or other catastrophic occurrences.

Increases in the price of raw materials used to produce our products could materially increase our costs and adversely affect our operating results.  Prices for organic food are dependent on the market price for the raw materials used to produce them.  These raw materials are subject to price volatility caused by weather, supply conditions, power outages, government regulations, economic climate, and other unpredictable factors.  Any raw material price increase would increase our cost of sales and decrease our profitability unless we were able to pass along higher prices to our customers.  In addition, if one or more of our competitors is able to reduce its production costs by taking advantage of any reductions in raw material prices or favorable sourcing agreements, we may face pricing pressures and may be forced to reduce our prices or incur a decline in net sales, either of which could have a material and adverse effect on our business, results of operations and financial condition.

A significant interruption in the operation of our central commissary would disrupt our operations.  We have one central commissary facility.   Once we obtain the applicable licenses from the WSDA, we intend to open a new, expanded-service commissary and discontinue our use of the current central commissary.  Our commissary-to-store model provides that each of our
 
 
 

 
stores' products will be supplied by our central commissary.  A significant interruption in the operation of our current central commissary facility or to our planned expanded-service commissary facility due to WSDA inspection and certification requirements, a natural disaster, such as an earthquake, power outages or other causes, would significantly impair our ability to operate our business on a day-to-day basis and would adversely affect our operating results.
 
Our inability or failure to protect our intellectual property would have a negative impact on our brand, goodwill and operating results.  Our trademarks, service marks, copyrights, trade dress rights, trade secrets and domain names are valuable assets that are critical to our success. The unauthorized reproduction or other misappropriation of our intellectual property could diminish the value of our brand and cause a decline in our sales.  Protection of our intellectual property and maintenance of distinct branding are particularly important as they distinguish our products from those of our competitors who may sell similar products. We may not be able to adequately protect our intellectual property.  In addition, the costs of defending our intellectual property may adversely affect our operating results.
 
Litigation and publicity concerning food quality, health and other issues can result in liabilities, increased expenses, and distraction of management and can also cause customers to avoid our products, which could adversely affect our results of operations, business and financial condition.  Food service businesses can be adversely affected by litigation and complaints from customers or government authorities resulting from food quality, allergens, illness, injury or other health concerns or operating issues stemming from one retail location or a limited number of retail locations. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging customers from buying our products.

We could be subject to complaints or lawsuits alleging that we are responsible for some illness or injury a customer suffered at or after a visit to our stores, or that we have problems with food quality or operations. Regardless of whether any claims against us are valid, or whether we are ultimately held liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage, or for which we are not covered by insurance, could materially and adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations may also materially and adversely affect our reputation or prospects, which in turn could adversely affect our results.

Risks Related to our Capital Stock
 
There is a very limited trading market for our stock. Although our Common Stock is quoted on the Over-The-Counter Bulletin Board (the “OTCBB”), there is a very limited public market for our Common Stock. There has been limited trading activity in our stock, and when it has traded, the price has fluctuated widely.  We consider our Common Stock to be “thinly traded” and any last reported sale prices may not be a true market-based valuation of the Common Stock.  Shareholders may experience difficulty selling their shares if they choose to do so because of the illiquid market and limited public float for our Common Stock. We cannot offer any assurance that an active trading market for our Common Stock will develop or how liquid that market may become.
 
Our stock price is volatile.  The closing price per share of our Common Stock on the OTCBB declined over the last seven months. The closing price fluctuated from a low of $0.41 per share to a high of $2.16 per share during the period from August 1, 2010 to March 31, 2011. The closing price per share was $0.63 on March 31, 2011.  The market price of our Common Stock could be subject to significant fluctuation in response to various market factors and events. These market factors and events include variations in our sales and earnings results and failure to meet market expectations; publicity regarding us, our competitors, or the organic products industry generally; new statutes or regulations or changes in the interpretation of existing statutes or regulations affecting the organic products industry specifically; and sales of substantial amounts of Common Stock in the public market or the perception that such sales could occur and other factors.
 
Because we do not intend to pay any cash dividends on our Common Stock, our shareholders will not be able to receive a return on their shares unless they sell them.  We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them. There is no assurance that shareholders will be able to sell shares when desired.
 
Future issuances of common and preferred stock will be dilutive and could depress our stock value.  The future issuance of capital stock may result in substantial dilution in the percentage of our Common Stock held by our then existing shareholders.  We may value any Common Stock issued in the future on an arbitrary basis.  The issuance of Common Stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our Common Stock.
 
