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WEST END PARTNERS Corporate Investors and Managers

Business Advisors and Consultants

Santa Barbara Office 1482 East Valley Road, Suite 245

Santa Barbara, CA 93108

New York Office 25 Broadway, 9th Floor

New York, NY 10004

September 16, 2014

Opposition Papers for the Objection of Claim #1

HDOS ENTERPRISES

CASE NO: 2:14-bk-12028-NB

Enclosed are the financing package West End developed to secure the Torrey Pines

Bank (“TPB”) loan in the summer of 2013, a copy of the executed Advisory Agreement,

and numerous email strings between HDOS Enterprises and West End Partners with

respect to the TPB financing.

West End Partners drafted the Preliminary Financing Memorandum and worked

closely with Dan Byland and Dan Smith, HDOS Enterprises CFO and CEO,

respectively, to complete the financials. On July 11, 2013 West End Partners

presented with HDOS management the financing package to secure the debt financing

with Torrey Pines Bank representatives Thomas Woolway (Senior Vice President), John

Massab (Chief Credit Officer) and John Maguire (COO & President). West End Partners

was also asked by the TPB representatives in the meeting for its professional opinion

of the HDOS Enterprises business and its prospects, including specifically the

proposed rollout of the new Drive Thru model. In summary, West End Partners was an

essential contributor to the first meeting with TPB. (Reference: West End Partners

Financing Package)

Following the meeting West End Partners worked again with Dan Byland to ensure

that financial projections would meet the expected covenant criteria from Torrey Pines

Bank. On July 26, 2013 West End Partners and HDOS Enterprises management team

Case 2:14-bk-12028-NB Doc 696 Filed 09/16/14 Entered 09/16/14 13:13:46 Desc Main Document of 27

met again with Torrey Pines Bank. West End Partners also participated in

constructing the July 26 meeting agenda. (Reference: Email String 7.23.2013 –

Subject_HDOS, Email String 7.23.2013 –Subject_Bank Meeting)

Towards the end of August, Daniel Byland circulated to the West End team Projection

Assumptions – V3.0 (enclosed) for its review. Two days later Dan Byland and Peter

Dealy, West End Partners President, exchanged emails regarding West End’s

completion of the Projection Assumptions. (Reference: Email String 8.22.2013 –

Subject_Projection Assumptions 1, Email String 8.24.2013 –Subject_Projection

Assumptions 2)

With respect to the claim amount, Section 5.d.i of the HDOS Executed Advisory

Agreement states:

“A Transaction in which the Company incurs debt for borrowed money, if the

lender is a party which was identified or introduced by West End to the

Company, or West End assists the Company in the negotiation or provides

other services to Company to facilitate the Funding Transaction. A

Funding Transaction referred to in this subparagraph shall constitute a “Debt

Transaction”. The Performance Fee for a Debt Transaction shall equal three

percent (3%) of the principal amount of such qualifying loan made to the

Company during the term of the Agreement or within twelve months following

its expiration or termination.”

The excerpt above provides the formula for the claim amount of $30,000 as the line

that HDOS Enterprises received from Torrey Pines Bank was $1,000,000.

The information above clearly resolves the dispute and provides evidence in support of

West End Partners’ claim against HDOS Enterprises.

Enclosures (5)


West End Partners Financing Package


WEST END PARTNERS PAGE 1 PROPRIETARY AND CONFIDENTIAL

Preliminary Financing Memorandum HDOS Enterprises (the “Company”)

This Memorandum is being furnished to selected parties who have expressed interest in providing financing for the Company, a privately held company. This Memorandum has been prepared by West End Partners and the management of the Company for the sole purpose of introducing the financing opportunity to recipients in order to assist them in determining their interests in acting as financing sources for the Company. With respect to all information furnished in this Memorandum or otherwise to any prospective participants, neither the Company, West End Partners, nor any of their respective affiliates, agents, advisors or representatives makes any representation or warranty, expressed or implied, concerning any such information, and any recipient shall be able to rely only on those representations and warranties that may be made to a financing participant in a definitive agreement, when, as and if finally executed, and subject to such limitations and restrictions as may be specified in such agreement. The Company is presently introducing this financing opportunity to selected financial institutions with expertise and interest in providing financing to companies in the foodservice business. As exclusive financial advisor to the Company, West End Partners is pleased to supply additional information concerning the business opportunity to recipients of these materials who wish to investigate further this financing opportunity. Please contact one of the representatives of West End Partners listed at the conclusion of this Memorandum for further information on how to participate in this opportunity.



Executive Summary Market Opportunity

The economic turnaround that is occurring in the United States has revitalized the restaurant market, and has created an opportunity for companies that have weathered the recession of the last half decade and are repositioning their businesses for growth. This resilience has created renewed momentum in the quick serve restaurant (“QSR”) segment of the market, which has become more popular among post-recession consumers whose dine out budgets have been refined. This renewed QSR growth trend has been reflected in the proliferation of QSR locations throughout the United States. Projected QSR sales are expected to top $188.1B in 2013, up 5.1% from 2012, when $179.3B was spent on food and beverages in the QSR market in the United States.* Based upon statistics compiled by the National Restaurant Association, the QSR segment has had average annual revenue growth of 5.1% over the post-recession period from 2010 to the present. This growth rate has counterbalanced the much slower recovery of the full service dining segment (where popular restaurants such as Olive Garden and Cheesecake Factory operate), where average annual growth over the same period has been only 3.35%. The QSR segment has been dominated by “chain” restaurants, companies which operate a series of locations under one brand name, or trademark, and offer consistent menu choices at similar prices at all of their locations. These restaurants use a formulaic approach that includes freestanding drive thru stores, and food court locations in major regional enclosed malls and on outparcels or within open air neighborhood centers.

