UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K





[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
      2009





[_]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE TRANSITION PERIOD FROM _________ TO
    ___________





Commission
      file number: 000-52158





SMOKY
MARKET FOODS, INC.
 (Exact
name of registrant as specified in its charter)


Nevada
            
            20-4748589(State
      or other jurisdiction
              of
      incorporation or organization)
            
            (IRS
      Employer
              Identification
      No.)


804
Estates Dr., Suite 100
 Aptos,
California 95003
 (Address
of principal executive offices, including zip code)





Registrant’s
telephone number, including area code:  (866) 851-7787





Securities
registered pursuant to Section 12(b) of the Act:  None





Securities
registered pursuant to Section 12(g) of the Act:  Common Shares, par
value $.001





Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.
 YES
      [_]     NO [X]
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
 YES
      [_]     NO [X]
 
 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
      [X]     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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    [_]




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
              (Do
      not check if a smaller reporting company)
            [X]  Smaller
      reporting company





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act):    YES [_]   NO
[X]





The
aggregate market value of approximately 23,989,000 shares held by nonaffiliates
of the registrant on June 30, 2009, based upon the average bid and asked price
of the common shares on the OTC Bulletin Board of $0.07 per share on June 30,
2009, was approximately $1,679,230.  Common Shares held by each
officer and director and by each other person who may be deemed to be an
affiliate of the registrant have been excluded.





As of
March 31, 2010, the registrant had 87,527,246 common shares
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





None.










Table
of Contents




PART
      I
              
              1Item
      1.
              Business.
              1Item
      1A.
              Risk
      Factors.
              8Item
      1B.
              Unresolved
      Staff Comments.
              15Item
      2.
              Properties.
              15Item
      3.
              Legal
      Proceedings.
              16Item
      4.
              Submission
      of Matters to a Vote of Security Holders.
              16PART
      II
              
              16Item
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
              16Item
      6.
              Selected
      Financial Data.
              17Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              17Revenue
      Recognition
              22Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              23Item
      8.
              Financial
      Statements.
              23Item
      9.
              Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure.
              23Item
      9A(T).
              Controls
      and Procedures.
              23Item
      9B.
              Other
      Information.
              24PART
      III
              
              25Item
      10.
              Directors,
      Executive Officers and Corporate Governance.
              25Item
      11.
              Executive
      Compensation.
              27Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
              29Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence.
              30Item
      14.
              Principal
      Accountant Fees and Services.
              31Item
      15.
              Exhibits
      and Financial Statement Schedules.
              32







FORWARD
LOOKING STATEMENTS




This
Annual Report on Form 10-K (this “Report”) contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).  Such statements can be identified by
the use of forward-looking words such as “anticipate,” “estimate,” “project,”
“likely,” “believe,” “intend,”  “expect,” or similar
words.  These statements relate to our, and, in some cases, our
clients’ or business partners’ future plans, objectives, expectations,
intentions and financial performance and the assumptions that underlie these
statements.  All forward-looking statements included in this Report
are made as of the date hereof, based on information available to us as of such
date, and we assume no obligation to update any forward-looking
statements.  It is important to note that such statements may not
prove to be accurate and that our actual results and future events will differ,
and could differ materially, from those anticipated in such
statements.  Among the factors that could cause actual results to
differ materially from our expectations are those described under “Item 1A. Risk
Factors.”  You are also encouraged to review our other filings with
the Securities and Exchange Commission (the “SEC”) describing other factors that
may affect our future results.  All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by this section and other factors
included elsewhere in this Report.




PART
I





Item
1.  Business.





Overview





Organization & Business
Model





We are a
Nevada corporation incorporated in April 2006, with our principal office at 1511
E. 2nd Street, Webster City, Iowa 50595.  Our telephone number is
(866) 851-7787.  We are a development stage company that is in the
process of securing capital to start revenue-producing operations.





We use
USDA-approved, custom-engineered, proprietary wood-burning oven technology to
produce a complete line of Smoke-BakedTM meat
and fish.  We plan to sell smoked foods through retail channels of
distribution, including the Internet, and through development of a national
chain of Smoky Market restaurants of various sizes and numerous self-contained
kiosks that operate inside qualified high-traffic venues such as shopping malls,
sports arenas, college campuses, corporate dining areas and
airports.  We plan to produce principal menu items in bulk at a
centralized location.  We expect to be able to deliver food of
consistent size, taste and quality without the need to construct expensive
on-site ovens or to train skilled cooks to handle raw product at individual
locations.  We believe this will permit our development of a national
chain operation while keeping our per-unit operating costs down.





We have
developed the core smoked-meat recipes for our proposed business, entered into
an agreement with a commercial meat processor at which we have placed a
proprietary oven capable of producing approximately 100,000 pounds of smoked
meat per month, tested the re-heating process for our menu items and completed
concept designs for our proposed restaurants and kiosks.  In October
2009, two years after acquiring the property, we opened a pilot Smoky Market
restaurant in Los Gatos, California to test the applications for preparation of
our food products in quick-service food operations.  While we believe
that our food menu was very well received, we chose to close the restaurant
after less than five months of operations in March 2010 due to insufficient
customer traffic in the market area, which we believe had been significantly
impacted by the adverse economic conditions in effect while our restaurant was
operating.


1


Our focus
of operations continues to be on development of the Smoky Market
brand.  We plan to utilize two principal channels of distribution:
retail distribution of packaged foods over the Internet and foodservice
operations via our chain of Smoky Market restaurants and kiosks.  We
have systematized our foodservice operations for chain development, have
identified our target market customer base for Internet selling, and have
developed a sophisticated operating system to manage the transactions and
commissions expected to be owed to marketing affiliates in connection with our
online sales and marketing plan.  We expect that operating dual
channels of distribution for our smoked foods will enable us to maximize the
operating and financial efficiencies of our production capacity.





Market
Opportunity





Our goal
is to build a nationally recognized gourmet quality brand for sales of our
wood-smoked meat and fish that are prepared without the use of sodium, sugar,
and chemical preservatives to be sold under the brand name “Smoky Market” from
our web site at www.smokymarket.com and through our franchise chain of
foodservice operations.





Unlike
other popular foodservice style categories, the smoked-food/barbecue foodservice
segment in which we compete does not include a widely recognized national
chain.  Where foodservice categories like pizza, subs, chicken,
Mexican, Chinese, and burgers have total chain brand units numbering into the
thousands, the largest barbecue restaurant chain in the country, Sonny’s
Barbecue, has approximately 180 stores.  We believe that there is no
large national chain in the smoked-food/barbecue restaurant segment primarily
for two reasons: first, barbecue remains highly regionalized with respective
regions having demographic preferences for barbecue flavor, and second, quality
consistency within chain brands is a serious obstacle.  Additionally,
we believe that there is no major barbecue chain currently operating in the
restaurant segment as we plan to do.  Our Smoky Market brand, with its
kiosk and restaurant concepts, can market and vary its menu to fit into a wide
variety of customer demographics.





We
believe that we can succeed where others have not because of our plans to
address these two issues.  We plan to address the regionalization of
tastes by creating different recipes, with different sauces and flavors, for
each of five regions within the United States.  As we expand, each
region will be headed by a regional officer charged with customizing the
recipes, marketing program and other aspects of our business in order to meet
the tastes of that region.  We plan to address issues of quality and
consistency by having all of our meat prepared in our smoker-over system at a
centralized location and also centralizing, or regionalizing, the preparation of
side dishes and other offerings.  Our goal is to build a national
franchise of Smoky Market restaurants and kiosks that will not have to handle or
cook raw product on site, thereby giving assurances to menu foodservice of great
taste with quality consistency.





Food
Production & Distribution





Proprietary
Smoking Technology





The
wood-burning smoker-oven system used to produce our line of wood-smoked foods
uniquely “Smoke-Bakes”TMmeat and fish
with a smoke-heat-vapor that is generated by the slow burning of hickory and
apple timber, after which the fully-cooked smoked foods are portion-cut and
vacuum-packaged for freshness.  The smoke-heat-vapor infuses the meat
and fish with an authentic smoked taste.   No additives (water,
sugar, high amounts of sodium, liquid smoke, etc.) and no preservatives are used
in the process; only garlic, natural spices, and very little sea salt are
applied as seasoning.





2


USDA-Inspected Meat Production and
Availability of Raw Materials





We
presently outsource, and for the foreseeable future, expect to continue to
outsource, our commercial smoked food processing to Mary Ann’s Specialty Foods
(“Specialty Foods”).  Specialty Foods is a USDA-approved contract food
processing company located in Webster City, Iowa and operates an 80,000 square
foot processing facility, which sits on 15 acres of family-owned land, and is
expected to be responsible for our food production and distribution
requirements.  In order to establish production capability and
complete the development of our smoked food products, we entered into an Amended
and Restated Processing Agreement dated July 1, 2006 with Specialty Foods, which
agreement was further modified by a Second Amended and Restated Processing
Agreement dated October 30, 2009.





Pursuant
to the processing agreement, Specialty Foods has agreed to process the smoked
meats for our business in return for a processing fee equal to the sum of its
actual costs of production, it’s direct labor costs, its direct packaging
materials costs, allocated overhead initially set at $0.30 per pound of packaged
product subject to quarterly adjustment, and an amount equal to $0.45 per pound
of packaged product.  We agreed that Specialty Foods would be our
exclusive processor for meat products, subject to certain
limitations.  The agreement is based upon a single oven capable of
producing at least 100,000 pounds of smoked meat per month or more depending
upon the production item mix, although we have the option to construct an up to
80 thousand square foot building adjacent to Specialty Foods processing facility
to install additional smoker-oven systems.   The term of the
agreement is ten years from October 30, 2009, with an option to extend the
agreement for three additional 10-year periods (subject to early termination in
the event of default).





With respect to meat, fish and other
raw materials used to make our products, we require that all of our raw beef,
pork, lamb and poultry be raised without growth hormones, steroids and
antibiotics, and our salmon is “open-pen” farmed naturally from Canadian
rivers.  Market prices for meat, fish and other food items are subject
to constant fluctuation and frequent shortages of item availability, which we
expect to mitigate through contract purchasing.  We have established
strategic supply relationships with Special Foods and LandLock Sea Foods, a
supplier of fish products, that we believe will enable lower market prices as we
grow and achieve economies-of-scale.





Co-Pack
Production





We plan
to use co-packing affiliates to produce a selection of specialty gourmet items,
including one-dish meals of smoked meat/fish pasta, casseroles, quiches, and
pizzas.  We have not entered into agreements with any co-packing
facilities, but have entered into discussions with several and believe that
suitable arrangements can be reached when we commence operations.  Our
plan is to cause Specialty Foods to bulk-ship smoked meat and fish ingredients
to the co-packers.  There, the various menu items will be packaged,
and shipped to our planned regional distribution centers.





Process
& Price Value





Our
wood-smoking process is expensive.  Costs include obtaining freshly
cut timber, labor associated with the smoking process, and having to absorb a
25% to 30% cook shrinkage loss in the process.  Consequently, Smoky
Market brand smoked foods cost more to produce and have higher price points than
many competing smoked food products.  However, the existence of a
market for higher-priced organic foods and other prepared foods that are
advertised as 100% natural, low-sodium and/or free of additives suggests that
customers will pay slightly more for products they know to be of premium
quality, especially prepared foods that are natural, tasty, and
convenient.  Based upon our review of the nutritional labels of our
competitors, we believe that the absence of any preservatives, brining
solutions, liquid smoke and similar additives in Smoky Market brand smoked meats
foods distinguishes our product from smoked meat products currently on the
market.





3


Smoked
Food Products





Below is
our line of smoked foods that we expect to produce under the Smoky Market retail
brand, with certain of these items intended to also be featured on the menus at
Smoky Market restaurants and kiosks for foodservice preparation.





Our line
of wood-smoked foods presently includes the follow:





Entrée
Items (Individual serving portions that are ready to “heat’n
serve”)





·
            Pork
      Loin Baby Back Ribs


·
            Pork
      Country-Style Ribs


·
            Pork
      Loin Chop


·
            Carved
      Boneless Chicken Breast


·
            Jumbo
      Chicken Thigh


·
            Cornish
      Game Hen


·
            Turkey
      Breast, Thigh & Leg


·
            Rack
      Of Lamb & Lamb Chops


·
            Duck


·
            Salmon
      & Trout





Sliced,
Pulled or Cut Smoked Foods(Sliced, pulled or cut
from the bone and packaged in portion servings for sandwiches, or to add to
salads, tacos, casseroles & soups)





·
            Beef
      Sirloin Tri-Tip


·
            Beef
      Brisket


·
            Corned
      Beef Brisket


·
            Pork
      Loin Roast


·
            Pork
      Shoulder


·
            Boneless
      Pork Leg


·
            Carved
      Chicken Strips


·
            Turkey
      Breast





Smoked
Finger Foods (Delicate smoky treats for snacking fun &
entertainment)





·
            Beef
      & Pork Meatballs


·
            Pork
      Country Rib Strips


·
            Pork
      Ribletts


·
            Carved
      Chicken Strips


·
            Chicken
      Drummies (Regular & Teriyaki)


·
            Lamb
      Ribletts Teriyaki





Side Order
Foods





·
            Hickory
      Smoke-BakedTM
      Beans


·
            Sweet
      Butter-Creamed Corn


·
            Creamy-Garlic
      Coleslaw Dressing & Veggie Dip


·
            Southern-Style
      Barbecue Dipping Sauce


·
            Cornbread
      Muffins


4


In time,
as our brand concept develops, we expect that the complete line of our smoked
foods will be available for purchase from our internet website at www.smokymarket.com.





Marketing
& Operations





Smoky
Market Restaurants & Kiosks





Our Smoky
Market foodservice concept falls under the category of fast-casual, which is a
relatively new and fast-growing segment in the restaurant
industry.  Our theme concept is a blend of old-style and contemporary
décor, with seating that will vary to building size up to a maximum of 40
customers, with small self-contained kiosks that will be installed into high
traffic venues.  We also plan to have each Smoky Market restaurant and
kiosk include a refrigerated or frozen display case that features a limited
selection of packaged foods, including entrées, finger-foods, and recipe dish
items for take-home sales.  The unique operating feature of Smoky
Market is its “no-cook” kitchen operation.





The
principal heating equipment for all menu items to be served hot will be special
ovens that incorporate functional elements of infra-red heating, impinged air
velocity and microwave.  These ovens require no exhaust hood system in
48 out of 50 states, which substantially reduces typical investment costs, and
the speed of their heating application will enable Smoky Market meal items to be
served quickley, but with high quality and authentic taste and
flavor.  We expect the entire preparation process for Smoky Market
sandwiches and meals will require from one to three minutes to
serve.





FranshipTM
Program





The
franchise industry is successful largely because of the dedicated managers and
assistant managers who work much longer than typical 40-hour weeks, at fixed
salary pay scales that yield in most cases an amount of net pay effectively not
much greater than the hourly pay of general employees.  The franchise
industry is also successful largely because many franchisees are full-time
owner-operators of their franchise.





We plan
to create a relationship with our local managers we call “Franship.” At this
time, the structure and application for our Franship program are still being
formalized and research is being conducted relative to certain legal definitions
and federal/state filing requirements.  However, the basic opportunity
being proposed for a Franship candidate is a unique blend of the concepts of
franchising and employment.  We would retain majority ownership and
control of each restaurant-store and kiosk and the Franship manager would, in
most cases, be an employee of our company or a joint venture.  The
Franship candidate would make a cash investment for the right to share in 10% of
his or her respective Smoky Market concept (either a restaurant or
kiosk).  This profit-sharing right will become vested and transferable
as the Franship income right appreciates in value.  We expect that
this will provide substantial motivation for the local manager to maximize
profitability but permit us to retain ownership and ultimate
control.





Distribution





Processed
smoked foods will be bulk-packaged at our processing facility and shipped
initially to smaller localized food distributors that will service our Smoky
Market restaurants and kiosks within respective market areas; as we grow
nationally, we may also consider placing our distribution needs with a large
national foodservice distributor.  In northern California, we have an
informal commitment from InterState Refrigerated Distributing Company for
fee-based order drops, and if this program is successful, we intend to offer
this distribution plan to local distributors in markets throughout all regional
territories.





5


With
respect to Internet sales, we expect to ship our products from our processing
facility, or eventually regional distribution centers, to the customer using a
commercial carrier, such as Federal Express or United Parcel
Service.  We have not entered into agreements with any carrier but
expect to be able to ship through one or more carriers at market
rates.





Design,
Marketing, Human Resources and Operations Assistance





As we
execute our business plan, we intend to engage the services of well-established
operating affiliates in the areas of foodservice management, design, advertising
and franchise marketing to assist us in the national rollout and overall
management of our Smoky Market operations.  At this time, we have
identified certain firms with whom we have initiated dialog, but we have not
entered into any formal agreements.





General
Information





Intellectual
Property





We own
the recipes for substantially all of our products, certain trademarks and
tradenames,


including
Smoky Market® and
Smoke-Baked,TM and
design features related to the ovens used for smoking our
products.  We have not registered any patents, but we expect to be
able to secure certain patent rights for the diffusing system attached to our
smoker-oven from the firebox.





Government
Regulation





As a
distributor of food products and planned restaurant operator, we are subject to
regulation by the U.S. Food and Drug Administration, or FDA, the U.S. Department
of Agriculture, or USDA, and to licensing and regulation by state and local
health, sanitation, building, zoning, safety, fire and other
authorities.  In addition, the operations of our food processor are
subject to regulation under the Federal Food, Drug and Cosmetic Act, the Federal
Meat Inspection Act, the Poultry Products Inspection Act, the Perishable
Agricultural Commodities Act, the Nutrition Labeling and Education Act of 1990,
and the rules issued under these laws.  The FDA regulates standards of
identity for specified foods and prescribes the format and content of
information on food product labels.  The USDA imposes standards for
product quality and sanitation including the inspection, labeling and compliance
of meat and poultry products and the grading and commercial acceptance of
shipments from our suppliers.