 
 

 
Penny stock regulations may adversely affect our share price and ability to resell our securities in the market.   Penny Stock Regulations and broker-dealer practices in connection with transactions in “Penny Stocks” are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than $5.00 per share. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risk associated with the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account.  In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer must make a written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that is subject to the penny stock rules.  Our stock is a penny stock and has had a trading price of less than $5.00 per share and is not listed on any stock exchange (although it is traded on the OTCBB).  Therefore, investors may find it more difficult to purchase and/or sell their securities based on these limitations and regulations.
 
We may issue shares of preferred stock in the future that may adversely impact your rights as holders of our Common Stock.  Our articles of incorporation authorize us to issue up to 5,000,000 shares of preferred stock, including two million shares of preferred stock that would be entitled to ten votes per share, and two million shares of preferred stock that would be entitled to two votes per share.  Our board of directors will have the authority to fix and determine the relative economic rights and preferences of preferred shares, as well as the authority to issue such shares, without further shareholder approval.  As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our Common Stock, and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the Common Stock.  To the extent that we do issue such additional shares of preferred stock, your rights as holders of Common Stock could be impaired thereby, including, without limitation, dilution of your ownership interest in us.  In addition, shares of preferred stock could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult, which may not be in your interest as holders of Common Stock.
 
Our principal shareholder has significant influence over matters subject to shareholder vote and may support corporate actions that conflict with other shareholders’ interests.  As of March 18, 2011, Ms. J’Amy Owens, our sole full-time officer and sole director and principal shareholder, owns approximately 54% of our outstanding Common Stock.  Ms. Owens’s shareholdings give her the ability to control the election of our directors and other matters brought before the shareholders for a vote. The voting power held by Ms. Owens could prevent or significantly delay another company from acquiring or merging with us, even if the acquisition or merger was in the best interests of our shareholders.
 
There is a risk of market fraud on the OTCBB.  OTCBB securities are frequent targets of fraud or market manipulation. Not only because of their generally low price, but also because the OTCBB reporting requirements for these securities are less stringent than for listed or NASDAQ traded securities, and no exchange requirements are imposed. Dealers may dominate the market and set prices that are not based on competitive forces. Individuals or groups may create fraudulent markets and control the sudden, sharp increase of price and trading volume and the equally sudden collapse of the market price for shares of our Common Stock.
 
ITEM 2 --- UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

In February 2011, we issued convertible promissory notes in the aggregate principal amount of $350,000, and issued warrants to purchase an aggregate of 437,500 shares of our Class A common stock at an exercise price of $0.80 per share, to two accredited investors.  The offer and sale of these securities was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, as an offer and sale not involving a public offering.
 
ITEM 5 — OTHER INFORMATION
 
As disclosed in Form 8-K filed with the SEC, on March 31, 2011, the Company entered into a six-month consulting services agreement with Turning Point Capital, LLC (“TPC”), and Philip L. Jordan, pursuant to which Mr. Jordan, a TPC Member and Senior Consultant, will serve as Vice President of Finance and Chief Financial Officer of the Company.  Mr. Jordan (age 63) has extensive experience as a practicing CPA and senor business manager.
 
Under the agreement, Mr. Jordan’s base salary will be $2,000 per month.  In addition, Mr. Jordan will be eligible to receive certain transaction-based compensation if and to the extent the Company completes debt or equity financings, or a merger, acquisition or asset disposition, with counterparties first introduced to the company by Mr. Jordan.
 
 
 

 
ITEM 6 — EXHIBITS
 
The exhibits required by this item are set forth in the Exhibit Index attached hereto.


In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities indicated on April 19, 2011.


/s/ J’Amy Owens
 
Chief Executive Officer and Chief Financial Officer and
J’Amy Owens
 
Chairman of the Board of Directors
 


 


Exhibit No.
 
Description
                 
                       
4.1
 
Form of Promissory Note. (1)
             
4.2
 
Form of Warrant to Purchase Shares (1)
         
31.1
 
Certification of our Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under
   
the Securities Exchange Act of 1934, as amended (1)
         
`31.2
 
Certification of our Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under
   
the Securities Exchange Act of 1934, as amended (1)
         
32.1
 
Certification of our Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
 
   
adopted pursuant to Section 906 of the Sarbankes-Oxley Act of 2002.  (2)
 
32.2
 
Certification of our Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
 
   
adopted pursuant to Section 906 of the Sarbankes-Oxley Act of 2002.  (2)
 
                       
(1)  Filed Herewith.
                     
(2)  Furnished Herwith.