FOOTHILLS EXPLORATION, INC. - Annual Report: 2015 (Form 10-K)

PART I

Item 1. Business

Industry Overview

Our business plan is to acquire small and medium grocery stores in non-urban locales that are not directly served by large national supermarket chains.

The U.S. retail grocery market includes a variety of distribution channels, from small grocery shops and convenience stores to supermarkets, specialty and natural food stores, warehouse stores and supercenters. According to Willard Bishop's June 2015 publication, The Future of Food Retailing, the U.S. retail market for groceries and consumables was approximately $1.1135 trillion in 2013. We intend to operate in the traditional supermarket channel, which accounted for approximately 46.3% of the retail grocery market in 2014. Total grocery sales were over $547.4 billion in 2014, an increase of 4.7% from the previous year.

In The Future of Food Retailing, traditional supermarkets are defined as those offering a full line of groceries, meat and produce, with at least $2 million in annual sales, and no more than 15% of sales in general merchandise or health and beauty care. According to Willard Bishop's June 2015 publication, The Future of Food Retailing, the average traditional supermarket in the U.S. is approximately 52,200 square feet in size, carries 45,000 stock-keeping units (“SKUs”) and generates over $16 million in revenue each year. They typically carry anywhere from 15,000 to 60,000 SKUs, and may have a deli, bakery or pharmacy. In 2014, according to The Future of Food Retailing, there were 26,490 traditional supermarkets in the U.S. Traditional supermarkets have struggled to recover from the recession and continue to lose market share as consumers search for lower prices in the interest of reducing spending, or shift shopping trips to limited-assortment stores (which offer a limited number of SKUs), supercenters, and wholesale clubs. It is projected in The Future of Food Retailing that traditional supermarket sales as a percentage of total grocery sales will contract in future years, and market share will have dropped to 46.1% in 2019, from 46.3% in 2014. According to The Future of Food Retailing, average weekly sales in 2014 for a traditional supermarket was $335,599.

The U.S. grocery industry, which is not immune to general economic downturns, has historically been characterized by low profit margins. The U.S. grocery industry is also susceptible to food inflation. It is predicted in The Future of Food Retailing that food inflation will average 2.5% over the next five years and that traditional supermarkets will not keep pace.

Some of the current trends in the grocery industry include:

Emphasis on Value - According to the Food Marketing Institute’s report Grocery Shopper Trends 2012, consumers reported that what matters most to them when choosing a primary store, aside from convenience, are lower prices in general and lower prices on specific items. With the economic downturn, consumers appear to be are adopting value-seeking habits.  

Increasing Focus on the Customer Shopping Experience- Supermarkets are focused on enhancing the consumer's shopping experience as a point of differentiation and being more responsive to consumer preferences through their consumer interactions and product offerings.

Growing Importance of Prepared Foods - Prepared meal solutions have become an increasingly important offering by food retailers as consumers have reduced their spending on meals away from home in response to recent economic pressures.

Increasing Private Label Offerings - Consumers have continued to turn to private label products as part of their focus on value. Supermarkets are increasingly developing and promoting private label brands to distinguish themselves from their competitors and promote customer loyalty, as well as to enhance margins.

Focus on Perishables - A growing consumer focus on healthy eating has prompted food retailers to provide an enhanced offering of fresh foods and natural and organic products. Increased demand for perishables has led to additional supply, improving the distribution and selection of these products.

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Emphasis on Convenience - Over the last decade, convenience of store location and format has emerged as one of the central drivers of consumer shopping decisions. Contributing to this effect, high fuel prices have encouraged consumers to seek shopping locations in close proximity to their homes over long trips to more remote retailers. Other industry trends, such as increasing demand for prepared and perishable foods, reward convenient store locations with high frequency shopping patterns.

Increased use of Technology - Consumers are increasingly using technology as part of their shopping experience. According to Nina Meijers in the December 18, 2014 edition of Food-Tech Connect, the development of new online platforms and applications, many of them mobile, have resulted in the introduction of many same-day delivery services for groceries.