Costs of
compliance with such laws and regulations are presently
insignificant.  If we or our food processor were to be found to be out
of compliance with such laws, particularly those related to the production,
labeling and handling of food, we could be subject to significant fines and
forced to discontinue our operations until all material violations were
addressed.  Were our relationship with our food processor to
terminate, we would have to find another USDA-approved meat processor or qualify
as such ourselves.  There are a limited number of USDA-approved meat
processors and barriers to entry are significant (with an estimated start-up
cost of not less than $2 million dollars and required time of at least one year
for qualification).





Environmental
Laws





We are not required to obtain any
environmental permits and do not use any hazardous materials in connection with
the operation of our business.  Accordingly, we have not incurred, and
do not expect to incur, any material expenses associated with environmental
compliance.





6


Competition





Generally,
most smoked-food or barbeque restaurants use burning wood in a barbeque pit or
smoker to cook their meat, which yields a natural, penetrating smoky flavor to
varying degrees, depending on smoking technique and wood quality.  The
moisture content of the smoked meats will also vary from concept to concept, and
even from unit to unit within the same concept brand, depending on a number of
variables.  For these reasons, the vast majority of smoked-food or
restaurants have remained single to small multi-unit concepts, and the largest
barbecue chain in the country, Sonny’s Barbeque, has only approximately 180
stores.  However, more barbeque or smoked-food concepts are opening,
and we believe that existing concepts are planning aggressive expansions as they
acquire improved smoking equipment and devise improved foodservice
systems.





We plan
to compete principally in the retail packaged food industry and in the
fast-casual segment of the restaurant industry.  In the retail
packaged food segment, we expect that our principal competitors will include
well known retails chains such as Costco Club Stores, specialty foods stores
such as Barney Greengrass or Dean & DeLuca, commercial smokehouses, and
numerous other packaged food enterprises.  We expect to compete based
upon quality, flavor, healthfulness, variety and price.  As a new
entrant into the market, we are uncertain how we will compare to our competitors
on most of those factors, but expect that our additive-free naturally-smoked
foods will compete in terms of quality, flavor and healthfulness.  As
a new market entrant, our variety is limited, and we expect that our price will
be below that of specialty stores and internet sellers, but above that of major
retail chains.





The
fast-casual segment of the restaurant industry is characterized by a large
number of participants, both individual stores and large chains, and is
extremely competitive.  Because of the localized nature of the
business, we will be competing with different restaurants in each geographic
market.  We expect to compete based upon quality of food and service,
ambience, flavor, variety and price.  As a new entrant into the
market, we are uncertain how we will compare to our competitors on most of those
factors.   Many of our existing and potential competitors have
longer operating histories, a large existing customer base, greater financial
strength, and more recognized brands than we do.  These competitors
may be able to attract and retain customers more easily because of their brand
names and their larger marketing budgets and sales forces.  Our larger
competitors can also devote substantially more resources to product development
and may adopt more aggressive pricing policies.





Research
and Development





We are
recently formed and do not have any historical research and development
expenses.  We plan to add products to our lines as our business
develops and expect that research, developing and testing of new or improved
recipes and products will be an ongoing part of our business.





Employees





We
currently have a total of two paid full-time employees and one paid full-time
contractor, which includes two officers (Edward C. Feintech, our CEO and Toni L.
Adams, our Secretary) and a quality-control operator of our smoker-oven
system.  We also have two executives, our Chief Financial Officer and
our Chief Information Officer, providing services on a part-time basis as
consultants.  In March 2010, we engaged the services of a consulting
firm, Propulsion LLC, to direct our marketing and branding operations and in
connection with that engagement, Harvey Hoffenberg, the President of Propulsion
LLC, joined our executive management team as a paid consultant and will function
as our Chief Marketing Officer.





7


Execution of our business plan as set
forth above would, we believe, require the hiring of approximately 30 people
over the next three years to staff our corporate management team, our regional
offices and those responsible for overseeing the process of procuring real
estate (fee simple or lease) and arranging for the construction or placements of
our Smoky Market outlets, and the hiring of initial management.  This
number excludes management and staffing at the Smoky Market restaurant and
kiosks. The actual number of employees we will hire in the next 12 months
depends upon our success in obtaining capital and how rapidly we can expand our
operations.





Item
1A.  Risk Factors.




Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks described below, and all of the other information set forth
in this prospectus before deciding to invest in shares of our common
stock.  In addition to historical information, the information in this
prospectus contains forward-looking statements about our future business and
performance.  Our actual operating results and financial performance
may be different from what we expect as of the date of this
prospectus.  The risks described in this prospectus represent the
risks that management has identified and determined to be material to our
company.  Additional risks and uncertainties not currently known to
us, or that we currently deem to be immaterial, may also materially harm our
business operations and financial condition.




We
have generated only a nominal amount of revenue and may be unable to generate
significant revenue in the future.





We were
incorporated in April 2006 and are in the process of commencing
operations.  As a result, we have generated only a nominal amount of
revenue, and all of our plans are speculative.  We may be unable to
generate or expand revenue at the rate anticipated.  If we do not
generate significant revenue in the future, or if costs of expansion and
operation exceed revenues, we will not be profitable.  We may be
unable to execute our business plan, generate significant revenue or be
profitable.





The
inexperience of our key management, and our limited operating history and
evolving business plan, make it difficult to evaluate our performance and
forecast our future.




We were
formed in April 2006.  Our key management individuals have experience
in the restaurant industry, but have limited or no experience in internet
retailing, establishing a national food service business (directly or through
franchise arrangements) or operating a reporting issuer.  Our limited
operating history and limited experience make it difficult to evaluate our
ability to generate revenues, manage growth, obtain necessary capital, manage
costs, create profits, and generate cash from
operations.  Specifically, our ability to do the following may be
impaired:




·
            implement
      our business plan (which may be based upon faulty assumptions and
      expectations arising from our limited
  experience);


·
            obtain
      capital necessary to continue operations and implement our business
      plan;


·
            comply
      with SEC rules and regulations and manage market
    expectations;


·
            differentiate
      ourselves from our competitors; and


·
            establish
      a significant retail and restaurant customer
  base.





If we
fail to successfully manage these risks, we may never expand our business or
become profitable and our business may fail.





8


We
will be unable to implement our business plan if we cannot raise sufficient
capital and may be required to pay a high price for capital.




As of
December 31, 2009, we had $110,646 in cash and cash equivalents.  We
need to obtain a significant amount of additional capital to implement our
business plan and meet our financial obligations as they become
due.  We may not be able to raise the additional capital needed or may
be required to pay a high price for capital.  Factors affecting the
availability and price of capital may include the following:





·
            the
      availability and cost of capital
generally;


·
            our
      financial results;


·
            the
      experience and reputation of our management
  team;


·
            market
      interest, or lack of interest, in our industry and business
      plan;


·
            the
      trading volume of, and volatility in, the market for our common
      stock;


·
            our
      ongoing success, or failure, in executing our business
    plan;


·
            the
      amount of our capital needs; and


·
            the
      amount of debt, options, warrants and convertible securities we have
      outstanding.





We may be
unable to meet our current or future obligations or to adequately exploit
existing or future opportunities if we cannot raise sufficient
capital.  If we are unable to obtain capital for an extended period of
time, we may be forced to discontinue operations.




Our
auditors have included an explanatory paragraph in our financial statements
regarding our status as a going concern.





Our
audited financial statements included in this prospectus were prepared on the
assumption that we will continue as a going concern.  Our independent
registered public accounting firm has stated that it substantially doubts our
ability to continue as a going concern in a report dated April 15, 2010. This
doubt is based on the fact that we have had losses since inception, have a
stockholders’ deficit and have had no material revenue generating operations
since inception.





If
we fail to develop our brand recognition, our ability to compete in a highly
fungible restaurant market will be impaired.





The
foodservice industry is intensely competitive with respect to the quality and
value of food products, service, price, dining experience and
location.  We compete with major restaurant chains, some of which
dominate the industry.  Our competitors also include a variety of
mid-price, full-service casual-dining restaurants, health and nutrition-oriented
restaurants, delicatessens and prepared food restaurants, as well as
supermarkets and convenience stores.  Our competitors have
substantially greater brand recognition, as well as greater financial,
marketing, operating and other resources than we have, which may give them
competitive advantages. The fast-casual and quick-services restaurant segments
are growing rapidly with numerous restaurant chains competing for quality site
locations.  Suitable locations for our restaurants may be difficult to
locate, or we may be unable to finance the acquisition of such
locations.  Our competitors could also make changes to pricing or
other marketing strategies which may impact us detrimentally.  As our
competitors expand operations, we expect competition to
intensify.  Such competition could prevent us from generating
significant revenue, which is necessary to sustain our operations in the long
term.





9


The
packaged food market is competitive, and we may be unable to successfully
capture retail customers.





The
market for packaged meat products, and competing packaged products, is highly
competitive.  We propose to sell packaged meat products over the
Internet and at retail locations.  We may be unable to differentiate
ourselves in the marketplace and compete successfully against existing or future
competitors of our business.  In order to succeed, we will be required
to take customers away from established smoked meat and fish brands and
alternative food products sold over the Internet or at retail
stores.  Our retail products will be sold at higher prices than some
of our competitor’s products, and consumers may not differentiate the quality of
our products or may not be willing to pay higher prices.  If we fail
to establish customers for our packaged food business, it is unlikely that we
will generate significant revenue or become profitable, and in the long run our
business will likely fail.





We may be unable
to establish a significant number of restaurant-stores or
kiosks.





Many
factors may affect our ability to establish new restaurant-stores and kiosks,
including:





·
            identification
      and availability of suitable
locations;


·
            negotiation
      of favorable lease or purchase
arrangements;


·
            management
      of the costs of construction and
development;


·
            securing
      required governmental approvals and permits and complying with
      governmental regulations;


·
            recruitment
      of qualified operating personnel;


·
            labor
      disputes;


·
            shortages
      of materials and skilled labor;


·
            environmental
      concerns; and


·
            other
      increases in costs, any of which could give rise to delays or cost
      overruns.





If we are
not able to establish and expand our restaurant-store or kiosk business, our
revenues will not grow as expected, which would inhibit our ability to continue
operations in the long term.





The
risk of product contamination and recall may harm our public image and result in
decreased revenues and harm to our business.




There is
a risk that our food processor could produce contaminated meat or other products
that we would ship or serve at our restaurant-markets or kiosks.  If
such an event occurs, we may be required to recall our products from retail
stores, affiliate warehouses and from the restaurant outlets being
served.  A product recall would increase costs, result in lost
revenues and harm our public relations image, in addition to exposing us to
liability for any personal injury resulting from such
contamination.




The
availability of raw meat, fish and other food products may change without
notice, and the fluctuating cost of these products may unexpectedly increase our
operating costs and harm our business.




The costs
of obtaining the meat, fish and other food products required for our products
are subject to constant fluctuations and frequent shortages of item
availability.  Adequate supplies of raw meat, fish and other food
products may not always be available, and the price of raw meat, fish and other
food products may rise unexpectedly, resulting in increased operating costs,
potential interruptions in our supply chain, and harm to our
business.




10


Adverse
publicity regarding fish, poultry or beef could negatively impact our
business.




Our
business can be adversely affected by reports regarding mad cow disease, Asian
bird flu, meat contamination within the U.S. generally or food contamination
generally.  In addition, concerns regarding hormones, steroids and
antibiotics may cause consumers to reduce or avoid consumption of fish, poultry,
or beef.  Any reduction in consumption of fish, poultry, or beef by
consumers, would harm our revenues, financial condition and results of
operations.




Our
supply chain may be subject to shipping losses, various accidents, or spoilage,
which would decrease revenues and potentially lead to a loss of
customers.




We have
contracted with a food processor that will be responsible for shipping our
processed products, restaurant-stores or consumers to distribution centers or
marketing affiliates.  Shipping losses, various accidents and product
spoilage during this process may lead to decreased sales, potentially
disgruntled commercial customers and possible shortages at our distribution
centers and retail locations.  Repeated or extensive problems of this
nature would harm our reputation and revenues.




We
may lose our processor affiliation or experience a breakdown in our single
processing oven system, substantially harming our ability to generate revenues
until another processor is located.




We are
completely dependent upon Mary Ann’s Specialty Foods, Inc., and upon a single
oven-system located at Specialty Foods, to produce our smoked foods in order to
operate the business and generate revenue.  If our oven system breaks
down, becomes contaminated or is removed from Specialty Foods’ facility, we
would experience an interruption in our ability to supply products to
customers.  This would harm our relationships with our customers and
internet affiliates, and harm our revenues in the short run.  Any
long-term interruptions in our ability to produce smoked foods would
significantly limit our ability to continue operations.




We
are dependent upon key personnel to manage business, and the loss of such
personnel could significantly impair our ability to implement our business
plan.





We are
highly dependent upon the efforts of management, particularly Edward C.
Feintech, our Chairman, President and Chief Executive Officer.  The
number of qualified managers in the smoked-food industry is
limited.  As our business grows, we will need to recruit executive and
regional managers who are capable of implementing our business
plan.  The e-commerce and restaurant industries are highly
competitive, and we may be unable to attract qualified management
personnel.  If we are unsuccessful in retaining or attracting such
employees, our ability to grow and service capacity will be harmed.





In
addition, the success of each Smoky Market foodservice concept will be largely
dependent upon the efforts of local management.  We may be unable to
locate qualified persons willing to manage local stores under the terms we
expect to offer.  We may be required to increase salaries, benefits,
and ownership beyond that anticipated, or management personnel we hire may have
limited qualifications and may not perform as anticipated.  We may
also experience rapid turnover and unexpected legal and other costs associated
with our compensation and/or ownership programs for local
management.  If we are unable to hire and maintain qualified, capable
local management, we may experience lower revenues and higher costs than
expected.





We
expect to be dependent on third party affiliates to provide design, advertising,
foodservice operations management, and franchising assistance in relation to our
Smoky Market restaurants and kiosks and to assist in development of our general
operating and marketing plan.




We intend
to engage well-established consulting firms for design, advertising, operations
management and franchising to assist us in the development and execution of our
Smoky Market restaurant and kiosk plan.  If we are unable to engage
and sustain long-term agreements with these operating affiliate firms, our
ability to generate revenue will be delayed or reduced, and we may incur
substantial costs in obtaining the necessary services to execute the roll out
for our restaurants and kiosks.





11


Labor
disputes affecting common carriers and foodservice distributors may hamper our
ability to deliver our product to customers and harm our business.





We will
be dependent upon UPS and other package delivery contractors and foodservice
distributors to ship internet orders to customers and products to our
foodservice concept outlets.  Labor disputes involving package
delivery contractors, or other events creating delays, unpredictability or lost
increases in the express delivery market may significantly damage our shipping
and delivery capability.  This would increase our costs, likely cause
us to fail to comply with delivery commitments to our customers, and eventually
harm our ability to generate revenues.





Our
business may be affected by increased compensation and benefits
costs.


We expect
labor costs to be a significant expense for our business.  We may be
negatively affected by increases in workers’ wages and costs associated with
providing benefits, particularly healthcare costs.  Such increases can
occur unexpectedly and without regard to our efforts to limit
them.  If such increases occur, we may be unable to pass them along to
the consumer through product price increases, resulting in decreased operating
results.





Changes
in general economic and political conditions affect consumer spending and may
harm our revenues and operating results.





Our
country’s economic condition affects our customers’ levels of discretionary
spending.  A decrease in discretionary spending due to a recession or
decreases in consumer confidence in the economy could affect the frequency with
which our customers choose to purchase smoked-foods or dine out or the amount
they spend on smoked-food or meals while dining out.  This would
likely decrease our revenues and operating results.





Failure
to comply with governmental regulations could harm our business and our
reputation.





We will
be subject to regulation by federal agencies and regulation by state and local
health, sanitation, building, zoning, safety, fire and other departments
relating to the development and operation of restaurant-markets. These
regulations include matters relating to:





·
            the
      environment;


·
            building
      construction;


·
            zoning
      requirements;


·
            worker
      safety;


·
            the
      preparation and sale of food and alcoholic beverages;
  and


·
            employment.





Our
facilities will need to be licensed and will be subject to regulation under
state and local fire, health and safety codes. The construction of modular
restaurant-markets will be subject to compliance with applicable zoning, land
use, and environmental regulations. We may not be able to obtain necessary
licenses or other approvals on a cost-effective and timely basis in order to
construct and develop modular restaurant-markets in the future.





12


If we
elect to serve alcohol to our customers, we will be required to comply with the
alcohol licensing requirements of the federal, state, and municipal governments
having jurisdiction where our restaurant-markets are
located.  Alcoholic beverage control regulations require applications
to state authorities and, in certain locations, county and municipal authorities
for a license and permit to sell alcoholic beverages.  Typically,
licenses must be renewed annually and may be revoked or suspended for cause at
any time.  Alcoholic beverage control regulations relate to numerous
aspects of the daily operations of restaurant-markets, including minimum age of
guests and employees, hours of operation, advertising, wholesale purchasing,
inventory control and handling, storage and dispensing of alcoholic
beverages.  If we fail to comply with federal, state, or local
regulations, our licenses may be revoked and we may be forced to terminate the
sale of alcoholic beverages at one or more of our
restaurant-markets.