In this growth environment in the QSR dining segment, the Company

presents an unusual opportunity because of its positioning in the growing “snack as a meal” segment of the QSR market. Its average check price of approximately $6.00 (food and beverage) at its mall locations is now being complemented by a higher $10 per check average at its new drive through locations. The Company believes that the timing of its initiative to enter this new market - the drive thru roadside take away restaurant market – will create new expansion opportunities for its U.S. company owned business as well as refreshing its mall food court business. For this expansion, the Company believes that its well positioned business in the QSR sector is propitious for institutions seeking to provide growth financing into the food sector.

The Company is seeking banking partners who share both its vision for

expansion in the QSR space and have the capacity to provide term and seasonal revolver financing for its drive-thru operations and its repositioned mall locations. This capital will also support the Company’s plan to continue to develop its franchising platform for the United States and internationally, and reach an annual revenue goal of $50MM in Company sales over the next five years.

* Source: NRA 2013 Restaurant Industry Forecast



The Company

The Company has operated a quick serve dining restaurant business in highly trafficked urban locations in the U.S. market for the past sixty five years. It has recently launched a limited domestic franchise program, while repositioning its international franchise business through select area development commitments that have been opportunistically negotiated over the past two years. The Company has designed a restructuring and growth plan to expand its market footprint into a new available format – the drive through restaurant market - and is re-energizing its established business - its food court store locations in major malls using mobile tools to further engage those customers. The Company is the operator of 97 themed quick serve locations presently in regional malls in locations principally in the western Unites States, Alaska and Hawaii. The Company has recently opened two QSR stores in its new drive-thru format in California and Utah, and plans to expand that number by approximately ten locations a year over the next five years.

The Hot Dog On A Stick concept was developed by its founder, Dave

Barham, in 1946 on the boardwalk in Santa Monica, California. The concept was perfected and the presentation developed through years of seasonal operations at large state and county fairs throughout the western United States. Based on the success of the initial restaurant and the brand awareness cultivated by operating at the fairs, the Company opened restaurants in most of the regional shopping malls developed during the 1970’s and 80’s throughout the West. The Company has grown its business from its iconic location in Santa Monica to a broad market QSR business that spans half the United States mainland, Alaska and Hawaii, with franchises in South America and Asia. While the cachet and signature red, white, blue and yellow stripes that adorn the business have been key components of the conceptual mix, it is the quality of the food and service that distinguishes Hot Dog on a Stick from other quick serve dining restaurants and has guaranteed the longevity of this iconic brand.

In addition to all the major markets in California, the brand has been a

fixture in cities such as Las Vegas, Salt Lake City, Albuquerque and El Paso for nearly 40 years. The Company has been a storied and long standing tenant in regional malls owned by the leading mall operators in the US, including Simon Properties, Westfield, General Growth Properties and Macerich. The Company’s mall restaurants are on average 800-850 square feet, and are situated principally in the food courts in these malls. The Company’s new drive-thru restaurants are being positioned in free standing roadside locations that are in infill geographic areas where the Company’s name is well known because of its long standing mall presence. The Company is opportunistically converting existing available drive-thru sites to its format, at a budget of $150,000 per location. This conversion process creates dynamically favorable unit economics for these new restaurants.



Product and Service Strategy

The Company has developed its QSR concept with particular visual and structural qualities to highlight the theme its founder developed over the years of operating in Santa Monica and the southern California fairs. The Company can demonstrate from extensive demographic and regional surveys that its look and feel are keys to the longevity and success of its concept. The restaurant’s food and attractive price points combined with the Company’s high service component offer a unique dining atmosphere which supplies a snack as a meal offering that delivers a fresh, healthy, take-and-go experience for its customers. This combination sets the iconic Hot Dog On A Stick brand apart from its competition.

Each restaurant features fresh lemonade prominently displayed in large

containers and smiling employees in their trademark striped uniforms, both reaffirming the casual southern California mantra that the Company’s founder created more than 65 years ago. The menu features a specialty item selection of Hot Dog on a Stick, Cheese on a Stick, and French fries together with the Company’s signature fresh squeezed lemonade. The original Hot Dog on a Stick is made to order, using a turkey frank hand dipped in the Company’s proprietary Party Batter, and cooked to a golden brown. It has less than 250 calories and can be ordered with either beef or veggie dogs instead of turkey. The cheese, available in American or Pepper Jack, is also made to order, hand dipped in Party Batter. Fresh squeezed lemonade is the most popular item on the menu, representing nearly 50% of total sales. It is made fresh every two hours from Ventura County lemons, cane sugar and filtered water. There is also a sugar free version, and flavored versions such as cherry and lime. All menu items are moderately priced and are intended to fit within the budget of a middle class family and to compete with other QSR locations on both price and quality. The average all day check per guest including beverages is approximately $6.00 in mall food court stores and $10.00 at drive thru locations (Attached hereto is a sample of the HDOS menu).

As noted above, the Company has recently embarked on two substantial

growth initiatives, one into a new area of the QSR market - the free standing drive thru take-away restaurant, and the second, a planned execution for expanded product and sales in a broad based international area franchising program, with initial developing markets in Brazil and Korea.

In July, 2012, the Company opened its first drive thru roadside location in

Jordan, Utah, and a second location in Victorville, California opened in June, 2013. The Company’s expansion plan calls for nine new drive thru locations this year, and continued development to a total forecasted new drive thru openings of 55 new locations over the next five year period. These store openings are subject to revision if the Company is unable to find new sites fitting the Company’s defined traffic count and budgeted build out formulas which it developed using the metrics of its drive thru prototypes in Utah and California.