Increasing Online Grocery Sales - Online grocery sales continue to grow. According to Willard Bishop's June 2015 publication, The Future of Food Retailing, online grocery sales grew by 13.5% in 2014 to $24.5 billion, and are expected to grow at an annual rate of 12.1% through the next five years.

Focus on multicultural offerings - An increasingly culturally diverse customer population, coupled with a need to differentiate their product offerings from those of their competitors, has motivated some grocery stores to offer a wider variety of products. According to Zach Baliva in the January/February 2015 issue of the Hipanic Executive, experts predict the Hispanic food and beverage market to grow from $8 billion to $11 billion in the next two years alone, and salsa has topped ketchup as the nation’s number one condiment.

Description of Business

The Company

We were incorporated on May 13, 2010 in the State of Delaware. We have no subsidiaries. The Company has not been the subject of any bankruptcy, receivership or similar proceedings or any reclassification, merger or consolidation proceedings.  

Our independent auditors have indicated, in their report on our December 31, 2015 and 2014 financial statements, that there is substantial doubt about our ability to continue as a going concern. A “going concern” opinion indicates that the financial statements have been prepared assuming we will continue as a going concern and 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 if we do not continue as a going concern. Therefore, you should not rely on our balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to shareholders, in the event of liquidation. The going concern consideration is based on the Company’s absence of revenues to date.

Our principal offices are located at 216 S. Jefferson Street, Suite LL1, Chicago, Illinois 60661. Our telephone number is (312) 695-9637.

The original purpose of the Company was to acquire a portfolio of heavily discounted real estate properties in the Chicago metropolitan area. The Company abandoned its original business plan because of the absence of a sufficient number of suitable properties available for purchase at prices which would allow the business plan to succeed considering the state of the real estate market, challenges related to decreased consumer confidence and the weakened economic conditions in general. The Company has changed its focus and now plans to acquire small and medium-sized grocery stores that have a dominant presence in non-urban markets not directly served by large national supermarket chains, wholesale clubs or supercenters.

As of the date of this report, the Company has not yet acquired any grocery stores or commenced operations. The Company's primary activities since incorporation have been organizational in nature and related to the Company’s formation and registration statement and development of its business plan. The Company has not generated any revenues from these activities.

The Company has no current plans, proposals or arrangements, written or otherwise, to acquire any grocery stores. The Company has not identified any potential acquisition targets.

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Business Strategy

The Company plans to acquire small and medium-sized grocery stores that are the dominant presence in their non-urban markets. By acquiring stores that are situated in less competitive locales that are not directly served by large national supermarket chains, wholesale clubs and supercenters, the Company anticipates that it will be able to achieve financial returns that meet or exceed industry norms because stores in less competitive locales will be under less pressure to heavily discount their prices.

The implementation of our business plan is subject to obtaining funding to hire personnel and begin acquiring grocery stores. We may obtain funding through a public or private offering of securities, commercial financing, loans from officers or directors or a combination of these means. We have not yet made plans to conduct a securities offering, obtain commercial financing or a private loan. We will not be able to begin implementing our business plan until we have secured financing to begin operations. Funds necessary to implement our business operations may not be available in amounts necessary or at all. As acquisitions occur, we anticipate that we will be able to fund expansion with the revenue generated from operations. In the meantime, if we are unable to secure sufficient funding to initiate our business plan, we will postpone the implementation of our business plan as currently developed or reduce or curtail operations until sufficient funding becomes available.

The Company plans to acquire grocery stores that are approximately 15,000 to 20,000 square feet in size and generating $5 to $8 million in revenue each year. Ideally, the acquisitions will be clustered regionally, which will allow the Company to centralize certain operational functions, including purchasing and marketing. The centralization of these functions should provide the consolidated stores with the critical mass and leverage to demand enhanced service and financial concessions from its distributors and marketing vendors. The representative store will have had a long-standing presence in its community and a history of stable financial performance. Many of these stores will have been family owned and operated. The Company expects to acquire most of its grocery stores from owners looking for a financial exit strategy. The Company believes that there is not a robust market for the sale of such properties and that the lack of bids for such properties will allow it to acquire such grocery stores for little more than the value of their equipment and inventory. Ideally, the Company will acquire grocery stores from owners who will continue to manage the stores as employees of the Company. If the former owners elect not to manage the stores on behalf of the Company, the Company will either promote qualified new managers from the pool of existing employees of the grocery store or hire experienced managers from outside the Company