The
Americans with Disabilities Act prohibits discrimination on the basis of
disability in public accommodations and employment.  We will likely be
required to comply with the Americans with Disabilities Act and regulations
relating to accommodating the needs of the disabled in connection with the
construction of new facilities and with significant renovations of existing
facilities.





Failure
to comply with these and other regulations could increase our cost structure,
slow our expansion, and harm our reputation, any of which would harm our
operating results.





Compliance
with existing and new regulations of corporate governance and public disclosure
may result in additional expenses.





Compliance
with changing laws, regulations, and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002 and other SEC
regulations, requires large amounts of management attention and external
resources.  This may result in increased general and administrative
expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities.





Our
directors, executive officers and principal stockholders have effective control
of the company, preventing non-affiliate stockholders from significantly
influencing our direction and future.





Our
directors, officers, and 5% stockholders and their affiliates control a
significant percentageof our outstanding
shares of common stock and are expected to continue to control a significant
percentage of our outstanding common stock following any financing transactions
projected for the foreseeable future.  These directors, officers, 5%
stockholders and affiliates effectively control all matters requiring approval
by the stockholders, including any determination with respect to the acquisition
or disposition of assets, future issuances of securities, declarations of
dividends and the election of directors.  This concentration of
ownership may also delay, defer, or prevent a change in control and otherwise
prevent stockholders other than our affiliates from influencing our direction
and future.





There
is a public market for our stock, but it is thin and subject to
manipulation.





The
volume of trading in our common stock is limited and can be dominated by a few
individuals.  The limited volume can make the price of our common
stock subject to manipulation by one or more stockholders and will significantly
limit the number of shares that one can purchase or sell in a short period of
time.  An investor may find it difficult to dispose of shares of our
common stock or obtain a fair price for our common stock in the
market.





The
market price of our common stock may be harmed by our need to raise
capital.





We need
to raise additional capital in order to roll out our business plan and expect to
raise such capital through the issuance of common stock and/or convertible
debt.  Because securities in private placements and other transactions
by a company are often sold at a discount to market prices, this need to raise
additional capital may harm the market price of our common
stock.   In addition, the re-sale of securities issued in such
capital-raising transactions, whether under Rule 144 or a re-sale registration
statement, may harm the market price of our common stock.





13


The
market price for our common stock is volatile and may change dramatically at any
time.





The
market price of our common stock, like that of the securities of other
early-stage companies, is highly volatile.  Our stock price may change
dramatically as the result of announcements of our quarterly results, the rate
of our expansion, significant litigation or other factors or events that would
be expected to affect our business or financial condition, results of operations
and other factors specific to our business and future prospects.  In
addition, the market price for our common stock may be affected by various
factors not directly related to our business, including the
following:





·
            intentional
      manipulation of our stock price by existing or future
      stockholders;


·
            short
      selling of our common stock or related derivative
    securities;


·
            a
      single acquisition or disposition, or several related acquisitions or
      dispositions, of a large number of our
shares;


·
            the
      interest, or lack of interest, of the market in our business sector,
      without regard to our financial condition or results of
      operations;


·
            the
      adoption of governmental regulations and similar developments in the
      United States or abroad that may affect our ability to offer our products
      and services or affect our cost
structure;


·
            developments
      in the businesses of companies that purchase our products;
    or


·
            economic
      and other external market factors, such as a general decline in market
      prices due to poor economic indicators or investor
    distrust.





Our
ability to issue preferred stock and common stock may significantly dilute
ownership and voting power, negatively affect the price of our common stock and
inhibit hostile takeovers.




Under our
Articles of Incorporation, as amended, we are authorized to issue up to 10
million shares of preferred stock and 200 million shares of common stock without
seeking stockholder approval. Our board of directors has the authority to create
various series of preferred stock with such voting and other rights superior to
those of our common stock and to issue such stock without stockholder approval.
Any issuance of such preferred stock or common stock would dilute the ownership
and voting power of existing holders of our common stock and may have a negative
effect on the price of our common stock. The issuance of preferred stock without
stockholder approval may also be used by management to stop or delay a change of
control, or might discourage third parties from seeking a change of control of
our company, even though some stockholders or potential investors may view
possible takeover attempts as potentially beneficial to our
stockholders.




We
are unlikely to pay dividends on our common stock in the foreseeable
future.




We have
never declared or paid dividends on our stock.  We currently intend to
retain all available funds and any future earnings for use in the operation and
expansion of our business.  We do not anticipate paying any cash
dividends in the foreseeable future, and it is unlikely that investors will
derive any current income from ownership of our stock.  This means
that your potential for economic gain from ownership of our stock depends on
appreciation of our stock price and will only be realized by a sale of the stock
at a price higher than your purchase price.




Our
common stock is a “low-priced stock” and subject to regulation that limits or
restricts the potential market for our stock.





Shares of
our common stock are “low-priced” or “penny stock,” resulting in increased risks
to our investors and certain requirements being imposed on some brokers who
execute transactions in our common stock.  In general, a low-priced
stock is an equity security that:





14


·
            Is
      priced under five dollars;


·
            Is
      not traded on a national stock
exchange;


·
            Is
      issued by a company that has less than $5 million in net tangible assets
      (if it has been in business less than three years) or has less than $2
      million in net tangible assets (if it has been in business for at least
      three years); and


·
            Is
      issued by a company that has average revenues of less than $6 million for
      the past three years.





We believe that our common stock is
presently a “penny stock.” At any time the common stock qualifies as a penny
stock, the following requirements, among others, will generally
apply:





·
            Certain
      broker-dealers who recommend penny stock to persons other than established
      customers and accredited investors must make a special written suitability
      determination for the purchaser and receive the purchaser’s written
      agreement to a transaction prior to
sale.


·
            Prior
      to executing any transaction involving a penny stock, certain
      broker-dealers must deliver to certain purchasers a disclosure schedule
      explaining the risks involved in owning penny stock, the broker-dealer’s
      duties to the customer, a toll-free telephone number for inquiries about
      the broker-dealer’s disciplinary history and the customer’s rights and
      remedies in case of fraud or abuse in the
sale.


·
            In
      connection with the execution of any transaction involving a penny stock,
      certain broker-dealers must deliver to certain purchasers the
      following:




o
            bid
      and offer price quotes and volume
information;


o
            the
      broker-dealer’s compensation for the
trade;


o
            the
      compensation received by certain salespersons for the
    trade;


o
            monthly
      accounts statements; and


o
            a
      written statement of the customer’s financial situation and investment
      goals.




Item
1B.  Unresolved Staff Comments.





None.





Item
2.  Properties.





We do not
currently have fee ownership of any property.  We lease a 5,000 square
foot warehouse and office located in Aptos, California.  The term of
the lease is month-to-month, and our monthly rent under the lease is $2,800. We
use office and cold storage warehouse space in the facility of Specialty Foods
for free.  We have no lease with respect to such space, and our
informal arrangement could be terminated at any time.  When and if
financing is secured and formal operations begin, we expect to formalize our
arrangements with Specialty Foods and begin paying rent.





Pursuant
to an Option Agreement dated October 30, 2009, we have an option to purchase
from Specialty Foods an approximately 15 acre parcel of real estate on which
Specialty Foods is located in Webster City, Iowa during an approximately seven
year term at a purchase price equal to the greater of $3,000,000 (plus the cost
of additional improvements) and the appraised value of preoprty at the time the
option is exercised.  If we exercise the option, we would be required
to lease back to Specialty Foods the buildings in which it conducts its
operations in exchange for rent of $10,000 per month, subject to certain
adjustments.





15


In
January 2008, we entered into an agreement relating to the 29 East Main Cafe,
located at 29 East Main Street, Los Gatos, California 95030.  Under
the terms of the purchase agreement, we acquired the existing leasehold
improvements and equipment and assumed the existing lease for a total purchase
price of $150,000.  Under the terms of the lease, our monthly rent is
$6,000 and increases 3.5% annually.  We remodeled this location and
opened it as a Smoky Market restaurant, but in March 2010 we closed the
restaurant.  We continue to incur the monthly rent until our lease
obligations terminate.





Item 3.  Legal
Proceedings.





We are
not engaged in any legal proceedings, nor are we aware of any pending or
threatened legal proceedings that, singly or in the aggregate, would reasonably
be expected to have a material adverse effect on our business, financial
condition or results of operations.





Item
4.  Submission of Matters to a Vote of Security Holders.





No matter
was submitted to a vote of the security holders during the fourth quarter of the
fiscal year covered by this report.





PART II





Item
5.  Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.





Market
Price





The table
below sets forth the high and low bid quotations for our common stock as
reported on the OTC Bulletin Board for the periods indicated.  Our
common stock is quoted on the OTC Bulletin Board under the symbol
SMKY.





High
            
            LowFiscal
      Year Ended December 31, 2009Quarter
      ended December 31, 2009
            
            $0.10
            
            $0.02Quarter
      ended September 30, 2009
            
            $0.09
            
            $0.04Quarter
      ended June 30, 2009
            
            $0.10
            
            $0.02Quarter
      ended March 31, 2009
            
            $0.06
            
            $0.03Fiscal
      Year Ended December 31, 2008Quarter
      ended December 31, 2008
            
            $0.07
            
            $0.03Quarter
      ended September 30, 2008
            
            $0.15
            
            $0.04Quarter
      ended June 30, 2008
            
            $0.36
            
            $0.02Quarter
      ended March 31, 2008
            
            $0.65
            
            $0.16





The
quotations set forth above reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual
transactions.  Our common stock began quotation on the OTC Bulletin
Board on September 11, 2007.





16


Outstanding
Shares and Number of Stockholders


As of
March 31, 2010, there were 87,527,246 shares of common
stock issued and outstanding, which were held by approximately 279 holders of
record and no shares of preferred stock outstanding.





Dividends





We have
never declared or paid dividends on any class of equity securities, and we
currently intend to retain any future earnings for use in our business and do
not anticipate paying any dividends on our outstanding common stock in the
foreseeable future.





Securities
Authorized for Issuance Under Equity Compensation Plans





The
following table sets forth information with respect to compensation plans
(including individual compensation arrangements) under which equity securities
of the company are authorized for issuance as of December 31, 2009:





Plan Category
            
            Number
      of securities to be issued upon exercise of outstanding options, warrants and rights
            
            Weighted-average
      exercise price of outstanding options, warrants and rights
            
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column (a))(a)
            
            (b)
            
            (c)Equity
      compensation plans approved by security holders
            
            1,887,500
            
            $0.10
            
            817,500Equity
      compensation plans not approved by security holders
            
            N/A
            
            N/A
            
            N/ATotal
            
            1,887,500
            
            0.10
            
            817,500





Recent
Sales of Unregistered Securities





Other
than transactions previously reported, there were no securities sold during the
year ended December 31, 2009 without being registered under the Securities
Act.





Item
6.  Selected Financial Data.





Because we are a smaller reporting
company, we are not required to provide the information called for by this
item.





Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations.





The
following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and notes thereto.  This section may include
projections and other forward-looking statements regarding management’s
expectations regarding our performance.  You should not place undue
reliance on such projections and forward looking statements, and, when
considering such projections and forward-looking statements, you should keep in
mind the risk factors noted throughout this prospectus.  You should
also keep in mind that all projections and forward-looking statements are based
on management’s existing beliefs about present and future events outside of
management’s control and on assumptions that may prove to be
incorrect.  See “Item 1A. Risk Factors.”





17


Overview





We use
proprietary, custom-engineered, USDA-approved wood-burning oven technology to
mass produce a complete line of real Smoke-BakedTM meat
and fish, and special recipe dishes, which we believe to be unique and of
superior quality to other commercially produced smoked meat
products.  Our meat and fish are prepared 100% naturally without the
addition of additives (water, sugar, high sodium) or chemical preservatives, and
are individually portion-packaged and vacuum-sealed for convenience and quality
retention.  From a 15-acre food production campus located in central
Iowa and owned by our exclusive meat processor, Mary Ann’s Specialty Foods, Inc.
(“Specialty Foods”), we produce and ship our smoked foods to distribution
facilities strategically established to support nationwide
marketing.





A key
operating element in our business model is the culinary systemization we have
created – through mass production – designed for highly specialized and
profitable foodservice operation within a very small footprint of
space.  We plan to generate revenue principally from sales of our
smoked foods through the operations of two channels of Smoky Market brand
distribution: sales of retail packaged product sold over the Internet and retail
display merchandisers, and development of a chain of franchised fast-casual
restaurants and self-contained kiosks.  We are able to deliver food of
consistent size, taste and quality without the need to install smoking ovens for
on-site cooking or to train skilled cooks to handle raw product at numerous
locations.  We believe this will permit our development of national
chain operations with substantially reduced costs relative to investment, labor
and product shrinkage.





We
produce our smoked foods under an agreement with Specialty Foods, a commercial
meat processor in whose USDA facility we placed out first wood-burning oven
system, which is capable of producing approximately 100,000 pounds of smoked
meat and fish per month.  To demonstrate the systemization of our
foodservice menu operation, we opened a 1,000 square foot Smoky Market
restaurant in October 2009, which was located in Los Gatos, California and
featured a selection of certain of our smoked meat and fish that was prepared
within a kitchen area of 150 square feet.  However, after less than
five months of testing, we chose to close the restaurant due to insufficient
traffic in the area , but we plan to open Smoky Market restaurants in the near
future when financing is secured.





Beginning
in 2010 with receipt of financing, we plan to commence retail sales from our
Internet web site, which will enable food buyers from across the country to
order our products online and to receive their order within just a few
days.  Our Internet operating plan is to create marketing affiliations
with existing network marketers and selected corporate businesses and consumer
trade organizations under which we would pay commissions in return for
sponsorship and promotional representation by these marketing
affiliates.





We have
generated net losses in each fiscal year since our inception in the development
of our business model.  In October 2009, we began to generate initial
revenue from food sales at our Los Gatos, CASmoky
Market restaurant, but subsequently closed the restaurant.  As
discussed in “Liquidity and Capital Resources” below, in June 2009 we received
$1.5 million in capital financing, which we used toward opening the restaurant
and completing the operating systems for our web site to launch the Internet
business.  We estimate that we will need a minimum of $2.5 million of
additional financing in order to launch our Smoky Market foodservice concept and
Internet retail operations.  Proceeds from anticipated future
financings will be used to finance Smoky Market restaurants and kiosks that cost
about $200,000 and $85,000 respectively, and a minimum of $500,000 will be
required to implement our Internet marketing campaign.





18


Liquidity
and Capital Resources





As of
December 31, 2009, we had cash and cash equivalents of $110,646 and a working
capital deficit of $325,111, as compared to cash and cash equivalents of $282
and a working capital deficit of $716,046 as of December 31, 2008.





To
finance the expansion of our foodservice concept and Internet operations, we
intend to seek additional financing in early 2010.  Given that we are
not yet in a positive cash flow or earnings position, the options available to
us are fewer than to a positive cash flow company and generally do not include
bank financing.  To raise additional capital, we expect to issue debt
and/or equity securities, including warrants and convertible securities. We do
not have any commitments from any party to provide required capital and may, or
may not, be able to obtain such capital on reasonable terms or at
all.





In a June
2009 financing transaction, we received $1,500,000 in cash and $652,600 in debt
cancellation for a promissory note in the amount of $2,152,500 together with
shares of our common stock and warrants to purchase additional shares of our
common stock.  Under the terms of the promissory note, we are
obligated to make payment on the full principal amount, plus interest accruing
at 10% per year, by May 29, 2011, and we may prepay any amount of principal or
interest at any time without penalty.  We have agreed to pay as a
pre-payment of the principal amount of the promissory note at least 50% of the
net proceeds above $2,000,000 of any subsequent offering of our capital
stock.





During
2009, principal uses of cash were approximately $1.2 million for the operation
of our Smoky Market restaurant and approximately $350,000 in associated
equipment purchases.





Expected
capital expenditures during the remainder of 2010 are expected to be limited to
marketing and advertising costs of approximately $250,000 to promote our Smoky
Market foodservice and Internet retail operations, $250,000 relating to
inventory requirements, and $1,000,000 for new Smoky Market
restaurants.





Assuming
the success of our initial foodservice concept and Internet operations, which
are expected to utilize a substantial portion of our existing production
capacity, we anticipate the need to invest as much as $1,000,000 to create
additional production capacity at Specialty Food’s production facility to
support our expanded marketing operations.  This will most likely
require the construction of an additional building adjacent to Specialty Food’s
existing production space for more ovens and packaging
equipment.   We recently entered into agreements with Specialty
Foods under which we were granted an option to construct an up to 80 thousand
square foot building on its property to accommodate additional smoker ovens and
equipment and an option to purchase the 15-acre campus on which Specialty Foods
operates if needed to accommodate growth of the Company’s business (subject to
an obligation to lease back to Specialty Foods its processing facility). We
anticipate that the financing to pay for the proposed building addition will be
generated from a combination of our sales and additional financing transactions
involving debt or equity securities.  If we are unable to obtain
financing to construct the building addition as planned, we will be forced to
significantly curtail our proposed expansion, and our ability to grow revenue
will be halted until increased capacity can be created.





Results
of Operations





Our
revenues from operations decreased while our operating expenses increased in
2009.  The revenue decrease was due primarily to a decrease in
products sold between 2008 and 2009.  The operating expense increase
was due to increases in rent and stock-based compensation in the payment of
salaries, professional services, and financing activities, as summarized and
discussed below.  Also, our working capital deficiency increased from
2008 to 2009 as summarized and discussed below.