The Company’s international franchise business has been reset over the past year with its signing of area development commitments in Brazil and Korea. Presently, the Company has plans to support the Brazil franchise development of 10 units in the Sao Paulo state over the next 24 months. The Company’s franchisee partner is a seasoned business operator, which has financed restaurant locations for many years. The Company’s Brazilian franchisee partner has already invested over (US) $1MM in the roll out of the business in that market.

The franchise partner in Korea is an attorney with deep ties to the most

important retail landlords in that country. His family has run successful food service operations in prominent department stores since the early 1960’s, and is well respected by these influential companies. The development agreement calls for the first location to open this year, and the Company expects to support 2-3 additional unit openings per year for the next four years. For each franchise location, the Company charges a royalty equal to 3-5% of food and beverage sales, a per unit fee of up to $10,000, and an exclusive development fee. The Company’s long term objective is to achieve an income stream equal to 4% of the total sales of the franchise system. Management Dan Smith, the Company’s President, has built a reputation as a pragmatic and straightforward leader, sensitive to the unique history of the Company and its employees, but dedicated to making the changes necessary for it to realize its potential for future growth. His background as a career Army officer (retired Lieutenant Colonel) provides broad experience leading organizations, integrating systems, and effectively dealing with people in a wide variety of situations. Mr. Smith joined the Company in 2000 to refocus the Company’s franchising business, and was promoted first to head of operations, and then in 2005 to President. He is a member of the Board of Directors and a Trustee of the ESOP at the Company. Daniel Bylund joins the Company after a long and prestigious financial management career in the private sector. He most recently served as Chief Financial Officer, Vice President of Finance, and Secretary/Treasurer of the Bubba Gump Shrimp Co., Inc. Mr. Bylund has more than 20 years of global finance, treasury, and accounting experience with principal focus in the chain restaurant business, including experience spanning IT, risk management, and human resources, along with key strengths in all aspects of corporate financial functions. Mr. Bylund has a track record of guiding multi-location domestic and international financial operations to ongoing growth and success by employing strategic planning and forecasting expertise. As Chief Financial Officer at Bubba Gump Shrimp Co., Mr. Bylund played a key management role in directing that company’s growth from start-up to 38 global locations with $180 million in sales and 4,500 employees.

Deanna Cicchetti, Director of Construction, Repairs and Maintenance, Research and Development is a 28-year employee of The Company. She held every operational position from new hire at store level to Store Manager and Regional Manager before being tapped to coordinate and oversee all new store construction in 1999.



Since then she has added repair and maintenance as well as research and development to her responsibilities. Lisa Merrell, the Director of Operations is a 24-year employee. Lisa oversees all owned and operated locations in the US. She has held every operational position from store level to her current post. Tabitha Burke, Director of Franchise Support, has been an employee for 20 years. Before taking on her present role she was a Regional Manager. Tabitha oversees all aspects of the Company’s franchise support program. This includes development and conduct of all training, systems, and continuing communications with new and existing franchisees. Midori Cronky, Director of Human Resources, has been with the Company for 20 years. She was hired at store level and worked her way up to store manager while attending college. After her undergraduate work, she completed an MBA with an emphasis in Human Resources management and became certified as an HR Professional through a program offered by SHRM. She is responsible for all HR and payroll functions.

The balance of the management team also has significant experience at both the restaurant and supervisory levels. In fact, the Company is unique in terms of turnover and retention statistics. Of the 32 people it employs full time, all above store level, the average age is 43 and the average time with the company is nearly 20 years. All but a handful were hired as teenagers at store level, and were promoted to management roles through their commitment and performance for the Company at every operating level. The voluntary turnover rate for this group has been zero for over 10 years.

The combined industry experience of the Company’s management team provides it with a distinct competitive advantage in the restaurant industry. The Company aims to create a unique and rewarding entrepreneurial environment for its unit-level managers by giving them autonomy over restaurant-level decisions while also providing a supportive corporate structure, which emphasizes training at all staffing levels, and by rewarding all employees for achieving superior results. Ownership

In 1991, upon the death of the founder, the Company became a 100% employee owned company through the formation of an ESOP. Through the ESOP structure, team members are provided with incentives at every level to insure maximum financial results and superior customer satisfaction. The Company is structured as a Sub Chapter S Corporation organized under California law.



Financing Strategy

The Company’s growth plan for store openings set forth above defines its geographic expansion on a regional basis through the opening of sites in markets in California, Utah and other western states over the next two years. The overall five year plan targets annualized average sales for each new drive thru location equal to $500,000.

The Company is currently contacting selected financing groups interested in

supporting its growth with debt refinancing to expand its core business through the opening of these locations and the restructuring of certain existing locations. Presently, the Company’s site selection team is evaluating new drive thru locations and has identified a series of new possible sites. The proceeds of the planned financing will be used to (i) fund the build out/remodeling of the targeted new locations and (ii) repay existing facilities with certain of the Company’s present lenders.

Attached hereto are five year balance sheet, income statement and cash flow

forecasts which the Company has prepared for review with interested financial parties. For further information concerning this opportunity to participate with the Company in its financing plan, please contact the undersigned:

West End Partners 1482 E Valley Road, Suite 245 Santa Barbara, CA 93108 Louis B. Vasquez Peter S. Dealy (o) 805 565 1800 x 225 (o) 805 565 1800 x 211 (m) 805 729 1319 (m) 805 708 1122 [email protected] [email protected]


V7.0

HDOS Enterprises

Projected Statements of Operations

Year Ending December 31, 2012 - 2017

2012 2013 2014 2015 2016 2017

$'s % $'s % $'s % $'s % $'s % $'s %

Revenues:

Food & beverage $34,290,067 96.89% $31,734,979 97.09% $35,111,578 97.12% $40,614,733 96.84% $48,675,921 96.88% $58,637,903 96.97%

Catering 267,028 0.75% 73,789 0.23% 202,274 0.56% 202,274 0.48% 202,274 0.40% 202,274 0.33%