The Company will seek to drive additional customer traffic to its acquired grocery stores and expand their operating margins through the introduction of new products and services to those stores that lack them, including:

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Pharmaceutical services

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Floral departments

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Gasoline and other automotive products

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Prepared foods

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Lottery service, where appropriate

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Alcoholic beverages (beer, wine and spirits), where appropriate

The Company’s ability to add pharmacies and floral departments will be dependent upon its ability to hire qualified personnel and comply with applicable laws and regulations. Local regulations may restrict its ability to sell gasoline and other automotive products.   

Proposed Products to be Sold at Grocery Stores

The Company’s stores will sell non-perishable, perishable and non-food products. Most of the products are expected to be nationally and regionally advertised brands. Perishable product sales also typically generate higher gross margins than non-perishable products. The products will likely include the following categories:

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Grocery, frozen and dairy

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Produce

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Meat and seafood

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Bakery

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·

Deli, cheese and prepared foods

·

Floral

·

Beer, wine and spirits

·

Health and beauty care

Proposed Milestones to Implement Business Operations

The following milestones are based on the estimates made by management. The working capital requirements and the projected milestones are approximations and subject to adjustments. Our budget for the upcoming twelve months is based on implementing operations at a conservative level, which will be funded by revenue generated from operations (after acquisitions occur) or, in the meantime, public or private offering of securities, commercial financing, loans from officers or directors or a combination of these means. We have not yet made plans to conduct a securities offering or obtain commercial financing. Since the effective date of our registration statement, one of our major shareholders has loaned money to the Company to cover the costs incurred by the Company to maintain compliance with its SEC reporting requirements. Funds necessary to achieve our proposed milestones and implement our business operations may not be available in amounts necessary or at all. We will not be able to begin implementing our business plan until we have secured financing to begin operations. The unavailability of additional financing could prevent or delay implementation of the Company’s business plan and may require the Company to curtail or terminate its operations. If we begin to generate profits, we will increase our marketing and sales activity accordingly. The costs associated with operation of the Company as a public company are included in our budget. Management will be responsible for the preparation of the required documents to keep the costs to a minimum. Subject to securing financing to commence operations, we plan to complete our milestones as follows:

0 to 3 Months

The Company plans to recruit an experienced Chief Operating Officer with expertise in the acquisition and management of grocery stores. We expect to offer a base salary of $50,000 and incentive compensation (a combination of stock options and cash bonuses) tied to the overall profitability of the Company. The precise details of the incentive compensation and the targeted profitability that would trigger the payment of the incentive compensation have not yet been determined.

The Company will initially focus its acquisition efforts on acquiring stores in the Chicago metropolitan area. The Company expects to acquire most of its grocery stores from owners looking for a financial exit strategy. The Company believes that there is not a robust market for the sale of such properties and that the absence of competing bids will allow it to acquire grocery stores for little more than the value of their equipment and inventory. The Company will not open new grocery stores.

The Company anticipates that its acquisitions will be made with a combination of deferred payment, notes payable to the former owner(s) and equity. None of the Company’s initial acquisitions will be made with cash. At this time it is impossible to predict with any degree of certainty the costs of any such acquisitions. Such acquisition costs will be dependent upon many factors which are currently unknown including, without limitation, the size of the store to be acquired, its historical financial results and whether the store is a stand-alone store or part of a grocery store chain.

Ideally, the Company will acquire grocery stores from owners who will continue to manage the store as employees of the Company. If the former owners elect not to manage the stores on behalf of the Company, the Company will either promote qualified new managers from the existing employees of the store or hire experienced managers from outside the Company.

The officers and directors of the Company have agreed to defer any compensation until the Company is cash flow positive.