19


Revenues and
Expenses.  Our operating results for the years ended December
31, 2008 and 2009 are summarized as follows:





For
      the years endedDecember
      31, 2009
            
            
            December
      31, 2008Sales
            
            $
            42,673
            
            
            $
            287Restaurant
      Operating Costs
            
            
            126,611
            
            
            
            --Net
      Operating Loss
            
            
            (83,938
            )
            
            
            287General
      & Administrative ExpensesSalaries,
      Wages & Benefits
            
            
            379,263
            
            
            
            283,603Professional
      Fees
            
            
            195,651
            
            
            
            102,390Rent
            
            
            109,087
            
            
            
            107,853Depreciation/amortization
            
            
            144,548
            
            
            
            38,405Stock
      based compensationSalaries,
      Wages & Benefits
            
            
            26,657
            
            
            
            119,780Financing
            
            
            13,532
            
            
            
            617,292Professional
            
            
            2,905
            
            
            
            1,818,983Marketing
            
            
            5,871
            
            
            
            87,355Other
            
            
            140,059
            
            
            
            155,155Total
      General & Administrative Expenses
            
            
            1,045,906
            
            
            
            3,330,816Operating
      Loss
            
            
            (1,129,844
            )
            
            
            (3,330,529
            )Other
      Expense – Net
            
            
            (121,254
            )
            
            
            (12,601
            )Net
      (Loss)
            
            $
            (1,251,098
            )
            
            $
            (3,343,130
            )





Sales increased by $42,386 from $287 in
2008 to $42,673 in 2009, while general and administrative expenses decreased by
$2,284,910, from $3,330,816 in 2008 to $1,045,906 in 2009.  Our
operating loss decreased by $2,200,685, from $3,330,529 in 2008 to $1,129,844 in
2009.  The increased revenues, generated primarily from the operation
of our restaurant, were accompanied by an increase in cost of goods sold from $0
in 2008 to $126,611 in 2009.  The increased costs of goods sold is
primarily due to restaurant operating costs relating to food, beverage and
packaging, labor and related costs, occupancy, and other operating
costs.





The decrease in operating expenses was
due primarily to decreases in marketing expenses and stock-based professional
compensation.  Our marketing expense decreased by $81,484, from
$87,355 in 2008 to $5,871 in 2009.  The decrease in marketing expense
is primarily due to a significant marketing program engaged in 2008 with no
corresponding initiative in 2009.





Stock-based compensation in the
category of salaries, wages and benefits decreased by $93,123 from $119,780 in
2008 to $26,657 in 2009, stock-based compensation in the category of
professional services decreased by $1,816,078 from $1,818,983 in 2008 to $2,905
in 2009, and stock-based compensation in the category of financing activities
decreased by $603,760, from $617,292 in 2008 to $13,532 in
2009.  Overall, stock-based compensation expense decreased by
$2,512,961, from $2,556,055 in 2008 to $43,094 in 2009.  The overall
decrease in stock-based compensation expense is due to the 2008 write-off of
previously deferred stock-based compensation, as it was determined to have no
future value.





The decreases in marketing expenses and
expenses associated with stock-based compensation were partially offset by
increases in expenses relating to salaries, wages and benefits, professional
fees, and other expenses.  Expenses associated with salaries, wages
and benefits increased by $95,660 from $283,603 in 2008 to $379,263 in
2009.  The increase in salaries, wages and benefit expenses is due
primarily to the additional staffing required to manage the Company as
restaurant operations commenced.  Depreciation and amortization
expense increased by $106,143 from $38,405 in 2008 to $144,548 in
2009.  The increase was due to the opening of the Company’s pilot
restaurant in 2009, causing depreciation to commence, the full amortization of a
previous intangible license, and the amortization of loan
discounts.  Professional fees increased by $93,261 from $102,390 in
2008 to $195,651 in 2009.  The increase in professional fees is
primarily due to additional SEC reporting and financing initiatives in
2009.





20


In the opinion of our management,
inflation has not and will not have a material effect on our operations in the
immediate future.  Management will continue to monitor inflation and
evaluate the possible future effects of inflation on our business and
operations.





Working
Capital.  Our working capital for the years ended December 31,
2008 and 2009 is summarized in the table below.  For the categories of
current assets and current liabilities, the line items included in the table
below represent selected components of each category that are material to an
understanding of our working capital deficiency.  For a complete
listing of all components of each category please refer to the financial
statements accompanying this Report.





As
      of December 31:December
      31, 2009
            
            
            December
      31, 2008Current
      AssetsCash
            
            $
            110,646
            
            
            $
            282Prepaid
      Expenses
            
            
            11,610
            
            
            
            -Employee
      Advances
            
            
            -
            
            
            
            150Inventory
            
            
            117,269
            
            
            
            22,126Total
      Current Assets
            
            
            239,525
            
            
            
            22,558Current
      LiabilitiesAccounts
      payable
            
            
            136,758
            
            
            
            256,884Accounts
      payable – related parties
            
            
            106,457
            
            
            
            87,364Accrued
      Payroll costs
            
            
            244,537
            
            
            
            264,771Short-term
      advances
            
            
            75,000
            
            
            
            75,000Other
      current liabilities
            
            
            1,883
            
            
            
            -Bank
      overdraft
            
            
            -
            
            
            
            39,353Current
      maturities of capital lease obligations
            
            
            -
            
            
            
            15,232Total
      Current Liabilities
            
            
            564,635
            
            
            
            738,604Working
      Capital Deficiency
            
            $
            (325,110
            )
            
            $
            (716,046
            )





Our working capital deficiency
decreased by $390,936, from $716,046 in 2008 to $325,110 in 2009.  The
decrease in our working capital deficiency was primarily due to (i) an increase
in our cash of $110,364, from $282 in 2008 to $110,646 in 2009, (ii) an increase
in inventory of $95,143, from $22,126 in 2008 to $117,269 in 2009, (iii) a
decrease in accounts payable of $120,126, from $256,884 in 2008 to $136,758 in
2009, and (iv) the liquidation of the bank overdraft and capital lease
obligation liabilities in 2009, which were $39,353 and $15,232, respectively, in
2008.  The increases in cash and inventory are due primarily to the
commencement of the Company’s restaurant operations in 2009, and the decrease in
accounts payable is due primarily to the acquisition of longer term debt
financing during 2009, enabling the purchase of inventory and pay down of
current liabilities.





21


Cash
Flows.  Our cash flows for the years ended December 31, 2008
and 2009 are summarized as follows:





For
      the years endedDecember
      31, 2008
            
            
            December
      31, 2008Net
      Cash (Used) in Operating Activities
            
            $
            (1,172,928
            )
            
            $
            (535,630
            )Net
      Cash (Used) by Investing Activities
            
            $
            (351,473
            )
            
            $
            (208,092
            )Cash
      Provided by Financing Activities
            
            $
            1,634,768
            
            
            $
            727,768Net
      Increase (Decrease) in Cash
            
            $
            110,367
            
            
            $
            (15,954
            )Cash,
      Beginning of Year
            
            $
            281
            
            
            $
            16,235Cash,
      End of Year
            
            $
            110,648
            
            
            $
            281





In 2009, we used $1,172,928 in cash in
our operating activities in 2009, primarily relating to losses from our
restaurant operations in 2009; we used $351,473 in cash in our investing
activities, primarily relating to the purchase of property and equipment
necessary for restaurant operations; and we were able to generate $1,634,768 in
cash from financing activities, primarily due to securing long-term
financing.





Critical Accounting Policies and
Estimates





Our discussion and analysis of our
financial condition and results of operations are based upon financial
statements which have been prepared in accordance with generally accepted
accounting principles in the United States.  The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amount of assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities.  On an on-going
basis, we evaluate our critical accounting policies and estimates, including
those related to long-lived assets, share-based compensation, revenue
recognition, overhead allocation, allowance for doubtful accounts, inventory,
and deferred income tax.  We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.





We
believe the following critical accounting policies affect the more significant
judgments and estimates used in the preparation of our consolidated financial
statements. These judgments and estimates affect the reported amounts of assets
and liabilities and the reported amounts of revenues and expenses during the
reporting periods. Changes to these judgments and estimates could adversely
affect the Company’s future results of operations and cash flows.





Impairment of Long-Lived
Assets





The
Company periodically reviews the carrying amount of property and equipment and
its identifiable intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value.  Considerable
management judgment is necessary to estimate the fair value of assets;
accordingly, actual results could vary significantly from such
estimates.  As of December 31, 2009, management believes that there is
no impairment of long-lived assets.  Subsequent to December 31, 2009,
the Company closed its initial restaurant due to less than desirable sales and
the lack of profitability.  The range of loss from this transaction is
disclosed in the financial statement notes, and will be recognized in Q1
2010.





Revenue
Recognition





Sales are recognized at the point of
sale at restaurants or time of shipment with respect to Internet
sales.


22


Net (Loss) Per Common
Share





The
Company follows FASB ASC Topic 260, “Earnings per Share.”  Basic
earnings (loss) per common share calculations are determined by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period.  Diluted earnings (loss) per common share calculations are
determined by dividing net income (loss) by the weighted average number of
common shares, outstanding stock options, and the equivalent number of common
shares that would have been outstanding had the convertible debt holders
converted their debt instruments to common stock.  All potential
dilutive securities have been excluded from the computation, as their effect is
anti-dilutive.





Stock-Based
Compensation





The
Company has issued its common shares as compensation to directors, officers, and
non-employees (“recipients”).  The Company measures the amount of
stock-based compensation based on the fair value of the equity instrument issued
or the services or goods provided as of the earlier of (1) the date at which an
agreement is reached with the recipient as to the number of shares to be issued
for performance, or (2) the date at which the recipient’s performance is
complete.





Income Taxes





The Company provides for income taxes
under FASB ASC Topic 740, “Income Taxes.”  ASC Topic 740 requires the
use of an asset and liability approach in accounting for income
taxes.  ASC Topic 740 requires the reduction of deferred tax
assets by a valuation allowance if, based on the weight of available evidence,
it is more likely than not that some or all of the deferred tax assets will not
be realized.  No provision for income taxes is included in the
statement due to its immaterial amount, net of the allowance account, based on
the likelihood of the Company utilizing the loss carry-forward.





Off-Balance
Sheet Arrangements





We have no significant off-balance
sheet arrangements that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.








Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk.





Because we are a smaller reporting
company, we are not required to provide the information called for by this
item.





Item 8.  Financial
Statements.





Our financial statements and associated
notes are set forth following the signature page beginning on Page
F-1.





Item
9.  Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.





The
information required by this Item was previously reported.





Item
9A(T).  Controls and Procedures.





Disclosure Controls and
Procedures





23


Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 as of
December 31, 2009. Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures are not effective in ensuring that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission’s rules and forms.  This
conclusion is based in part on the fact that the Company did not complete this
Report and related audits within required time periods.





Internal
Controls





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act).  In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related
costs of control procedures.  The objectives of internal control
include providing management with reasonable, but not absolute, assurance that
the records of the Company accurately and fairly reflect the transactions and
dispositions of the Company’s assets; assets are safeguarded against loss from
unauthorized use or disposition; and that transactions are executed in
accordance with management’s authorization and recorded properly to permit the
preparation of consolidated financial statements in conformity with United
States generally accepted accounting principles.  Our management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009.  Our management has concluded that, as of
December 31, 2008, our internal control over financial reporting is not
effective in providing reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with United States generally accepted accounting
principles.  Our management’s finding of ineffective internal control
over financial reporting results primarily from the fact that the Company has
only two full time employees, which is not a sufficient number to implement
industry-standard internal controls.  Subject to the Company’s ability
to obtain financing and hire additional employees, the Company expects to be
able to design and implement effective internal controls in the near
future.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management’s report in this annual report.





Changes in Internal
Controls





During
the last fiscal quarter ended December 31, 2009, there has been no change in
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect our internal control over financial
reporting.





Item
9B.  Other Information.





None.


24





PART
III





Item
10.  Directors, Executive Officers and Corporate
Governance.





Identification
of Directors and Executive Officers





Certain
information regarding our executive officers and directors is set forth
below.  Our executive officers are appointed by, and continue to serve
at the will of, our board of directors.  Our directors are elected or
appointed for terms that continue, absent resignation, death or removal by our
stockholders, until the later of the next annual meeting of stockholders or
until a replacement is duly appointed or elected and qualified.  Among
our officers, Edward C. Feintech devotes substantially all of his time to our
business, Shane A. Campbell devotes approximately 40% of his time to our
business, and Dennis Harrison currently devotes less than 5% of his time to our
business.





Name
            
            Age
            
            PositionEdward
      C. Feintech
            
            61
            
            Founder,
      Promoter, President, Chief Executive Officer and Chairman of the
      BoardScott
      L. Bargfrede
            
            51
            
            DirectorShane
      A. Campbell
            
            51
            
            Director
      and Chief Financial Officer*Dennis
      A. Harrison
            
            60
            
            Chief
      Information Officer*Harvey
      Hoffenberg
            
            60
            
            Chief
      Marketing Officer*


* Such
officer is not a full time employee of our company.





Edward C.
Feintech has been the Chairman of our Board of Directors, and our
President and Chief Executive Officer since our incorporation in April
2006.  Mr. Feintech operated full-service barbecue restaurants and
tested quick-service barbecue operations in Des Moines, Iowa (1977-1984) before
closing his enterprise and moving on toward development of our
custom-engineered, USDA-approved wood-burning oven system
technology.  Since organizing Smoky Systems, LLC, in December 2000,
Mr. Feintech has been its manager and directed the development phase of the
intellectual property that we license from Smoky Systems.





Scott L.
Bargfrede has served as a director of our company since May
2006.  Mr. Bargfrede has been the President and CEO of First American
Bank in Webster City, Iowa since October 18, 1999.  First American
Bank is our primary bank.  Mr. Bargfrede graduated from the University
of Minnesota in 1979 with a Bachelor of Arts degree in Ag-Business
Finance.  In 1992, he graduated from the University of Wisconsin
Graduate School of Banking.





Shane A. Campbellhas been our Chief Financial Officer (acting as a consultant) since our
incorporation in April 2006.  Mr. Campbell has served as a business advisor
to numerous small and medium sized businesses over his twenty-two years of
public and private practice.  From April 2004 though the present, Mr.
Campbell has functioned as the chief financial officer of Smoky Systems, LLC,
and other small companies as chief financial officer on a consultant contract
basis consultant contractor.  Mr. Campbell worked from January 2001 to
April 2004 as chief financial officer for MarketLive, Inc. (previously
Multimedia Live, Inc.), an e-commerce software company located in Petaluma,
California.  Prior to that time, from January 1990 through January
2002, Mr. Campbell was an employee and then a partner at Jones, Schiller &
Company, LLC, an accounting firm located in San Francisco.  Mr.
Campbell earned a Bachelor of Science degree from California State University,
Chico in December 1981.





25


Dennis A.
Harrison, PhD,has been our Chief Information Officer (acting as a consultant) since our
inception in April 2006; however, he is expected to become a full-time employee
when and as our financial situation permits.  Since January 2000, Dr.
Harrison has held senior level management positions as vice president of
business development for CSF-Telequest from 2000 to 2003, vice president of
business development for CallTech Communications from April 2003 to April 2004,
and vice president of business development for Effective Teleservices from April
2004 to present.Dr. Harrison received a
Bachelor of Arts degree in Philosophy & Classical Languages from the
Seminary of St. Pius X, an affiliate of Catholic University, a Master of Arts
degree in Counseling from Loyola College, and a Doctor of Philosophy degree in
Human Development from the University of Maryland.





Harvey
Hoffenberg joined our executive management team as Chief Marketing
Officer in March 2010 and has more than 25 years experience in the advertising,
marketing and branding industry for major, global advertising
agencies.  Prior to founding Propulsion LLC in 2005, Mr. Hoffenberg
was chief creative officer and a managing partner at Bozell Worldwide (New York
and California), vice chairman and chief creative officer at Saatchi and Saatchi
(New York), and senior creative director at BBDO (New
York).  Throughout his career, Mr. Hoffenberg has experience in
marketing for prominent fast food companies such as Burger King, Taco Bell,
Pizza Hut, and IHOP.  Mr. Hoffenberg earned a bachelor’s degree in
advertising and design from the University of Florida in 1973.





Audit
Committee





Our
entire board of directors presently serves as our audit
committee.  None of the members of the audit committee satisfy the
independence requirements applicable to audit committees of listed
companies.  In addition, the board of directors has determined that
the audit committee does not have a member qualifying as an audit committee
financial expert, as defined in Item 401(d)(5) of Regulation S-K.  To
save limited capital over the last several years, we have chosen not to expand
the size of our Board of Directors or to offer cash compensation to our
directors.  The absence of cash compensation makes recruiting persons
who are not otherwise interested in our company more difficult.  For
these reasons, we do not have on our board of directors a person who would
qualify as an audit committee financial expert.





We do not
presently have a standing nominating committee or compensation committee, and we
do not have a nominating committee charter or a compensation committee
charter.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Exchange Act requires the Company’s officers and directors to file
reports concerning their ownership of Common Shares with the SEC and to furnish
the Company with copies of such reports.  Based solely upon the
Company’s review of the reports required by Section 16 and amendments thereto
furnished to the Company, the Company believes that all reports required to be
filed pursuant to Section 16(a) of the Exchange Act during 2009, were filed with
the SEC on a timely basis except as follows: (a) Form 4 for Scott Bargfrede, a
director, was due on June 30, 2009, but was filed on July 10, 2009 (b) Form 4
for Edward Feintech, an officer and director, was due on June 29, 2009, but was
filed on July 10, 2009; (c) Form 4 for Shane Campbell, an officer, was due on
June 30, 2009, but was filed on July 10, 2009; and (d) a Form 4 for Dennis
Harrison, an officer, was due on June 30, 2009 but was filed on July 13,
2009.