Franchise & royalty 269,760 0.76% 350,000 1.07% 256,000 0.71% 465,953 1.11% 603,953 1.20% 741,953 1.23%

Merchandise 562,045 1.59% 528,290 1.62% 584,032 1.62% 655,252 1.56% 759,590 1.51% 887,929 1.47%

Total revenues 35,388,900 100.00% 32,687,059 100.00% 36,153,884 100.00% 41,938,211 100.00% 50,241,739 100.00% 60,470,059 100.00%

Cost of Sales:

Food & beverage 6,216,588 17.99% 5,848,504 18.39% 6,496,499 18.40% 7,591,337 18.60% 9,197,720 18.82% 11,185,326 19.01%

Labor & benefits 8,787,008 24.83% 7,951,394 24.33% 9,208,468 25.47% 10,945,004 26.10% 13,507,378 26.88% 16,684,287 27.59%

Stored managed expenses 1,624,615 4.59% 1,487,374 4.55% 1,818,800 5.03% 2,170,778 5.18% 2,689,134 5.35% 3,329,216 5.51%

Occupancy expenses 9,572,114 27.05% 8,580,578 26.25% 8,527,997 23.59% 8,947,055 21.33% 9,500,251 18.91% 10,291,873 17.02%

Other direct expenses 2,373,676 6.71% 1,900,018 5.81% 2,167,376 5.99% 2,368,152 5.65% 2,662,059 5.30% 3,021,875 5.00%

Total costs & expenses 28,574,001 80.74% 25,767,868 78.83% 28,219,140 78.05% 32,022,326 76.36% 37,556,542 74.75% 44,512,577 73.61%

Unit level EBITDA 6,814,899 19.26% 6,919,191 21.17% 7,934,744 21.95% 9,915,886 23.64% 12,685,197 25.25% 15,957,482 26.39%

General & administrative 4,815,879 13.61% 4,986,850 15.26% 4,706,825 13.02% 4,993,294 11.91% 5,281,121 10.51% 5,590,318 9.24%

Marketing 229,122 0.65% 266,690 0.82% 211,735 0.59% 214,784 0.51% 217,881 0.43% 221,028 0.37%

Depreciation & amortization 1,348,696 3.81% 1,368,814 4.19% 1,507,788 4.17% 1,672,320 3.99% 1,919,117 3.82% 2,228,483 3.69%

Pre-opening costs 0 0.00% 35,000 0.11% 50,000 0.14% 75,000 0.18% 100,000 0.20% 125,000 0.21%

ESOP contribution 365,669 1.03% 705,000 2.16% 705,000 1.95% 705,000 1.68% 705,000 1.40% 705,000 1.17%

Income (loss) from operations 55,533 0.16% (443,163) (1.36%) 753,395 2.08% 2,255,488 5.38% 4,462,078 8.88% 7,087,653 11.72%

Discontinued units 102,000 0.29% 1,293,727 3.96% 0 0.00% 0 0.00% 0 0.00% 0 0.00%

Interest expense 262,291 0.74% 362,488 1.11% 437,750 1.21% 397,250 0.95% 343,250 0.68% 289,250 0.48%

(Gain) loss on disposal (741,048) (2.09%) 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%

Net income (loss) 432,290 1.22% (2,099,378) (6.42%) 315,645 0.87% 1,858,238 4.43% 4,118,828 8.20% 6,798,403 11.24%

Depreciation & amortization 1,348,696 3.81% 1,368,814 4.19% 1,507,788 4.17% 1,672,320 3.99% 1,919,117 3.82% 2,228,483 3.69%

Pre-opening costs 0 0.00% 35,000 0.11% 50,000 0.14% 75,000 0.18% 100,000 0.20% 125,000 0.21%

ESOP contribution 365,669 1.03% 705,000 2.16% 705,000 1.95% 705,000 1.68% 705,000 1.40% 705,000 1.17%

Discontinued units 102,000 0.29% 1,293,727 3.96% 0 0.00% 0 0.00% 0 0.00% 0 0.00%

Interest 262,291 0.74% 362,488 1.11% 437,750 1.21% 397,250 0.95% 343,250 0.68% 289,250 0.48%

(Gain) loss on disposal (741,048) (2.09%) 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%

EBITDA $1,769,898 5.00% $1,665,651 5.10% $3,016,183 8.34% $4,707,808 11.23% $7,186,196 14.30% $10,146,136 16.78%

Units:

Legacy mall 88 88 88 88 88

Drive-thru 7 17 32 52 77

Domestic franchise 5 8 11 14 17

International franchise 1 4 7 10 13

Total Units 101 117 138 164 195


V7.0

HDOS Enterprises

Projected Balance Sheets

December 31, 2012 - 2017

2012 2013 2014 2015 2016 2017

(actual) (forecast) (forecast) (forecast) (forecast) (forecast)

Cash $1,327,400 $1,407,060 $1,379,395 $1,024,715 $2,284,090 $5,629,986

Inventory 158,700 169,385 187,215 213,960 249,620 294,195

Accounts receivable 38,012 23,782 25,314 28,975 33,603 39,305

Prepaid expenses 182,188 178,432 197,214 225,388 262,952 309,908

Total Current Assets 1,706,300 1,778,658 1,789,138 1,493,037 2,830,265 6,273,394

Property & equipment 4,312,300 4,715,736 6,199,395 8,413,677 11,347,471 14,954,457

Goodwill 2,075,300 2,075,300 2,075,300 2,075,300 2,075,300 2,075,300

Trademarks 283,400 283,400 283,400 283,400 283,400 283,400

Deferred loan fees 59,200 534,200 434,200 334,200 234,200 134,200

Total Assets $8,436,500 $9,387,294 $10,781,433 $12,599,614 $16,770,637 $23,720,751

Accounts Payable $924,800 $1,004,350 $969,106 $1,135,197 $1,349,458 $1,615,398

Accrued Payroll 439,668 166,712 184,774 220,525 266,766 324,261

Sales Tax Payable 373,717 347,684 370,090 423,609 491,266 574,636

Accrued Expenses 373,515 405,622 391,388 458,466 544,999 652,403

Accrued ESOP Contribution 200,000 200,000 200,000 200,000 200,000 200,000

Other 0 0 0 0 0 0

Total Current Liabilities 2,311,700 2,124,368 2,115,358 2,437,798 2,852,489 3,366,698

Deferred Comp Phantom Stock 95,000 95,000 95,000 95,000 95,000 95,000

Deferred Rent 1,041,000 945,204 849,408 753,612 657,816 562,020

Debt 1,000,000 4,000,000 3,850,000 3,250,000 2,650,000 2,050,000

Total Liabilities 4,447,700 7,164,571 6,909,766 6,536,409 6,255,305 6,073,717

Common Stock 9,883,910 9,883,910 10,883,910 10,883,910 10,883,910 10,883,910

Treasury Stock (6,258,410) (6,258,410) (6,258,410) (6,258,410) (6,258,410) (6,258,410)

Common Stock 3,625,500 3,625,500 4,625,500 4,625,500 4,625,500 4,625,500

ESOP Note Receivable (2,666,700) (2,333,400) (2,000,100) (1,666,800) (1,333,500) (1,000,200)

Retained Earnings 3,030,000 930,623 1,246,266 3,104,504 7,223,331 14,021,733

Total Equity 3,988,800 2,222,723 3,871,666 6,063,204 10,515,331 17,647,033

Total Liabilities and Equity $8,436,500 $9,387,294 $10,781,433 $12,599,613 $16,770,636 $23,720,750


V7.0

HDOS Enterprises

Projected Cash Flow Statements

Year Ending December 31, 2012 - 2017

2012 2013 2014 2015 2016 2017

(actual) (forecast) (forecast) (forecast) (forecast) (forecast)

Cash flows from operating activities:

Net income (loss) $424,338 ($2,099,378) $315,644 $1,858,237 $4,118,827 $6,798,402

Adjustments to reconcile net income to net cash

provided (used) by operating activities:

Depreciation 1,348,696 1,343,814 1,407,788 1,572,320 1,819,117 2,128,483

(Gain) loss on disposal of assets (741,048) 0 0 0 0 0

Impairment of assetsDiscontinued operations 102,000 1,293,727 0 0 0 0

Shares released compensation (167,664) 0 0 0 0 0

Stock based compAmortization 0 25,000 100,000 100,000 100,000 100,000

Deferred rent (95,796) (95,796) (95,796) (95,796) (95,796) (95,796)

Changes in operating assets and liabilities:

Accounts receivable (13,352) 14,230 (1,533) (3,661) (4,628) (5,703)

Inventories 14,263 (10,685) (17,830) (26,745) (35,660) (44,575)

Prepaids and other current assets (0) 3,756 (18,782) (28,173) (37,565) (46,956)

Accounts payable (84,020) 79,550 (35,244) 166,091 214,261 265,939

Accrued payroll (31,431) (272,956) 18,063 35,751 46,241 57,495

Accrued sales tax (15,809) (26,033) 22,406 53,519 67,657 83,370

Accrued expenses 173,319 32,107 (14,234) 67,078 86,533 107,404

Accrued other 95,000 0 0 0 0 0

Net cash provided (used) by operating activities 1,008,496 287,337 1,680,482 3,698,622 6,278,988 9,348,064

Cash flows from investing activities:

Acquisitions of property and equipment (1,205,281) (1,747,251) (2,891,447) (3,786,602) (4,752,912) (5,735,469)

Proceds from disposal of property & equipment 910,300 0 0 0 0 0

Discontinued operations (1,293,727) 0 0 0 0

Other long-term assets & liabilities (40,312) 0 0 0 0 0

Net cash used by investing activities (335,293) (3,040,978) (2,891,447) (3,786,602) (4,752,912) (5,735,469)

Cash flows from financing activities:

Proceeds from issuance of debt 2,900,000 4,334,127 0 0 0 0

Repayments of debt (3,282,503) (1,334,127) (150,000) (600,000) (600,000) (600,000)

Sale of common stock (531,000) 0 1,000,000 0 0 0

Payments received on unearned ESOP shares 333,300 333,300 333,300 333,300 333,300 333,300

Debt issuance costs 0 (500,000) 0 0 0 0

Other 0 0 0 0 0 0

Net cash provided (used) by financing activities (580,203) 2,833,300 1,183,300 (266,700) (266,700) (266,700)

Net increase (decrease) in cash 93,000 79,659 (27,665) (354,680) 1,259,376 3,345,895

Cash at beginning of period 1,234,400 1,327,400 1,407,059 1,379,394 1,024,714 2,284,090

Cash at end of period $1,327,400 $1,407,059 $1,379,394 $1,024,714 $2,284,090 $5,629,985