Code
of Ethics





We have not adopted a code of
ethics.  Although we expect to adopt a code of ethics during 2010, we
have not done so to date because we believe that, in light of our limited
capital and operations, expending the resources on developing a formal code of
ethics would not be in the best interest of shareholders.  As we
obtain the capital to establish more significant operations, we expect to begin
developing more comprehensive policies and procedures appropriate to our size
and stage.





26


Item
11.  Executive Compensation.





Summary Compensation
Table





The
following table summarizes the compensation for the fiscal years ended December
31, 2008 and December 31, 2009 paid or accrued by us to or on behalf of our
Chief Executive Officer, as well as our two most highly compensated executive
officers, if any, whose aggregate compensation for fiscal years 2008 or 2009
exceeded $100,000 (collectively, the “Named Executive Officers”).




Name
      and
                Principal
      Position
              Year
              
              Salary
                ($)
              
              
              Bonus
                ($)
              
              
              Stock
      Awards
                ($)
              
              
              Option
                Awards
                ($)
              
              
              Non-Equity
      Incentive Plan Compensation ($)
              
              
              Nonqualified
      Deferred Compensation Earnings ($)
              
              
              All
      Other Compensa-tion ($)
              
              
              Total
      ($)Edward
      C. Feintech, CEO,
              2009
              
              
              175,000
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              175,000President
      and Director
              2008
              
              
              175,000
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              175,000Shane
      A. Campbell, CFO and Director(1)
              2009
              
              
              101,990
              (2)
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              101,990





(1)  Mr.
Campbell’s 2008 compensation did not exceed $100,000


(2)  Mr.
Campbell is currently serving as a part-time consultant; his salary is being
accrued but not paid due to liquidity issues.





On May
10, 2007, Mr. Feintech signed an executive employment agreement.  The
agreement is for a three-year term and calls for him to receive a minimum base
salary of $175,000 per year.  The employment agreement also grants to
him: (i) a one-time stock issuance of 1,500,000 shares of common stock upon
execution of the agreement; (ii) an award of non-statutory stock options of
425,000 shares of common stock at an exercise price of $0.10 per share; and
(iii) a bonus equal to an additional 1,000,000 shares of common stock upon the
achievement of each incremental level of $50,000,000 in revenue, provided that
cumulative net after-tax income is being maintained at a level not less than
7.5% on total revenue.





In
addition, in May 2006, Mr. Feintech was issued 50,000 shares of common stock in
exchange for the assignment of any intellectual property rights related to our
business and granted an option to purchase 325,000 shares of common stock
pursuant to our stock incentive plan at an exercise price of $0.10 at any time
prior to May 13, 2013.  The options vested 25% on May 31, 2007 and
have continued to vest 1/48th each month thereafter until fully
vested.





Outstanding
Equity Awards at Fiscal Year-End





The following table provides
information regarding equity awards held by the Named Executive Officers as of
December 31, 2009:





27





Option
      Awards
            
            Stock
      AwardsName
            
            Number
      of Securities Underlying Unexercised Options
              (#)
      Exercisable
            
            Number
      of Securities Underlying Unexercised Options
              (#)
      Unexercisable
            
            Equity
      Incentive Plan Awards:
              Number
      of Securities Underlying Unexercised Unearned Options
              (#)
            
            Option
      Exercise Price
              ($)
            
            Option
      Expiration Date
            
            Number
      of Shares or Units of Stock That Have Not Vested
              (#)
            
            Market
      Value of Shares or Units of Stock That Have Not Vested
              ($)
            
            Equity
      Incentive Plan Awards:
              Number
      of Unearned Shares, Units or Other Rights That Have Not
Vested
              (#)
            
            Equity
      Incentive Plan Awards:
              Market
      or Payout Value of Unearned Shares, Units or Other Rights That Have Not
      Vested
              ($)Edward
      C. Feintech, CEO, President and Director
            
            291,146(1)
            
            33,854(1)
            
            N/A
            
            $0.10
            
            May
      31, 2013
            
            N/A
            
            N/A
            
            N/A
            
            N/AEdward
      C. Feintech, CEO, President and Director
            
            380,729(1)
            
            44,271(1)
            
            N/A
            
            $0.10
            
            May
      31, 2014
            
            N/A
            
            N/A
            
            N/A
            
            N/AShane
      A. Campbell, CFO and Director
            
            104,948(1)
            
            16,927(1)
            
            N/A
            
            $0.10
            
            May
      31, 2014
            
            N/A
            
            N/A
            
            N/A
            
            N/A





(1)  Options
vested 25% on May 31, 2007 and 1/48th each month thereafter until fully
vested.





Compensation
of Directors





Directors who are not officers of the
Company do not receive any regular compensation for their service on the board
of directors but are entitled to reimbursement of any actual expenses associated
with the attendance of board meeting and other activities and to receive options
and other awards under the Company’s stock incentive plan.  Directors
are entitled to receive compensation for services unrelated to their service as
a director to the extent that they provide such unrelated services to the
Company.





No directors received any compensation,
including option awards, for their service as directors for the Company, during
the fiscal year ended December 31, 2009.  Information with respect to
the compensation of Edward C. Feintech, our Chief Executive Officer and
President, is set forth in the tables above.





Executive
Employment Agreements, Termination of Employment and Change of Control
Arrangements





Except as described in following
paragraph, we have not entered into employment agreements with any of our
executive officers and, other than provisions in our stock incentive plan that
permit acceleration of vesting of awards in connection with a change of control,
have no arrangements or plans which provide benefits in connection with
retirement, resignation, termination or a change of control.





Pursuant to his executive employment
agreement dated May 10, 2007, Edward C. Feintech is entitled to receive, as
severance and following execution of a release of liabilities in favor of the
Company, (i) if the termination was by the Company without cause or by the
employee with good reason (except in connection with a change of control), base
salary and medical benefits (plus any pro-rated bonus for which he otherwise
qualified) for a period of 12-months following the termination, or (ii) if the
termination was by the Company without cause or by the employee with good reason
and occurred 90 days prior to or within one year after a change of control, base
salary and medical benefits for a period of 24 months and acceleration of the
vesting of any stock options granted under the employment
agreement.  Mr. Feintech is not entitled to such severance benefits if
the termination is either by the Company for cause, by Mr. Feintech without good
reason, or after May 10, 2010.  A change of control includes (a) any
capital reorganization, reclassification of the capital stock of Company,
consolidation or merger of Company with another corporation in which Company is
not the survivor (other than a transaction effective solely for the purpose of
changing the jurisdiction of incorporation of Company), (b) the sale, transfer
or other disposition of all or substantially all of  the Company’s
assets to another entity, and (c) the acquisition by a single person (or two or
more persons acting as a group, as a group is defined for purposes of Section
13(d)(3) under the Exchange Act of 1934, as amended) of more than 40% of the
outstanding shares of common stock of  the Company.





28


Compensation
Committee Interlocks and Insider Participation





The Company has no compensation
committee or other board committee performing equivalent
functions.  Edward C. Feintech, an officer of the Company as well as
chairman of the board of directors, participated in deliberations of the
Company’s board of directors concerning executive officer compensation during
2009.





Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.





The
following table sets forth information with respect to the beneficial ownership
of our common stock as of March 31, 2010 and as adjusted to reflect the sale of
the shares of our common stock offered hereby, by:





·
            all
      persons known by us to beneficially own more than 5% of our common
      stock;


·
            each
      of our named executive officers;


·
            each
      of our directors; and


·
            all
      directors and executive officers as a
group.





Beneficial ownership is determined
according to the rules of the SEC and generally means that a person has
beneficial ownership of a security if he, she or it possesses sole or shared
voting or investment power of that security, and includes options and warrants
that are currently exercisable or exercisable within 60 days.  Except
as indicated by footnote, and subject to community property laws where
applicable, we believe the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.





Name
      of Executive Officer or Director
                Amount
      and Nature of Beneficial Owner
                
                Percent
      (1)Edward
      C. Feintech
                  Chairman,
      President and CEO
                13,680,785
                (2)
                15.51%Scott
      L. Bargfrede, Director
                384,543
                (3)
                *Shane
      A. Campbell, Director and CFO
                397,655
                (4)
                *Dennis
      Harrison, CIO
                1,519,442
                (5)
                1.73%All
      Officers and Directors as a Group
                  (4
      persons)
                15,982,425
                (6)
                17.96%Name
      of 5% StockholderSmoky
      Systems, LLC
                  800
      Estates Dr. #100, Aptos, CA 95003
                5,855,409
                (7)
                6.73%70
      Limited, LLC
                  3554
      Wild Cherry Court, Las Vegas, NV 89121
                16,890,426
                (8)
                18.80%










*
Represents less than 1% of the outstanding shares of common stock.





(1)
            The
      percentages set forth above have been computed assuming the number of
      shares of common stock outstanding equals the sum of (a) 87,527,246, which
      is the number of shares of common stock actually outstanding on March 31,
      2010, and (b) shares of common stock subject to options, warrants,
      convertible notes and similar securities exercisable or convertible for
      common stock within 60 days of such date held by the person with respect
      to percentage is computed (but not by any other
  person).


(2)
            Includes,
      in addition to outstanding shares held by Mr. Feintech, 703,125 shares
      issuable upon exercise of non-statutory stock options.  Also includes
      257,521 shares of common stock held of record by Cheryl
      Feintech.


(3)
            Includes
      152,344 shares issuable upon the exercise of non-statutory stock
      options.


(4)
            Includes
      152,344 shares issuable upon the exercise of non-statutory stock
      options.


(5)
            Includes
      457,031 shares issuable upon the exercise of non-statutory stock
      options.


(6)
            Includes
      1,464,844 shares issuable upon the exercise of non-statutory stock
      options.


(7)
              Based
      on the Company’s internal records reflecting the stock ownership of Smoky
      Systems.  Dan Brune is the manager of Smoky Systems, LLC, and, as
      such, has voting and investment control over these securities.  Mr.
      Brune disclaims beneficial ownership of the securities held by Smoky
      Systems, LLC.
 (8)
              Based
      on the Company’s internal records reflecting the stock ownership of 70
      Limited, LLC.  Includes 2,302,500 shares issuable upon the exercise
      of warrants.  Tertia Dvorchak is the manager of 70 Limited, LLC, and,
      as such, has voting and investment control over these securities. 
      Tertia Dvorchak disclaims beneficial ownership of the securities held by
      70 Limited, LLC


29


Securities
Authorized for Issuance under Equity Compensation Plans





The information set forth above in Item
5 under “Securities Authorized for Issuance Under Equity Compensation Plans” is
incorporated herein by reference.





Item
13.  Certain Relationships and Related Transactions, and Director
Independence.





Arrangements
with Officers, Directors and Promoters





Set forth
below is a description of certain transactions entered into since January 1,
2009, or presently contemplated, with any officer, director, affiliate or other
related person:





Our
directors have set the initial salary or consulting fee of certain of our
officers as follows (in each case pending availability of capital):





Name
            Base Salary or
              Consulting Fee  Per
      AnnumEdward
      C. Feintech, President & CEO
            $175,000Shane
      Campbell, CFO
            $100,000*Dennis
      Harrison, CIO
            $105,000*Harvey
      Hoffenberg, CMO
            $120,000*





*
Currently serving as a part-time consultant; salary is being accrued but not
paid due to liquidity issues.





Relationships
with Significant Stockholder





Smoky
Systems, LLC beneficially owns approximately 7% of our common stock as of March
31, 2010, and its manager is Daniel Brune.  The following affiliates
of our company own the following percentage of the outstanding equity interests
of Smoky Systems:








Name
      of Person
            Equity
      InterestEdward
      C. Feintech, President,
              CEO
      and Chairman
            30%Shane
      A. Campbell, CFO and
              Director
            *Scott
      L. Bargfrede, Director
            **
      Less than 1%






On June 30, 2009, we entered into a
License Termination and Asset Transfer Agreement with Smoky Systems, LLC,
pursuant to which our license agreement with Smoky Systems was terminated, and
Smoky Systems transferred to all of its right, title and interest in the
recipes, tangible assets, marks and other items previously
licensed.  As consideration for the transfer of the assets and
termination of the license agreement, we issued to issued to Smoky Systems
3,500,000 shares of common stock of the Company.
 
 On June 1, 2009, we entered into a
Note, Share and Warrant Purchase Agreement with 70 Limited LLC and the Jimma Lee
Beam Revocable Trust.  In connection with the agreement, we issued to
70 Limited a promissory note in the amount of $2,152,500, together with
11,587,926 shares of our common stock and Series 2009B Warrants to purchase
1,852,500 shares of our common stock, in exchange for $1,500,000 in cash and the
cancelation of approximately $652,600 in existing indebtedness to 70 Limited or
the Trust.  The agreement and the note supersede two previous
promissory notes issued by the Company, one in favor of 70 Limited and one in
favor of the Trust, such that both prior notes are cancelled as of the date of
the agreement.  Under the terms of the agreement, until the Note has
been paid in full 70 Limited has board observation rights and the right to
designate one member of the Company's board of directors.  We agreed
to pay as a pre-payment of the principal amount of the note at least 50% of the
net proceeds above $2,000,000 of any subsequent offering of our capital
stock.  The promissory note bears interest at the rate of 10% per
annum, is unsecured, and all accrued and unpaid interest, together with the
outstanding principal balance of the note, is due in full on the two-year
anniversary of the issue date.
 
 On March 5, 2010, we entered into a
Note and Warrant Purchase Agreement with 70 Limited LLC.  In
connection with the agreement, we issued to 70 Limited a secured promissory note
in the amount of $150,000, together with a warrant to purchase up to 450,000
shares of our common stock, in exchange for $150,000 in cash.  The
note bears interest at the rate of 10% per annum.  All accrued and
unpaid interest, together with the outstanding principal balance of the note, is
due in full on the one-year anniversary of the issue date.  The note
is secured by a security interest in the commercial lease of our principal
restaurant and in all of the Company’s equipment used in connection with the
restaurant.  The security interest is evidenced by a security
agreement entered into by and between us and 70
Limited.


30


Independence
of Board of Directors and Committees





Our Board
of Directors currently consists of Edward C. Feintech, our Chairman and Chief
Executive Officer, Scott L. Bargfrede, and Shane A. Campbell, our Chief
Financial Officer.  The Board of Directors has determined that Mr.
Bargfrede is independent, using the standards of independence applicable to
companies listed on the NASDAQ Stock Market.  We do not presently have
a standing audit committee, nominating committee, or compensation committee, and
we do not have a charter for any such committees.  Our entire Board of
Directors performs the functions generally preformed by such
committees.  Mr. Bargfrede is independent using the standards of the
NASDAQ Stock Market applicable to compensation and nominating committee but may
not be independent for purposes of applicable audit committee standards because
of the financial relationship disclosed below.





Mr. Bargfrede has been the President
and CEO of First American Bank in Webster City, Iowa since October 18,
1999.  First American Bank is our company’s primary bank.





Item
14.  Principal Accountant Fees and Services.





Audit
Fees





The Company’s independent auditor for
the year ended December 31, 2008 was Moore & Associates, Chartered (“Moore
& Associates”), and the aggregate fees for the audit services totaled
$9,500.  On August 27, 2009, the Public Company Accounting Oversight
Board revoked
the registration of Moore & Associates, barring the partners and the firm
from being an
associated person of a registered public accounting firm, and thereby causing
the Company to dismiss Moore & Associates as its independent registered
public accounting firm auditor.  Moore & Associates was replaced
by Seale and Beers, CPAs, which served as the Company’s independent auditor for
the year ended December 31, 2009 and re-audited the year ended December 31,
2008.  The aggregate fee for auditing the years ended December 31,
2009 and 2008 was $10,000.





Audit Related Fees





The aggregate fees for professional
services for assurance and other audit related services was $9,000 for the
fiscal year ended December 31, 2008 and $10,000 for the fiscal year ended
December 31, 2009.





Tax Fees





There were no fees paid to Moore &
Associates or to Seal and Beers, CPAs, for tax related professional services for
the year ended December 31, 2009 or the fiscal year ended December 31,
2008.





All Other Fees





Neither Moore & Associates nor
Seale and Beers, CPAs, provided to the Company any other material services
during the fiscal year ended December 31, 2009 or the fiscal year ended December
31, 2008.





Audit Committee Pre-Approval
Policies





Under the pre-approval policies and
procedures established by the Board of Directors, functioning as the Audit
Committee, it would not permit engagement of accountants to render audit or
non-audit services without prior approval of the Board of Directors, functioning
as the Audit Committee.  As a result, all engagements of the
independent auditors to render audit or non-audit services were approved by the
Board of Directors, functioning as the Audit Committee.





31


Item
15.  Exhibits and Financial Statement Schedules.





Exhibit
      No.
              