HDOS Enterprises Summary of

Significant Projection Assumptions

1

Organization – All of the outstanding stock of HDOS Enterprises (“HDOS”) is held by the Hot Dog on a Stick Employee Stock Ownership Plan (“ESOP”) for the benefit of the Company’s employees. HDOS was formed to own and operate a quick service restaurant concept primarily under the name of Hot Dog on a Stick, which serves primarily hot dogs, lemonade and french fries. HDOS has agreements covering franchised store locations in the Philippines, Venezuela, United Arab Emirates, Brazil, Korea, Las Vegas, Guam, San Diego and El Paso. In fiscal 2013, HDOS implemented a strategy to build new locations utilizing a drive-thru format for its prototype unit. New drive-thru units will consist of conversions of existing drive-thru locations formerly occupied by other restaurant concepts. Management believes that the drive thru prototype unit will be significantly more profitable than the existing legacy mall units. The projections assume that two types of drive-thru units are built, drive-thru “A” units and drive-thru “B” units. The difference between these “A” and “B” units is primarily the assumed sales levels, with “A” units assumed to have sales of $500,000 per year and “B” units with sales of $350,000 per year. Unit level cash flow for an “A” drive-thru unit is assumed to be 33.6% and “B” units 25.2% compared to the legacy mall units that average 17.2%. As of July 3, 2013, HDOS has opened two drive-thru units, one located in Jordan, Utah and the other in Victorville, California, which opened on June 15, 2013. The Company has engaged an outside consulting firm to assist it in developing and executing a comprehensive growth plan that includes developing financing for the drive-thru store roll out, improving the operational performance of its mall locations, and exiting underperforming units. The assumptions set forth herein together with the attached financial projections present management’s estimate as of the date hereof of the financial position, results of operations and cash flows for the Company for the five year period covered by the projection. The Company cautions that these projections are forecasts and that differences regularly occur between forecasted and actual results because events and circumstances frequently do not occur as expected, and that such differences may be material to the results forecasted in these projections. Statement of Operations: Food and Beverage Revenue – Food and beverage revenues are computed on a unit-by-unit basis. New drive-thru “A” and “B” unit locations are assumed to have annual food and beverage sales of $500,000 and $350,000, respectively. Existing legacy mall locations revenues are based on 2012 actual revenues and are assumed to decrease by 2.0% in 2013. The projections assume an increase in same store sales of 1.0% in 2014 and 2.0% each year thereafter.




2

Cost of Operations: Cost of Sales – Cost of sales consist of food and beverage costs. For existing legacy mall units, cost of sales are computed on a unit-by-unit basis and are projected to approximate 17.8% of food and beverage sales. For new “A” and “B” drive thru units, food and beverage costs are assumed to be 19.8% of revenues. Labor & Benefit Costs – Labor and benefit costs include restaurant hourly labor and related benefits and workers compensation costs and are projected to be approximately 22.7% of revenues for legacy mall units and 29.4% of revenues for both “A” and “B” drive-thru units. Health Care Costs – The projections assume that the Company will provide health care insurance benefits for certain employees, but do not take into consideration the impact of the “Patient Protection & Affordable Care Act” on these health insurance costs, which may be significantly greater than the costs reflected in the projections. Store Managed Costs – Store Managed and other operating costs consist primarily of uniforms, repairs and maintenance, supplies, telephone and other miscellaneous costs. These variable costs are computed based on management’s estimate of variable costs expressed as a percentage of sales, computed on a unit-by-unit basis and are assumed to be 4.6% of revenues for existing legacy mall units and 6.5% for both “A” and “B” new drive-thru units. Occupancy – For existing legacy mall units, occupancy costs consist primarily of fixed costs and include minimum and percentage rent, CAM, merchant dues and real estate taxes. For new drive thru units, these costs consist primarily of minimum rents, which are substantially lower than mall based rents. These costs are computed on a unit-by-unit basis and are assumed to be 26.2% of revenues for existing legacy mall units and 8.2% for new drive-thru units. Other Indirect Costs – Other indirect costs consist primarily of bank and credit card fees and utility costs. These costs are based on management’s estimate of these fixed costs, and are calculated on a unit-by-unit basis and are assumed to be 6.9% of revenues for existing legacy mall units and 3.4% for new drive-thru units. General & Administrative Expense – General and administrative expenses consist of corporate level salaries and related payroll taxes, bonuses, travel and recruitment, legal and accounting and other costs related to corporate overhead. In addition, general and administrative costs include field support costs consisting of salaries, benefits and travel related expense for the regional directors of operations. These costs are primarily fixed in nature and are assumed to increase in amount as the Company adds new units, but decrease as a percentage of revenue from 13.6% in 2013 to 9.2% in 2017. Pre-Opening Costs – Costs incurred prior to and associated with opening new drive thru units, such as training, travel and advertising, are classified as pre-opening costs and are assumed to be approximately $5,000 per unit.




3

ESOP Contribution – Under the ESOP, HDOS is obligated to purchase shares of common stock that have been allocated to terminated employees. This cash expenditure is assumed to be $705,000 for each of the years ending 2013 - 2017. The actual amount of the cash expenditure will depend upon which employees terminate and the common stock share value at the time of distribution. The common stock of HDOS is valued annually. Discontinued Operations – Discontinued operations include the net loss for the 10 mall units assumed to be closed in 2013, along with an amount for each location paid to the landlord as an incentive to exit the lease. The amount related to the lease exit has been computed at 75% of one year of occupancy costs for that specific location. Cash – The balance in cash at the end of each projected year is the difference between total assets (excluding cash) and total liabilities and equity. Accounts Receivable – Accounts receivable consist primarily of amounts due from credit card sales and are computed based on sales using estimated turnover ratios. Food & Beverage Inventories – Food and beverage inventories consist of food, liquor and restaurant supplies and are estimated to average $1,783 per unit. Other Long Term Assets – Other long-term assets consist of deposits held by vendors and landlords. Property & Equipment – Property and equipment consist primarily of leasehold improvements and restaurant equipment. HDOS expects all future properties to be leased at market terms. It is assumed that leasehold improvements and restaurant equipment for a conversion drive-thru restaurant will cost approximately $175,000 and $150,000 per “A” and “B” drive-thru unit, respectively. Capital maintenance is assumed to equal 2.0% of each unit’s annual sales. Units open at the end of each projection year are as follows: 2013 2014 2015 2016 2017 Legacy 88 88 88 88 88 Drive-thru 7 17 32 52 77 Franchise 6 12 18 24 30 101 117 138 164 195




4

Capital expenditures for each projection year are as follows: 2013 2014 2015 2016 2017 Maintenance $623,000 $667,000 $761,000 $903,000 $1,085,000 Remodels - 600,000 600,000 600,000 600,000 Drive-thru 750,000 1,625,000 2,425,000 3,250,000 4,050,000 $1,748,000 $2,892,000 $3,786,000 $4,753,000 $5,735,000 Goodwill & Intangible Assets – Goodwill was recorded at the time of acquisition of HDOS by the ESOP in 1991. It is assumed that there is no impairment in Goodwill during the projection period and it remains at $2,075,000. Trademarks are assumed to have indefinite useful lives and remain at $283,000 during the projection period. Accounts Payable – Accounts payable consist of amounts owed to vendors primarily from the purchase of food, beverages, supplies and administrative services, and are computed based on cost of sales (excluding personnel costs) and general and administrative expenses. It is assumed that approximately 30 days of trade credit is received from existing and future vendors. Accrued Expenses – Accrued expenses consist primarily of two weeks of payroll and payroll tax expense; one year of accrued bonuses; one month of sales tax liability; one-half of the annual property tax amount; and one month of interest expense; as well as liability for employee medical expenses. Income Taxes – The Company has elected to be treated as a Subchapter S Corporation, and on that basis it is not obligated to pay income tax under federal or state law. Accordingly, no income tax provision has been made in the statement of operations. Capital Structure: The Company expects to finance its growth with a combination of third-party debt, equity and internally generated cash flow. Debt at the end of each year is projected to be as follows: 2013 2014 2015 2016 2017 Senior bank $3,000,000 $2,850,000 $2,250,000 $ 1,650,000 $1,050,000

Subordinated

$1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000


Email String 7.23.2013 – Subject_HDOS


7/23/2014 Westendpartners.com Mail - Fwd: HDOS

https://mail.google.com/mail/u/0/?ui=2&ik=ab5eef410c&view=pt&search=inbox&msg=14764b6e40d986bf&siml=14764b6e40d986bf 1/1

Louis Vasquez <[email protected]>

Fwd: HDOS

Peter Dealy <[email protected]> Wed, Jul 23, 2014 at 12:33 PMTo: Louis Vasquez <[email protected]>

FYIPeter S. DealyPresidentWest End Partners(o) 805 565 1800 x 211

(m) 805 708 1122

www.westendpartners.com

---------- Forwarded message ----------From: Dan Bylund <[email protected]>Date: Thu, Aug 1, 2013 at 3:39 PMSubject: HDOSTo: Tom Woolway <[email protected]>Cc: Dan Smith <[email protected]>, Peter Dealy <[email protected]>

Tom - attached is a workbook with three pro-forma 2013 P&L's; P&L(a); P&L(b) and P&L(c). The significantassumptions are listed at the bottom of each P&L. Essentially, these P&L's assume reducing our G&A run rateto 10% of revenues, and eliminating units that cash flow below certain levels, and having 8 drive-thru units openfor a full year. As you will see in P&L's (b) and (c), eliminating the bottom performing 30+/- units and openingdrive-thru units, the company is profitable and is generates cash.

I have also attached a Sources & Uses of cash with the assumption a financing with TPB closes in theSeptember/October timeframe. Please note that the $682,000 for lease termination payments is at best, a"guesstimate" as Peter Dealy and his West End team are currently in numerous discussions with all ourlandlords at the present time. Obviously, we will work hard to keep this amount to a minimum.

I am available to talk about these via phone at your convenience as is Dan Smith and Peter Dealy.

2 attachments

2013 Proforma P&L's.xlsx73K

Sources & Uses.xlsx36K


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http://www.westendpartners.com/

mailto:[email protected]




https://mail.google.com/mail/u/0/?ui=2&ik=ab5eef410c&view=att&th=14764b6e40d986bf&attid=0.1&disp=attd&realattid=f_hjuj0fad0&safe=1&zw

https://mail.google.com/mail/u/0/?ui=2&ik=ab5eef410c&view=att&th=14764b6e40d986bf&attid=0.2&disp=attd&realattid=f_hjuj0fb51&safe=1&zw

Email String 7.23.2013 – Subject_Bank Meeting


7/23/2014 Westendpartners.com Mail - Fwd: Bank Meeting

https://mail.google.com/mail/u/0/?ui=2&ik=ab5eef410c&view=pt&search=inbox&msg=147653202c36e4d6&siml=147653202c36e4d6 1/2


Fwd: Bank Meeting

Peter Dealy <[email protected]> Wed, Jul 23, 2014 at 2:48 PMTo: Louis Vasquez <[email protected]>

Agenda for bank meeting and how we directed it.Peter S. DealyPresidentWest End Partners(o) 805 565 1800 x 211

(m) 805 708 1122


---------- Forwarded message ----------From: Peter Dealy <[email protected]>Date: Mon, Jul 8, 2013 at 8:00 AMSubject: Re: Bank MeetingTo: Daniel Bylund <[email protected]>Cc: "[email protected]" <[email protected]>

Dan:

Please see below my comments relating to the agenda:

If we start with the company's financial performance to date and drive the meeting based on financial projections,the company may be immediately challenged as to its cash flow issues, inconsistent sales and challenged profitperformance to date.I would suggest that we use more of a concept approach at the outset of this initial meeting.

Perhaps Dan Smith would start with an introduction of the team that the company has assembled to restructurethe business based upon his mandate from the Board to develop a new finance plan, to broaden themanagement team and engage advisers to help in the execution on the finance strategy and the operationalturnaround.