              Exhibit
              
              Incorporated
      by Reference/Filed Herewith3.1
              
              Amended
      and Restated Articles of Incorporation
              
              Incorporated
      by reference to Amendment No. 3 to Registration Statement on Form SB-2
      filed on August 24, 2007, File No. 333-1430083.2
              
              Bylaws
              
              Incorporated
      by reference to Amendment No. 3 to Registration Statement on Form SB-2
      filed on August 24, 2007, File No. 333-1430084.1
              
              Form
      of Common Stock Certificate
              
              Incorporated
      by reference to Amendment No. 3 to Registration Statement on Form SB-2
      filed on August 24, 2007, File No. 333-1430084.2
              
              Series
      2008A Warrant dated September 8, 2008
              
              Incorporated
      by reference to the Current Report on 8-K filed on September 10, 2008,
      File No. 000-521584.3
              
              Series
      2009B Warrant dated May 29, 2009
              
              Incorporated
      by reference to the Current Report on 8-K filed on June 4, 2009, File No.
      000-521584.4
              
              Series
      2009C Warrant dated October 30, 2009
              
              Incorporated
      by reference to the Current Report on 8-K filed on November 6, 2009, File
      No. 000-521584.5
              
              Warrant
      dated March 5, 2010
              
              Incorporated
      by reference to the Current Report on 8-K filed on March 29, 2010, File
      No. 000-5215810.1
              
              2006
      Stock Incentive Plan
              
              Incorporated
      by reference to Registration Statement on Form 10-SB filed on February 16,
      2007, File No. 000-5215810.2
              
              Form
      of NonStatutory Stock Option Agreement
              
              Incorporated
      by reference to Registration Statement on Form 10-SB filed on February 16,
      2007, File No. 000-5215810.3
              
              Employment
      Agreement dated May 10, 2007 with Edward C. Feintech
              
              Incorporated
      by reference to the Quarterly Report on Form 10-Q filed on May 14, 2007,
      File No. 000-52158
   32
  Exhibit
      No.
              
              Exhibit
              
              Incorporated
      by Reference/Filed Herewith
 10.4
              
              Consulting
      Agreement dated  May 1, 2008 with International
      Monetary
              
              Incorporated
      by reference to the Current Report on 8-K filed on May 8, 2008, File No.
      000-5215810.5
              
              Promissory
      Note dated September 8, 2008
              
              Incorporated
      by reference to the Current Report on 8-K filed on September 10, 2008,
      File No. 000-5215810.6
              
              Note
      and Share Purchase Agreement dated January 27, 2009 with 70 Limited
      LLC
              
              Incorporated
      by reference to the Current Report on 8-K filed on February 2, 2009, File
      No. 000-5215810.7
              
              Note,
      Share and Warrant Purchase Agreement dated May 28, 2009 with 70 Limited
      LLC and The Jimma Lee Beam Revocable Trust
              
              Incorporated
      by reference to the Current Report on 8-K filed on June 4, 2009, File No.
      000-5215810.8
              
              Promissory
      Note dated May 29, 2009
              
              Incorporated
      by reference to the Current Report on 8-K filed on June 4, 2009, File No.
      000-5215810.9
              
              License
      Termination and Asset Transfer Agreement dated June 30, 2009 with Smoky
      Systems, LLC
              
              Incorporated
      by reference to the Current Report on 8-K filed on July 7, 2009, File No.
      000-5215810.10
              
              Option
      Agreement dated October 30, 2009 with Mary Ann’s Specialty Foods,
      Inc.
              
              Incorporated
      by reference to the Current Report on 8-K filed on November 6, 2009, File
      No. 000-5215810.11
              
              Second
      Amended and Restated Processing Agreement dated October 30, 2009 with Mary
      Ann’s Specialty Foods, Inc.
              
              Incorporated
      by reference to the Current Report on 8-K filed on November 6, 2009, File
      No. 000-5215810.12
              
              Consulting
      Agreement dated October 30, 2009 with William Korleski
              
              Incorporated
      by reference to the Current Report on 8-K filed on November 6, 2009, File
      No. 000-5215810.13
              
              Note
      and Warrant Purchase Agreement dated March 5, 2010 with 70 Limited
      LLC
              
              Incorporated
      by reference to the Current Report on 8-K filed on March 29, 2010, File
      No. 000-5215810.14
              
              Secured
      Promissory Note dated March 5, 2010
              
              Incorporated
      by reference to the Current Report on 8-K filed on March 29, 2010, File
      No. 000-52158   33
  Exhibit
      No.
                
                Exhibit
                
                Incorporated
      by Reference/Filed Herewith
 10.15
              
              Security
      Agreement dated March 5, 2010
              
              Incorporated
      by reference to the Current Report on 8-K filed on March 29, 2010, File
      No. 000-5215810.16
              
              Executive
      Consulting Agreement dated March 25, 2010 with Harvey
      Hoffenberg
              
              Filed
      herewith23.1
              
              Consent
      of Independent  Registered Public
                Accountants
              
              Filed
      herewith24
              
              Power
      of Attorney
              
              Included
      on the signature page hereof31.1
              
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive Officer
              
              Filed
      herewith31.2
              
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial Officer
              
              Filed
      herewith32.1
              
              Section
      1350 Certification of Chief Executive Officer
              
              Filed
      herewith32.2
              
              Section
      1350 Certification of Chief Financial Officer
              
              Filed
      herewith










34


SIGNATURES




Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.




SMOKY
      MARKET FOODS, INC.Date:
      April 15, 2010
              By:
              /s/ Eddie
      FeintechEddie
      FeintechChief
      Executive Officer







POWER
OF ATTORNEY AND ADDITIONAL SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.  Each person, whose signature
to this Form 10-K appears below, hereby constitutes and appoints Eddie Feintech
as his true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in the capacity stated
below and to perform any acts necessary to be done in order to file all
amendments and post-effective amendments to this Form 10-K, and any and all
instruments or documents filed as part of or in connection with this Form 10-K
or the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.








Signature
            Title
            Date/s/ Edward C. Feintech
              Edward
      C. Feintech
            Chief
      Executive Officer,
              Presidentand
      Chairman
              (Principal
      Executive Officer)
            April
      15, 2010/s/ Shane Campbell
              Shane
      Campbell
            Director,
      Chief Financial Officer
              (Principal
      Financial and AccountingOfficer)
            April
      15, 2010/s/ Scott L. Bargfrede
              Scott
      L. Bargfrede
            Director
            April
      15, 2010


35


SEALE
AND BEERS, CPAs
 PCAOB & CPAB REGISTERED
AUDITORS
 www.sealebeers.com
 
 
 REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To
the Board of Directors
 Smoky
Market Foods, Inc.
 
 We have
audited the accompanying balance sheets of Smoky Market Foods, Inc. as of
December 31, 2009 and December 31, 2008, and the related statements of
operations, stockholders’ equity (deficit) and cash flows for the years ended
December 31, 2009 and December 31. These financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.
 
 We
conduct our audits in accordance with standards of the Public Company Accounting
Oversight Board (United States).  Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Smoky Market Foods, Inc. as of
December 31, 2009 and December 31, 2008, and the related statements of
operations, stockholders’ equity (deficit) and cash flows for the years ended
December 31, 2009 and December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 2 to the
financial statements, the Company has experienced $7,202,544 in losses since
inception and has earned no material revenue generating operations since
inception, which raises substantial doubt about its ability to continue as a
going concern.  Management’s plans concerning these matters are also
described in Note 2.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 
 
 /s/ Seale and Beers, CPAs
 
 Seale and
Beers, CPAs
 Las
Vegas, Nevada
 April 15,
2010
 
 
 50 S. Jones Blvd. Suite 202
Las Vegas, NV 89107 Phone: (888)727-8251 Fax:
(888)782-2351














F-1





SMOKY
      MARKET FOODS, INC.Balance SheetsAs
      of December 31:2009
              
              
              2008ASSETS:Current
      AssetsCash
              
              $
              110,646
              
              
              $
              282Prepaid
      expenses
              
              
              11,609
              
              
              
              -Employee
      advances
              
              
              -
              
              
              
              150Inventory
              
              
              117,270
              
              
              
              22,126Total
      Current Assets
              
              
              239,525
              
              
              
              22,558Property
      & Equipment, net of accumulated depreciation
              
              
              750,406
              
              
              
              462,315Other
      AssetsIntangible
      assets
              
              
              -
              
              
              
              29,333Prepaid
      consulting contract
              
              
              50,000
              
              
              
              -Real
      estate option
              
              
              75,000
              
              
              
              -Deposits
              
              
              11,616
              
              
              
              11,333Total
      Other Assets
              
              
              136,616
              
              
              
              40,666Total
      Assets
              
              $
              1,126,547
              
              
              $
              525,539LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT):Current
      LiabilitiesAccounts
      payable
              
              $
              136,758
              
              
              $
              256,884Accounts
      payable - related parties
              
              
              106,457
              
              
              
              87,364Accrued
      payroll costs
              
              
              244,537
              
              
              
              264,771Short-term
      advances
              
              
              75,000
              
              
              
              75,000Other
      current liabilities
              
              
              1,883
              
              
              
              -Bank
      overdraft
              
              
              -
              
              
              
              39,353Current
      maturities of capital lease obligations
              
              
              -
              
              
              
              15,232Total
      Current Liabilities
              
              
              564,635
              
              
              
              738,604Long-term
      LiabilitiesPromissory
      notes payable to a related party, includingaccrued
      interest, less amortized discount
              
              
              1,880,056
              
              
              
              491,975Total
      Liabilities
              
              
              2,444,691
              
              
              
              1,230,579Stockholders'
      Equity (Deficit)Preferred
      Stock, par value $.001, 10,000,000 sharesauthorized;
      no shares issued and outstanding
              
              
              -
              
              
              
              -Common
      Stock, par value $.001, 200,000,000 shares authorized:issued
      and outstanding 86,963,746 and 67,422,820at
      December 31, 2009 and 2008, respectively
              
              
              86,964
              
              
              
              67,423Deferred
      Stock-Based Compensation
              
              
              (81,885
              )
              
              
              (108,542
              )Other
      paid-in capital
              
              
              4,849,244
              
              
              
              4,424,630Additional
      paid-in capital for warrants
              
              
              1,030,077
              
              
              
              862,895Accumulated
      deficit
              
              
              (7,202,544
              )
              
              
              (5,951,446
              )Total
      Stockholders' Equity (Deficit)
              
              
              (1,318,144
              )
              
              
              (705,040
              )Total
      Liabilities and Stockholders' Equity (Deficit)
              
              $
              1,126,547
              
              
              $
              525,539The
      accompanying notes are an integral part of these financial
      statements.





F-2





SMOKY
      MARKET FOODS, INC.Statements
      of OperationsFor
      the Years Ended December 31:2009
              
              
              2008SalesRestaurant
      Sales, Net of Discounts
              
              $
              41,928
              
              
              $
              -Internet
      Sales
              
              
              745
              
              
              
              287Total
      Sales
              
              
              42,673
              
              
              
              287Restaurant
      Operating CostsFood,
      beverage and packaging
              
              
              30,168
              
              
              
              -Labor
      and related costs
              
              
              48,260
              
              
              
              -Occupancy
              
              
              21,646
              
              
              
              -Other
              
              
              26,537
              
              
              
              -Total
      Restaurant Operating Costs
              
              
              126,611
              
              
              
              -Net
      Operating Loss
              
              
              (83,938
              )
              
              
              287General
      & Administrative ExpensesSalaries,
      wages & benefits
              
              
              379,263
              
              
              
              283,603Professional
      fees
              
              
              195,651
              
              
              
              102,390Rent
              
              
              109,087
              
              
              
              107,853Depreciation/amortization
              
              
              144,548
              
              
              
              38,405Write
      off of Smoky Market license
              
              
              28,333
              
              
              
              -Stock
      based compensationSalaries,
      Wages & Benefits - related parties
              
              
              26,657
              
              
              
              119,780Financing
              
              
              13,532
              
              
              
              617,292Professional
              
              
              2,905
              
              
              
              1,818,983Marketing
              
              
              5,871
              
              
              
              87,355Other
              
              
              140,059
              
              
              
              155,155Total
      General & Administrative Expenses
              
              
              1,045,906
              
              
              
              3,330,816Operating
      Loss
              
              
              (1,129,844
              )
              
              
              (3,330,529
              )Other
      Income (Expense)Interest
      income
              
              
              1,278
              
              
              
              -Gain
      on settlement of debt
              
              
              19,353
              
              
              
              -Interest
      expense ($125,533 of which is to a related party)
              
              
              (141,885
              )
              
              
              (12,601
              )Other
      Expense - Net
              
              
              (121,254
              )
              
              
              (12,601
              )Loss
      before Income Taxes
              
              
              (1,251,098
              )
              
              
              (3,343,130
              )Income
      Taxes
              
              
              -
              
              
              
              -Net
      (Loss)
              
              $
              (1,251,098
              )
              
              $
              (3,343,130
              )(Loss)
      per Share:Basic
      and Diluted
              
              $
              (0.016
              )
              
              $
              (0.054
              )Weighted
      AverageNumber
      of Shares
              
              
              80,621,187
              
              
              
              62,470,438The
      accompanying notes are an integral part of these financial
      statements.







F-3





SMOKY
      MARKET FOODS, INC.Statements
      of Stockhoder's EquityDeferred
              
              
              Other
              
              
              AdditionalCommon
      Stock
              
              
              Stock-Based
              
              
              Paid-in
              
              
              Paid-in
              
              
              Accumulated
              
              
              TotalShares
              
              
              Amount
              
              
              Compensation
              
              
              Capital
              
              
              Capital
              
              
              Deficit
              
              
              (Deficit)Balance,
      January 1, 2008
              
              
              54,812,824
              
              
              $
              54,813
              
              
              $
              (1,044,574
              )
              
              $
              2,579,565
              
              
              $
              831,772
              
              
              $
              (2,608,316
              )
              
              $
              (186,740
              )Common
      stock issued for:Cash
              
              
              1,673,332
              
              
              
              1,673
              
              
              
              -
              
              
              
              139,327
              
              
              
              -
              
              
              
              -
              
              
              
              141,000Services
      performed by the CIO
              
              
              266,666
              
              
              
              267
              
              
              
              -
              
              
              
              41,733
              
              
              
              -
              
              
              
              -
              
              
              
              42,000Future
      marketing services
              
              
              3,000,000
              
              
              
              3,000
              
              
              
              
              
              
              
              987,000
              
              
              
              -
              
              
              
              -
              
              
              
              990,000Exercise
      of stock options
              
              
              50,000
              
              
              
              50
              
              
              
              8,000
              
              
              
              12,450
              
              
              
              -
              
              
              
              -
              
              
              
              20,500Current
      services
              
              
              7,253,332
              
              
              
              7,253
              
              
              
              
              
              
              
              601,922
              
              
              
              -
              
              
              
              -
              
              
              
              609,175Conversion
      of short-term advance to common shares
              
              
              366,666
              
              
              
              367
              
              
              
              -
              
              
              
              62,633
              
              
              
              -
              
              
              
              -
              
              
              
              63,000Warrants
      issued in conjunction with debt offerring
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              31,123
              
              
              
              -
              
              
              
              31,123Amortization
      of stock-based compensation
              
              
              -
              
              
              
              -
              
              
              
              928,032
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              928,032Net
      (Loss) for the Year Ended December 31, 2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,343,130
              )
              
              
              (3,343,130
              )Balance,
      December 31, 2008
              
              
              67,422,820
              
              
              
              67,423
              
              
              
              (108,542
              )
              
              
              4,424,630
              
              
              
              862,895
              
              
              
              (5,951,446
              )
              
              
              (705,040
              )Common
      stock issued for:Consideration
      in financing
              
              
              3,325,000
              
              
              
              3,325
              
              
              
              -
              
              
              
              108,970
              
              
              
              -
              
              
              
              -
              
              
              
              112,295Consideration
      for investor relations services
              
              
              103,000
              
              
              
              103
              
              
              
              -
              
              
              
              2,802
              
              
              
              -
              
              
              
              -
              
              
              
              2,905Consideration
      for future consulting services
              
              
              1,000,000
              
              
              
              1,000
              
              
              
              -
              
              
              
              49,000
              
              
              
              -
              
              
              
              -
              
              
              
              50,000Consideration
      in financing
              
              
              15,112,926
              
              
              
              15,113
              
              
              
              -
              
              
              
              263,842
              
              
              
              -
              
              
              
              -
              
              
              
              278,955Warrants
      issued in conjunction with debt restructuringConsideration
      for debt restructuring
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              92,182
              
              
              
              -
              
              
              
              92,182Consideration
      for option on real estate
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              75,000
              
              
              
              -
              
              
              
              75,000Amortization
      of stock-based compensation
              
              
              
              
              
              
              
              
              
              
              26,657
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              26,657Net
      (Loss) for the Year Ended December 31, 2009
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,251,098
              )
              
              
              (1,251,098
              )Balance,
      December 31, 2009
              
              
              86,963,746
              
              
              $
              86,964
              
              
              $
              (81,885
              )
              
              $
              4,849,244
              
              
              $
              1,030,077
              
              
              $
              (7,202,544
              )
              
              $
              (1,318,144
              )The
      accompanying notes are an integral part of these financial
      statements.





F-4





SMOKY
      MARKET FOODS, INC.Statements
      of Cash FlowsFor
      the Years Ended:December
      31, 2009
              
              
              December
      31, 2008Operating
      ActivitiesNet
      (Loss)
              
              $
              (1,251,098
              )
              
              $
              (3,343,130
              )Stock-based
      financing and compensation costs
              
              
              43,094
              
              
              
              2,555,909Gain
      from non-cash settlement of bank overdraft
              
              
              (19,353
              )
              
              
              -Depreciation
      and amortization
              
              
              172,881
              
              
              
              39,552Accrued
      interest capitalized as new debt
              
              
              127,533
              
              
              
              -Adjustments
      to reconcile net loss to cash usedin
      operating activities:(Increase)
      decrease in accounts receivable
              
              
              -
              
              
              
              -(Increase)
      decrease in inventory
              
              
              (95,143
              )
              
              
              (17,876
              )(Increase)
      decrease in other current assets
              
              
              (11,609
              )
              
              
              (150
              )Increase
      (decrease) in accounts payable
              
              
              (101,033
              )
              
              
              117,669Increase
      (decrease) in due to employees
              
              
              (20,084
              )
              
              
              73,043Increase
      (decrease) in bank overdraft
              
              
              (20,000
              )
              
              
              39,353Increase
      (decrease) in other accrued liabilities
              
              
              1,884
              
              
              
              -Net
      Cash (Used) by Operating Activities
              
              
              (1,172,928
              )
              
              
              (535,630
              )Investing
      ActivitiesPurchase
      of property and equipment
              
              
              (351,192
              )
              
              
              (205,242
              )Deposits
      and other asset purchases
              
              
              (283
              )
              
              
              (2,850
              )Net
      Cash (Used) by Investing Activities
              
              
              (351,475
              )
              
              
              (208,092
              )Financing
      ActivitiesProceeds
      from issuance of common stock
              
              
              -
              
              
              
              153,500Proceeds
      from issuance of convertible notes
              
              
              -
              
              
              
              -Proceeds
      from issuance of promissory notes
              
              
              1,650,000
              
              
              
              500,000Proceeds
      from (payments on) short term
                advances
      - net
              
              
              -
              
              
              
              90,000Principal
      payments on capital lease obligations
              
              
              (15,233
              )
              
              
              (15,731
              )Net
      Cash Provided by Financing Activities
              
              
              1,634,767
              
              
              
              727,769Net
      Increase (Decrease) in Cash
              
              
              110,364
              
              
              
              (15,953
              )Cash,
      Beginning of Year
              
              
              282
              
              
              
              16,235Cash,
      End of Year
              
              $
              110,646
              
              
              $
              282Supplemental
      Information:Interest
      Paid
              
              $
              16,352
              
              
              $
              12,601Income
      Taxes Paid
              
              $
              -
              
              
              $
              -Non-cash
      TransactionsCommon
      stock given in satisfaction of short-term advances
              
              $
              -
              
              
              $
              55,000Common
      stock given for future consulting
              
              $
              50,000
              
              
              $
              -Common
      stock given for services
              
              $
              15,290
              
              
              $
              -Common
      stock given in financing transactions
              
              $
              679,896
              
              
              $
              -Warrants
      given in financing transaction
              
              $
              92,182
              
              
              $
              -Warrants
      given for option on real estate
              
              $
              75,000
              
              
              $
              -The
      accompanying notes are an integral part of these financial
      statements.





F-5
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008








NOTE
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Smoky
Market Foods, Inc, (the “Company”) was incorporated on April 18, 2006 under the
laws of the State of Nevada.







The
Company engages in the development and operation of fast service casual
restaurants. The restaurants will feature proprietary menu items and emphasize
the preparation of food with high quality ingredients developed under the Smoky
MarketTM brand, as well as unique recipes and special seasonings to provide high
quality food at competitive prices. The Company’s pilot restaurant features
dine-in and, carryout. Future non-traditional units are expected to include
express locations and kiosks which have a more limited menu and operate in
non-traditional locations such as airports, gasoline service stations,
convenience stores, stadiums, amusement parks and colleges, where a full-scale
traditional outlet would not be practical or efficient. The Company may also
engage in other retail or wholesale distribution strategies intended to exploit
the Smoky Market brand.


Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes.  Actual results could differ from
those estimates.  On an ongoing basis, management reviews those
estimates, including those related to allowances for loss contingencies for
litigation, income taxes, and projection of future cash flows used to assess the
recoverability of long-lived assets.





Cash
and Cash Equivalents





For
purposes of balance sheet classification and the statements of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.




Accounts
Receivable




Management
monitors the liquidity and creditworthiness of accounts receivable due from
customers on an ongoing basis, considering industry and economic conditions and
other factors.  These factors form the basis for calculating and
recording an allowance for doubtful accounts, which is an estimate of future
credit losses. The Company writes off individual accounts receivable against the
bad debt allowance when the Company determines a balance is
uncollectible.  Management has determined that the bad debt allowance
is appropriately established at $-0- as of both December 31, 2009 and
2008.








F-6
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





Inventory





Inventory
consists of Smoky Market food items and branded packaging.  It is
valued at the lower of cost or market using the average cost
method.  Inventory was as follows at:





December
      31,
                2009
              
              
              December
      31,
                2008Food
      and beverages
              
              $
              73,534
              
              
              $
              -Packaging
      materials
              
              
              28,740
              
              
              
              22,126Shipping
      materials
              
              
              14,996
              
              
              
              -$
              117,270
              
              
              $
              22,126




Property
and Equipment





Property
and equipment are stated at cost and are being depreciated using the
straight-line method over the assets’ estimated economic lives, which range from
3 to 25 years.  Property and equipment were as follows as
of:





December
      31,
                2009
              
              
              December
      31,
                2008Leasehold
      Improvements
              
              $
              409,992
              
              
              $
              250,362Processing
      Equipment
              
              
              104,771
              
              
              
              104,771Kiosks
              
              
              90,205
              
              
              
              46,200Operating
      Equipment
              
              
              142,783
              
              
              
              78,062Office
      Equipment
              
              
              34,307
              
              
              
              29,112Software
              
              
              83,941
              
              
              
              27,831Transportation
      Equipment
              
              
              10,078
              
              
              
              10,077Warehouse
      Equipment
              
              
              1,548
              
              
              
              -Smallwares
              
              
              23,746
              
              
              
              3,765901,371
              
              
              
              550,180Accumulated
      depreciation
              
              
              (150,965
              )
              
              
              (87,865
              )$
              750,406
              
              
              $
              462,315





Leasehold
improvements are capitalized and amortized over the remaining term of the leased
facility.  The Company recorded $63,100 and $34,405 in depreciation
expense relating to the assets above for years ended December 31, 2009 and 2008,
respectively.










F-7
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008








Other
Assets





Intangible
assets were as follows as of:





December
      31,
                2009
              
              
              December
      31,
                2008License
      to Smoky Market brandand
      cooking technology
              
              
              -
              
              
              
              40,000Less
      accumulated amortiztion
              
              
              -
              
              
              
              (10,667
              )$
              -
              
              
              $
              29,333




The Smoky
Market brand and technology license was fully amortized in the second quarter of
2009 due to its outright purchase through the issuance of common
stock.  The acquired asset was given $-0- value because it was
purchased from a related party which had a cost basis of $-0-.





Deposits





Deposits
were as follows as of:




December
      31,
                2009
              
              
              December
      31,
                2008Security
      deposits at leased real estate facilities
              
              
              10,500
              
              
              
              10,500Other
              
              
              1,116
              
              
              
              833$
              11,616
              
              
              $
              11,333




Bank
Overdraft





Smoky
Market Foods, Inc. settled a previous bank overdraft position with one of its
previous banking institutions during the second quarter of 2009.  The
overdraft stood at $39,353 but was settled for $20,000 or $19,353 less than the
face value, which was recognized as other income.





Advances





As of
December 31, 2009 and 2008, the Company was indebted to two individuals for
non-interest bearing, unsecured advances issued in June
2008.  1,885,000 shares of common stock were issued to the individuals
as part of the transactions.  The advances are past due as of December
31, 2009.  Management intends to repay the advances upon the
realization of additional debt/equity financing in 2010.  Accordingly,
the advances have been classified as current obligations.





Financial
Instruments





Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31, 2009 and 2008.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and
accounts payable. Fair values are assumed to approximate carrying values for
these financial instruments because they are short term in nature, or are
receivable or payable on demand, and their carrying amounts approximate fair
value. The carrying value of the Company’s capitalized leases approximated their
fair value based on the current market conditions for similar debt
instruments.








F-8
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





Impairment
of Long-Lived Assets





The
Company periodically reviews the carrying amount of property and equipment and
its identifiable intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value.  Considerable
management judgment is necessary to estimate the fair value of assets;
accordingly, actual results could vary significantly from such
estimates.  As of December 31, 2009 and 2008, management believes that
there is no impairment of long-lived assets. (See Note 7)




Revenue
Recognition





Revenue
from restaurant sales is recognized when food and beverage products are sold.
The Company sells gift cards which do not have an expiration date and it does
not deduct non-usage fees from outstanding gift card balances. The Company
recognizes revenue from gift cards when: (i) the gift card is redeemed by
the customer; or (ii) the likelihood of the gift card being redeemed by the
customer is remote (gift card breakage) and the Company determines that there is
not a legal obligation to remit the unredeemed gift cards to the relevant
jurisdiction. The Company will consider a reduction of the unredeemed gift card
liability when more historical evidence will allow a reliable percentage of
unredeemed and/or broken gift cards to be estimated. Revenue on internet sales
is recognized at the time of shipment.





Shipping
and Handling (Internet Sales)





Shipping
and handling charged to customers can vary depending on pricing strategies,
market conditions, etc., and is not necessarily based on the recovery of
cost.   Accordingly, shipping and handling charges are recorded
as a component of sales while the corresponding shipping and handling costs are
reflected as a component of cost of goods sold.





Advertising
Costs





All
advertising costs are charged to expense as incurred or the first time the
advertising takes place, unless it is direct-response advertising that results
in probable future economic benefits.  Advertising expenses were
$4,820 and $-0- for the years ended December 31, 2009 and 2008.





F-9
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





Segment
Information





Certain
information is disclosed based on the way management organizes financial
information for making operating decisions and assessing
performance.  The Company currently operates in one business segment
and will evaluate additional segment disclosure requirements if it expands
operations.





Net
(Loss) Per Common Share





Basic
earnings (loss) per common share calculations are determined by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period.  Diluted earnings (loss) per common share calculations are
determined by dividing net income (loss) by the weighted average number of
common shares, outstanding stock options, and the equivalent number of common
shares that would have been outstanding had the convertible debt holders
converted their debt instruments to common stock.  All potential
dilutive securities have been excluded from the computation, as their effect is
anti-dilutive.





Stock-Based
Compensation





The
Company has issued its common shares as compensation to directors, officers, and
non-employees (“recipients”).  The Company measures the amount of
stock-based compensation based on the fair value of the equity instrument issued
or the services or goods provided as of the earlier of (1) the date at which an
agreement is reached with the recipient as to the number of shares to be issued
for performance, or (2) the date at which the recipient’s performance is
complete.





Income
Taxes





Deferred
tax assets and liabilities are computed based upon the difference between the
financial statement and income tax basis of assets and liabilities using the
enacted marginal tax rate applicable when the related asset or liability is
expected to be realized or settled.  Deferred income tax expenses or
benefits are based on the changes in the asset or liability each period. 
If available evidence suggests that it is more likely than not that some portion
or all of the deferred tax assets will not be realized, a valuation allowance is
required to reduce the deferred tax assets to the amount that is more likely
than not to be realized.  Future changes in such valuation allowance are
included in the provision for deferred income taxes in the period of
change.








F-10
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods.  Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they
relate.  Deferred taxes arising from temporary differences that are not
related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse.





Uncertainty
in income taxes is recognized in the Company’s financial statements.
Specifically, the accounting policy determines (a) a consistent recognition
threshold and (b) a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return, and provides related guidance on derecognition, classification,
interest and penalties, accounting interim periods, disclosure and transition.
To the extent interest and penalties would be assessed by taxing authorities on
any underpayment of income taxes, such amounts would be accrued and classified
as a component of income tax expenses on the consolidated statement of
operations. The Company has evaluated the presence of any such tax uncertainties
and determined that they do not have a material impact on the financial
statements.





Recent
Accounting Pronouncements





Below is
a listing of the most recent accounting standards and their effect on the
Company.





In
February 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-08 (ASU 2010-08), Technical Corrections to Various
Topics.  This amendment eliminated inconsistencies and outdated
provisions and provided the needed clarifications to various topics within Topic
815.  The amendments are effective for the first reporting period
(including interim periods) beginning after issuance (February 2, 2010), except
for certain amendments.  The amendments to the guidance on accounting
for income taxes in a reorganization (Subtopic 852-740) should be applied to
reorganizations for which the date of the reorganization is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008.  For those reorganizations reflected in interim financial
statements issued before the amendments in this Update are effective,
retrospective application is required.  The clarifications of the
guidance on the embedded derivates and hedging (Subtopic 815-15) are effective
for fiscal years beginning after December 15, 2009, and should be applied to
existing contracts (hybrid instruments) containing embedded derivative features
at the date of adoption.  The Company does not expect the provisions
of ASU 2010-08 to have a material effect on the financial position, results of
operations or cash flows of the Company.





In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-07 (ASU 2010-07), Not-for-Profit Entities (Topic 958):
Not-for-Profit Entities: Mergers and Acquisitions.  This amendment to
Topic 958 has occurred as a result of the issuance of FAS 164.  The
Company does not expect the provisions of ASU 2010-07 to have a material effect
on the financial position, results of operations or cash flows of the
Company.





In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures
(Topic 820): Improving Disclosures about Fair Value
Measurements.  This amendment to Topic 820 has improved disclosures
about fair value measurements on the basis of input received from the users of
financial statements.  This is effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements.  Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years.  Early adoption is
permitted.  The Company does not expect the provisions of ASU 2010-06
to have a material effect on the financial position, results of operations or
cash flows of the Company.








F-11
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-05 (ASU 2010-05), Compensation – Stock Compensation (Topic
718).  This standard codifies EITF Topic D-110 Escrowed Share
Arrangements and the Presumption of Compensation.





In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-04 (ASU 2010-04), Accounting for Various Topics—Technical
Corrections to SEC Paragraphs.





In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-03 (ASU 2010-03), Extractive Activities—Oil and Gas (Topic
932): Oil and Gas Reserve Estimation and Disclosures.  This amendment
to Topic 932 has improved the reserve estimation and disclosure requirements by
(1) updating the reserve estimation requirements for changes in practice and
technology that have occurred over the last several decades and (2) expanding
the disclosure requirements for equity method investments.  This is
effective for annual reporting periods ending on or after December 31,
2009.  However, an entity that becomes subject to the disclosures
because of the change to the definition oil- and gas- producing activities may
elect to provide those disclosures in annual periods beginning after December
31, 2009.  Early adoption is not permitted.  The Company
does not expect the provisions of ASU 2010-03 to have a material effect on the
financial position, results of operations or cash flows of the
Company.





In
January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary.  This amendment to Topic 810 clarifies, but does not
change, the scope of current US GAAP.  It clarifies the decrease in
ownership provisions of Subtopic 810-10 and removes the potential conflict
between guidance in that Subtopic and asset derecognition and gain or loss
recognition guidance that may exist in other US GAAP.  An entity will
be required to follow the amended guidance beginning in the period that it first
adopts FAS 160 (now included in Subtopic 810-10).  For those entities
that have already adopted FAS 160, the amendments are effective at the beginning
of the first interim or annual reporting period ending on or after December 15,
2009. The amendments should be applied retrospectively to the first period that
an entity adopted FAS 160.  The Company does not expect the provisions
of ASU 2010-02 to have a material effect on the financial position, results of
operations or cash flows of the Company.





In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force).  This
amendment to Topic 505 clarifies the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a limit on
the amount of cash that will be distributed is not a stock dividend for purposes
of applying Topics 505 and 260. Effective for interim and annual periods ending
on or after December 15, 2009, and would be applied on a retrospective
basis.  The Company does not expect the provisions of ASU 2010-01 to
have a material effect on the financial position, results of operations or cash
flows of the Company.





In
December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities.  This Accounting Standards
Update amends the FASB Accounting Standards Codification for Statement 167. (See
FAS 167 effective date below)








F-12
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





In
December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial
Assets.  This Accounting Standards Update amends the FASB Accounting
Standards Codification for Statement 166. (See FAS 166 effective date
below)





In
October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
or Other Financing.  This Accounting Standards Update amends the FASB
Accounting Standard Codification for EITF 09-1.  (See EITF 09-1
effective date below)


In
October 2009, the FASB issued Accounting Standards Update 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software
Elements.  This update changed the accounting model for revenue
arrangements that include both tangible products and software
elements.  Effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15,
2010.  Early adoption is permitted.  The Company does not
expect the provisions of ASU 2009-14 to have a material effect on the financial
position, results of operations or cash flows of the Company.





In
October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements.  This update addressed the accounting for
multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than a combined unit and will be
separated in more circumstances that under existing US GAAP.  This
amendment has eliminated that residual method of
allocation.  Effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15,
2010.  Early adoption is permitted. The Company does not expect the
provisions of ASU 2009-13 to have a material effect on the financial position,
results of operations or cash flows of the Company.





In
September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent).  This update
provides amendments to Topic 820 for the fair value measurement of investments
in certain entities that calculate net asset value per share (or its
equivalent).  It is effective for interim and annual periods ending
after December 15, 2009.  Early application is permitted in financial
statements for earlier interim and annual periods that have not been issued. The
Company does not expect the provisions of ASU 2009-12 to have a material effect
on the financial position, results of operations or cash flows of the
Company.





In
July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task
Force) issued EITF No. 09-1, (ASC Topic 470) “Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance” (“EITF
09-1”).  The provisions of EITF 09-1, clarifies the accounting
treatment and disclosure of share-lending arrangements that are classified as
equity in the financial statements of the share lender.  An example of
a share-lending arrangement is an agreement between the Company (share lender)
and an investment bank (share borrower) which allows the investment bank to use
the loaned shares to enter into equity derivative contracts with
investors.  EITF 09-1 is effective for fiscal years that beginning on
or after December 15, 2009 and requires retrospective application for all
arrangements outstanding as of the beginning of fiscal years beginning on or
after December 15, 2009.   Share-lending arrangements that have
been terminated as a result of counterparty default prior to December 15, 2009,
but for which the entity has not reached a final settlement as of December 15,
2009 are within the scope.  Effective for share-lending arrangements
entered into on or after the beginning of the first reporting period that begins
on or after June 15, 2009.  The Company does not expect the provisions
of EITF 09-1 to have a material effect on the financial position, results of
operations or cash flows of the Company.