Then the approach would be to generally refer to the Preliminary Financial Memorandum, and then to lay out thatthe company has specific plans to address each of the issues with the business which have been the likelyconcerns of the Torrey Pines representatives: - assuming that the items below have been raised as key issues indiscussions with the bank previously)

1) Stagnant revenue growth across chain - implementation of drive thru concept, and re-energizing mall model totake share from other food court stores;2) Profitability issues in its mainstream mall business - operational changes to reset the food and beveragecosts, the payroll, and the occupancy costs across the locations;3) Certifying the resilience of the HDOS brand - testing customer acceptance levels and refining the productmarketing and mix to match changing consumer tastes ( highlighting the local and healthy sourced products andthat the product mix is within the sweet spot of present consumer food choices -e.g., "farm to table" and "snackas a meal" concepts).

The next part of the discussion would be to show how the company is implementing the changes stated above:


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7/23/2014 Westendpartners.com Mail - Fwd: Bank Meeting

https://mail.google.com/mail/u/0/?ui=2&ik=ab5eef410c&view=pt&search=inbox&msg=147653202c36e4d6&siml=147653202c36e4d6 2/2

1) how the drive thru locations are being selected - the infill plan, validations using traffic counts, and how thestores will be managed (as noted in my separate email to Dan Bylund this morning on the projections, ahead ofthe meeting with the bank, I would like to better understand the operational controls on CGS and payroll at HDOSlocations - both historic mall locations and the new drive thru sites); 2) The company is utilizing the new team to address issues relating to purchasing, spoilage?, and other storemanagement challenges at certain under-performing locations, including in some cases the negotiation of leaseterminations for some units.

3) The company will use mobile and other current social media engagement tools as well as kiosk formats toexpand its customer base at mall locations and take share from other brands in the food court market.

As financial support for its initiatives, we would then review the company's finance plan - how much debtfinancing the company needs, what form it will take, and how it would use the funds. This discussion wouldinclude a review of the projections listed in Dan's agenda, as well as an analysis of the seasonality of thebusiness.

I am available after 11 AM this morning or in the afternoon after 2:30 PM to discuss these comments and otherissues in detail.Peter

Peter S. DealyPresidentWest End Partners(o) 805 565 1800 x 211

(m) 805 708 1122


On Fri, Jul 5, 2013 at 1:09 PM, Daniel Bylund <[email protected]> wrote:My thoughts on an agenda for the TPB meeting next week:

1. Overview of 2013 YTD financial results of operations 2. Liquidity and cash forecast3. Drive - Thru units update (compare P&L to mall unit), future locations etc.4. Contemplated management changes5. West End Partners introduction, experience a. Project agenda b. Estimated timeline6. Summary 5 Year projected financial statements & assumptions7. Proforma 2013 YTD P&L (breaks-out continuing mall units, units slated to close, and drive thru units)8. Financing need to accomplish plan

Let me know what you want to add/delete etc.


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Email String 8.22.2013 – Subject_Projection

Assumptions 1


7/23/2014 Westendpartners.com Mail - Projection Assumptions

https://mail.google.com/mail/u/0/?ui=2&ik=ab5eef410c&view=pt&search=inbox&msg=140a83fc8cab3377&siml=140a83fc8cab3377 1/1


Projection Assumptions

Daniel Bylund <[email protected]> Thu, Aug 22, 2013 at 3:58 PMTo: "[email protected]" <[email protected]>, Peter Dealy <[email protected]>,"[email protected]" <[email protected]>

Attached is a draft of the Projection Assumptions for your review.

Projection Assumptions - V3.0.doc78K


https://mail.google.com/mail/u/0/?ui=2&ik=ab5eef410c&view=att&th=140a83fc8cab3377&attid=0.1&disp=attd&safe=1&zw

Email String 8.24.2013 – Subject_Projection

Assumptions 2



https://mail.google.com/mail/u/0/?ui=2&ik=ab5eef410c&view=pt&search=inbox&msg=140b35cd0d4bfb33&siml=140b35cd0d4bfb33 1/2


Projection Assumptions

Peter Dealy <[email protected]> Sat, Aug 24, 2013 at 7:45 PMTo: Dan Bylund <[email protected]>Bcc: [email protected]

Dan:

Please see attached the assumptions with all the comments excluded and the language changes incorporated. Iassume this is what you need. Please let me know if there is still a problem.

Peter

Peter S. DealyPresidentWest End Partners(o) 805 565 1800 x 211

(m) 805 708 1122


On Sat, Aug 24, 2013 at 4:20 PM, Dan Bylund <[email protected]> wrote:No - the version that incorporates the red-line changes.

On Sat, Aug 24, 2013 at 4:11 PM, Pete Dealy <[email protected]> wrote:Dan

Attached is the original assumption form you originally sent. Is this what you need?

Peter

Peter S. DealyPresidentWest End Partners(o) 805 565 1800 x 211(m) 805 708 1122

Sent from my iPhone - please excuse typos and abridged text

Begin forwarded message:

From: Daniel Bylund <[email protected]>Date: August 22, 2013, 3:58:03 PM PDTTo: "[email protected]" <[email protected]>, Peter Dealy<[email protected]>, "[email protected]"<[email protected]>Subject: Projection Assumptions


tel:805%C2%A0565%C2%A01800%20x%C2%A0211

tel:805%20708%201122











https://mail.google.com/mail/u/0/?ui=2&ik=ab5eef410c&view=pt&search=inbox&msg=140b35cd0d4bfb33&siml=140b35cd0d4bfb33 2/2

Attached is a draft of the Projection Assumptions for your review.

Projection Assumptions - V3.0-2 final redlined changes accepted.doc81K


https://mail.google.com/mail/u/0/?ui=2&ik=ab5eef410c&view=att&th=140b35cd0d4bfb33&attid=0.1&disp=attd&realattid=f_hkrnmi2f0&safe=1&zw

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