F-13
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





In June 2009, the FASB issued SFAS
No. 168 (ASC Topic 105), “The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB
Statement No. 162” (“SFAS No. 168”).Under SFAS No. 168 the
“FASB Accounting Standards Codification” (“Codification”) will become the source
of authoritative US GAAP to be applied by nongovernmental
entities.  Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.  On the effective date, the Codification will
supersede all then-existing non-SEC accounting and reporting standards. All
other non-grandfathered non-SEC accounting literature not included in the
Codification will become non-authoritative. SFAS No. 168 is effective for the
Company’s interim quarterly period beginning July 1, 2009. The Company does not
expect the adoption of SFAS No. 168 to have an impact on the financial
statements.





In
June 2009, the FASB issued SFAS No. 167 (ASC Topic 810), “Amendments to FASB
Interpretation No. 46(R) (“SFAS 167”).   SFAS 167 amends the
consolidation guidance applicable to variable interest entities. The provisions
of SFAS 167 significantly affect the overall consolidation analysis under FASB
Interpretation No. 46(R).  SFAS 167 is effective as of the beginning
of the first fiscal year that begins after November 15, 2009. SFAS 167 will be
effective for the Company beginning in 2010. The Company does not expect the
provisions of SFAS 167 to have a material effect on the financial position,
results of operations or cash flows of the Company.





In
June 2009, the FASB issued SFAS No. 166, (ASC Topic 860) “Accounting for
Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS
166”). The provisions of SFAS 166, in part, amend the derecognition guidance in
FASB Statement No. 140, eliminate the exemption from consolidation for
qualifying special-purpose entities and require additional disclosures. SFAS 166
is effective for financial asset transfers occurring after the beginning of an
entity’s first fiscal year that begins after November 15, 2009. The Company does
not expect the provisions of SFAS 166 to have a material effect on the financial
position, results of operations or cash flows of the Company.





In
April 2009, the FASB issued SFAS No. 164, (ASC Topic 810) “Not-for-Profit
Entities: Mergers and Acquisitions – including an amendment of FASB Statement
No. 142” (“SFAS 164”). The provisions of SFAS 164 provide guidance on accounting
for a combination of not-for-profit entities either via merger or
acquisition.  SFAS 164 is effective for mergers occurring on or after
the beginning of an initial reporting period beginning on or after December 15,
2009 and acquisitions occurring on or after the beginning of the first annual
reporting period beginning on or after December 15, 2009. The Company does not
expect the provisions of SFAS 164 to have a material effect on the financial
position, results of operations or cash flows of the Company.





In
June 2009, the Securities and Exchange Commission’s Office of the Chief
Accountant and Division of Corporation Finance announced the release of Staff
Accounting Bulletin (SAB) No. 112. This staff accounting bulletin amends or
rescinds portions of the interpretive guidance included in the Staff Accounting
Bulletin Series in order to make the relevant interpretive guidance consistent
with current authoritative accounting and auditing guidance and Securities and
Exchange Commission rules and regulations. Specifically, the staff is updating
the Series in order to bring existing guidance into conformity with recent
pronouncements by the Financial Accounting Standards Board, namely, Statement of
Financial Accounting Standards No. 141 (revised 2007) (ASC Topic 805), Business
Combinations, and Statement of Financial Accounting Standards No. 160 (ASC Topic
810), Non-controlling Interests in Consolidated Financial Statements. The
statements in staff accounting bulletins are not rules or interpretations of the
Commission, nor are they published as bearing the Commission's official
approval. They represent interpretations and practices followed by the Division
of Corporation Finance and the Office of the Chief Accountant in administering
the disclosure requirements of the Federal securities laws.








F-14
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





In
September 2008, the FASB issued exposure drafts that eliminate qualifying
special purpose entities from the guidance of SFAS No. 140(ASC Topic 860),
“Accounting for Transfers and Servicing of Financial  Assets and 
Extinguishments of Liabilities,” and  FASB  Interpretation 46 (ASC
Topic 810) (revised December 2003), “Consolidation of  Variable 
Interest Entities − an interpretation of ARB  No. 51 (ASC Topic 810),”
as well as other modifications.  While the proposed revised
pronouncements have not been finalized and the proposals are subject to further
public comment, the Company anticipates the changes will not have a significant
impact on the Company’s financial statements.  The changes would be
effective March 1, 2010, on a prospective basis.








NOTE
2.  GOING CONCERN





The
Company’s ability to continue as a going concern is contingent upon its ability
to commence profitable operations and/or obtain additional debt and/or capital
financing.




The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern.




The
Company has experienced $7,202,544 in losses since inception. The Company has
had no material revenue generating operations since inception.




The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.







NOTE
3.  NOTES PAYABLE TO RELATED PARTY





In
September 2008, the Company received $500,000 from a trust in exchange for a
$500,000 promissory note and 300,000 warrants to purchase the Company’s common
stock.  The promissory note is non-interest bearing and is due on
September 30, 2010.  The warrants have an exercise price of $.15 per
share and expire on the due date of the promissory note.  The warrants
were valued at $9,172 using the Black-Scholes method, and classified as a note
discount.








F-15
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





In
January 2009, the Company received $150,000 from a limited liability company
(“LLC”) which is related to the trust described above, in exchange for a
$150,000 promissory note and 1,500,000 shares of common stock.  The
note was due and payable within 60 days subsequent to
issuance.  According to the loan agreement, an additional 1,500,000
common shares were issued to the LLC in March 2009 as the note was not repaid
during the mandatory 60-day repayment period.  The note shall accrue
interest beginning in the second quarter of 2009.   The shares
were valued at $100,500 and classified as a note discount.





In June
2009, the above loans were combined, along with an additional $1,500,000 in
proceeds, plus $2,000 in previously accrued interest, to form a new $2,152,000
loan.  The loan accrues interest at a 10% annual rate, with all
principal and interest due and payable upon the two-year maturity on May 28,
2011.  A portion of the principal must be retired, under the terms of
the note agreement, when/if the Company obtains in excess of $2 million of
equity financing.  Fifty percent of any equity raised above $2 million
must be used to pay down principal on this promissory note.  The
lender received 11,587,926 common shares and 1,852,500 warrants to purchase
common stock as additional compensation in the transaction.  The
warrants have an exercise price of $.15 per share and expire in May
2014.  They were valued at $92,182 using the Black Scholes method and
are being amortized over the two year life of the note along with the value of
the common stock issued in connection with the debt.  The combined
warrants and common stock issued to-date with respect to the combined debt
reflect a note discount, and are therefore netted against the promissory note on
the balance sheet. Amortization expense on this note discount was $80,448 and
$8025 for the years ended December 31, 2009 and 2008, respectively.





The LLC
acquired over 10% of the common stock of the Company as a result of the June
2009 transaction, and is therefore now deemed a related
party.  However, the LLC does not have management
control.  The transaction is therefore considered at “arm’s
length.”





The
Company accrued $125,533 and $-0- in interest expense with respect to this
promissory note for the years ended December 31, 2009 and 2008,
respectively.





The notes
were as follows as of:




December
      31,
                2009
              
              
              December
      31,
                2008Face
      amount of note
              
              $
              2,152,000
              
              
              $
              500,000Accrued
      interest
              
              
              125,533
              
              
              
              -Less
      unamortized loan discount
              
              
              (397,477
              )
              
              
              (8,025
              )$
              1,880,056
              
              
              $
              491,975





F-16
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008








NOTE
4.  CAPITAL LEASE OBLIGATIONS





The
Company assumed multiple lease obligations in the transaction described in Note
6.  The leases have been capitalized and are reflected as liabilities
on the balance sheet.  Future lease obligations are as follows
at:





Minimum
      lease payments for:
                
                December
      31,
                  2009
                
                
                December
      31,
                  2008Next
      twelve months
                
                $
                -
                
                
                $
                16,527Following
      twelve monthsThereafter
                
                
                -
                
                
                
                -Total
                
                
                -
                
                
                
                16,527Amounts
      representing interest
                
                
                -
                
                
                
                1,295Present
      value of minimum lease payments
                
                
                -
                
                
                
                15,232Current
      portion
                
                
                -
                
                
                
                15,232Long-term
      portion
                
                $
                -
                
                
                $
                -








NOTE
5.  CAPITAL STOCK





Common
Stock





On  April  18,  2006,  the  State  of  Nevada  authorized  the  Company  to  issue  a  maximum  of
200,000,000 shares of the Company’s common stock. The assigned par value was
$.001.  On the same day, the Company issued 40,000,000 common shares
to Smoky Systems, LLC, a Nevada LLC and related party, in exchange for certain
assets.  This transaction is discussed more fully in Note 6
below.





Preferred
Stock





In June
2006, the State of Nevada authorized the Company to issue a maximum of
10,000,000 shares of the Company’s preferred stock with a $.001 par
value.  Shares of Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the Board of
Directors. Each series shall be distinctly designated. All shares of any one
series of the Preferred Stock shall be alike in every particular, except that
there may be different dates from which dividends thereon, if any, shall be
cumulative, if made cumulative. The powers, preferences and relative,
participating, optional and other rights of each such series, and the
qualifications, limitations or
restrictions  thereof,  if  any,  may  differ  from  those  of  any  and  all  other  series  at  any  time
outstanding.  No preferred shares had been issued as of December 31,
2009.








F-17
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





Stock
Transactions:





The
Company has engaged in numerous transactions whereby shares of common stock
(description above) were issued in exchange for cash and/or
services.  The Statement of Stockholders’ Equity provides a summary of
such transactions.








NOTE
6.  RELATED PARTY TRANSACTIONS





The
Company issued 40,000,000 shares of common stock in April 2006 to a related
party, Smoky Systems, LLC in exchange for a license to certain
assets.  The license entitles Smoky Market Foods, Inc. to the use of
certain assets developed by Smoky Systems, LLC.  The licensed assets
include intellectual property such as trademarks, copyrights, telephone numbers,
email addresses, marketing collateral and other branded materials that will be
utilized by management to exploit the Smoky Market brand.





Management
assigned a nominal value of $40,000 to such assets in this related party
transaction.   The 40,000,000 shares were issued at the $.001 par
value per share.





During
the quarter ended June 30, 2009, the Company issued an additional 3,500,000
shares to Smoky Systems, LLC in an outright purchase of the intangible assets
described above.  The purchase was valued at $-0-, which was the
related party’s cost basis for the asset.





The
Company also purchased certain tangible assets from Smoky Systems in a bulk
asset purchase in 2006. The purchase was consummated at Smoky Systems, LLC’s net
book value on such assets.





The
transaction is summarized as follows:





Property
      and equipment acquired
              
              $
              163,628Less
      assumed capital leases
              
              
              52,048Net
      purchase price
              
              $
              111,580





As of
December 31, 2009 and 2008 the Company owed $106,457 and $87,364 to related
parties for past operating expenses.  Such debts were reflected as
related party trade payables on the balance sheets, bear no interest and have no
formal repayment terms.










F-18
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





NOTE
7 – COMMITMENTS, CONTINGENCIES & SUBSEQUENT EVENTS





Operating Lease
Commitment





The
Company is obligated under a long-term lease of restaurant property in Los
Gatos, California through February 2013.  Base monthly rent was $5,150
as of December 31, 2009 with monthly common area maintenance (“CAM”) charges
estimated at $1,043.  Required minimum rent was $61,650 and $5,000 for
the years ended December 31, 2009 and 2008, respectively. Future minimum lease
payments, exclusive of CAM charges, are as follows for the years ending December
31:





2010
              
              $
              63,5002011
              
              
              65,4042012
              
              
              67,3672013
              
              
              5,6282014
              
              
              -Total
              
              $
              201,899





Employment
Contract





Effective
May 1, 2007, the Company entered into a three-year employment contract with the
chief executive officer.  Terms of the agreement include annual
compensation of $175,000, a potential 80% bonus, a stock award of 1,500,000
common shares, 425,000 options to purchase common stock at $.10 per share, and
an additional contingent 1,000,000 shares assuming that certain operating
performance metrics are achieved.





Subsequent
Event





Subsequent
to year-end in March 2010, the Company shut down its restaurant location in Los
Gatos California due to non-performance.  The total loss from this
shutdown, including the continuing lease obligation, is expected to range from
$311,000 to $660,000, depending on whether the equipment and lease rights can be
sold.  The restaurant has been listed for sale at $190,000, but there
can be no assurances that selling price, or any other selling price will be
realized.





The
conditions for the asset impairment did not exist as of December 31,
2009.  Accordingly, the impairment loss is not reflected in the
December 31, 2009 financial statements.





Real Estate Option and
Consulting Agreement





The
Company entered into an agreement with Mary Anne’s Specialty Foods, Inc.
(“Supplier”) in October 2009.  Under the terms of the agreement, the
Company issued the Supplier 1,500,000 warrants to purchase the Company’s common
stock at a $.15 exercise price, expiring in five years, in exchange for certain
real property rights to purchase and build production facilities located on
property presently owned by the Supplier.  The transaction was valued
at $75,000 using the Black-Scholes Method.  The Company also issued
1,000,000 common shares to the Supplier in exchange for a three-year real estate
related consulting contract that the Company may require in subsequent years in
order to build the new facility described above. The transaction was valued at
$50,000, and based on the $.05 per share fair value of the Company’s common
shares on the date of the agreement.





F-19
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





Common Stock Option
Plan





The
Company has reserved 6,500,000 common shares for the exercise of stock options
to be issued pursuant to the 2006 Stock Option Plan.  Information
relating to options issued for the years ended December 31, 2009 and 2008 under
this plan is as follows:




Options and
                Stock Awards
                Available
                for Grant
              
              
              Number of
                Shares
              
              
              Weighted
                Average
                Option
                Exercise
                PriceOutstanding
      as of January 1, 2008
              
              
              2,837,500
              
              
              
              3,662,500
              
              
              $
              0.10Shares
      reserved
              
              
              -
              
              
              
              -
              
              
              
              -Options
      granted
              
              
              -
              
              
              
              -
              
              
              
              -Stock
      awards granted
              
              
              (2,095,000
              )
              
              
              2,095,000
              
              
              
              n/aOptions
      exercised
              
              
              -
              
              
              
              -
              
              
              
              -Options
      canceled
              
              
              -
              
              
              
              -
              
              
              
              -Outstanding
      as of December 31, 2008
              
              
              742,500
              
              
              
              5,757,500
              
              
              $
              0.10Shares
      reserved
              
              
              -
              
              
              
              -
              
              
              
              -Options
      granted
              
              
              -
              
              
              
              -
              
              
              
              -Stock
      awards granted
              
              
              -
              
              
              
              -
              
              
              
              n/aOptions
      exercised
              
              
              -
              
              
              
              -
              
              
              
              -Options
      canceled
              
              
              -
              
              
              
              -
              
              
              
              -Outstanding
      as of December 31, 2009
              
              
              742,500
              
              
              
              5,757,500
              
              
              $
              0.10




The
following table summarizes information about stock options outstanding and
exercisable at December 31, 2009:





Stock
      Options OutstandingExercise
      Price
              
              Number
      of
                Options
                Outstanding
              
              Weighted-Average
                Remaining
                Contractual
                Life
      in Years
              
              Weighted-
                Average
                Exercise
      Price$0.10
              
              1,887,500
              
              3.81
              
              $0.10




Stock
      Options ExercisableExercise
      Price
              
              Number
      of
                Options
                Exercisable
              
              Weighted-Average
                Remaining
                Contractual
                Life
      in Years
              
              Weighted-
                Average
                Exercise
      Price$0.10
              
              1,690,885
              
              3.81
              
              $0.10












Expected
      stock price volatility
              
              
              186.0
              %Risk-free
      interest rate
              
              
              4.7
              %Expected
      term (years)
              
              
              7.00
              %Weighted-average
      fair value of stock options granted
              
              $
              0.099





F-20
 Smoky
Market Foods, Inc.
 Notes
to Financial Statements
 December
31, 2009 and 2008





Common Stock
Warrants





The
following is a summary of the status of all the Company's stock warrants as of
December 31, 2009 and changes during the periods then ended:




Number
                  of
                  Warrants
                
                
                Weighted
                  Average
                  Exercise
                  PriceOutstanding,
      January 1, 2008
                
                
                7,861,000
                
                
                
                0.25Granted
                
                
                300,000
                
                
                
                0.15Exercised
                
                
                -
                
                
                
                -Cancelled
                
                
                (7,861,000
                )
                
                
                0.25Outstanding,
      December 31, 2008
                
                
                300,000
                
                
                
                0.15Granted
                
                
                3,352,500
                
                
                
                0.15Exercised
                
                
                -
                
                
                
                -Cancelled
                
                
                -
                
                
                
                -Outstanding,
      December, 2009
                
                
                3,652,500
                
                
                $
                0.15Warrants
      exercisable at December 31, 2009
                
                
                3,652,500
                
                
                $
                0.15Warrants
      exercisable at December 31, 2008
                
                
                300,000
                
                
                $
                0.15




The
following table summarizes information about stock warrants outstanding and
exercisable at December 31, 2009:




Stock
      Warrants OutstandingExercise
      Price
              
              Number
      of
                Warrants
                Outstanding
              
              Weighted-Average
                Remaining
                Contractual
                Life
      in Years
              
              Weigted-
                Average
                Exercise
      Price$0.15
              
              3,652,500
              
              4.53
              
              $0.15





Stock
      Warrants ExercisableExercise
      Price
              
              Number
      of
                Warrants
                Exercisable
              
              Weighted-Average
                Remaining
                Contractual
                Life
      in Years
              
              Weighted-
                Average
                Exercise
      Price$0.15
              
              3,652,500
              
              4.53
              
              $ 0.15





F-21