The anticipated expenditures for the first three months of operation include the purchase of a computer, a printer and accounting software; compensation for a Chief Operating Officer; legal fees; part-time administrative personnel; and  expenses incurred in the search for and investigation of potential acquisition opportunities.

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4 to 6 Months

Pending availability of funds, the Company expects to complete its initial acquisition of an operating grocery store during this period, at which time it is expected to begin to generate revenue. The Company expects to finance the acquisition with a combination of deferred compensation, notes payable to the former owner(s) and equity. The Company will not pay cash for any of the acquisitions that it makes during the early stages of operation.

The Company will begin to assemble a network of grocery industry consultants to search for potential acquisitions. The compensation of the consultants will be directly tied to their ability to identify and close desirable acquisitions and the post-acquisition performance of those acquisitions.

The anticipated expenditures for this three-month period include: accounting and legal expenses associated with the Company’s compliance with SEC reporting requirements; salary for a Chief Operating Officer; legal fees;  part-time administrative personnel; marketing activities, and expenses incurred in the search for and investigation of potential acquisition opportunities.

7 to 9 Months

The Company expects to make a second acquisition during this period.  The anticipated expenditures for this three-month period include accounting and legal expenses associated with the Company’s compliance with SEC reporting requirements; salary for a Chief Operating Officer, legal fees; full-time administrative personnel; marketing activities; and expenses incurred in the search for and investigation of potential acquisition opportunities.

10 to 12 Months

The Company expects to make a third acquisition during this period. The anticipated expenditures for this three-month period include accounting and legal expenses associated with the Company’s compliance with SEC reporting requirements; salary for a Chief Operating Officer; legal fees; full-time administrative personnel; full-time Purchasing Manager; marketing activities; and expenses incurred in the search for and investigation of potential acquisition opportunities.

Any line item amounts not expended completely will be held in reserve as working capital and subject to reallocation to other line item expenditures as required for ongoing operations.

All milestones are subject to securing financing to commence operations. The Company will undertake to achieve subsequent milestones only to the extent that sufficient funding is available. The Company does not have any commitments or arrangements to obtain any such funds, and there can be no assurance that required financing will be available to the Company on acceptable terms, if at all. The unavailability of additional financing could prevent or delay the implementation of the Company’s business plan and may require the Company to curtail or terminate its operations. If at any time during the first year of operations, the Company has not generated sufficient revenue or funds are otherwise unavailable to continue its business plan, it will temporarily defer equipment, personnel, marketing and development expenses until sufficient funds become available and in the meantime will expend only those funds as available and as required to maintain the existence of the Company. Such deferrals will delay implementation of the Company’s business plan to the extent they are required.

The Company has no current plans, proposals or arrangements, written or otherwise, to acquire any grocery stores. The Company has not identified any potential acquisition targets.

Pricing

By acquiring stores that are situated in less competitive locales that are not directly served by large national supermarket chains, wholesale clubs and supercenters, the Company anticipates that it will be under less pressure to heavily discount its prices.

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Compliance with Governmental Regulation

The Company’s operations will be subject to regulation by a variety of governmental agencies, including the U.S. Food and Drug Administration, local departments governing alcoholic beverage sales, and state and local health departments. The Company will work to ensure that its operations comply in all material respects with federal, state and local health, environmental and other laws and regulations. To the extent that pharmaceutical services are included in any grocery stores we acquire, our business will be subject to additional federal, state and local government laws and regulations application to the registration and regulation of pharmacies; applicable Medicare and Medicaid regulations; the Health Insurance Portability and Accountability Act, or HIPAA; the Patient Protection and Affordable Care Act (the ACA); regulations of the U.S. Food and Drug Administration, the U.S. Federal Trade Commission, the Drug Enforcement Administration, and the Consumer Product Safety Commission.

Competition

Food retailing is a large, intensely competitive industry. Our future competition will include but not be limited to local, regional and national conventional and specialty supermarkets, warehouse membership clubs, online retailers, smaller specialty stores, farmers’ markets and restaurants, each of which will compete with us on the basis of convenience, store ambiance and experience, product selection, quality, customer service, price or a combination of these factors.

Advertising and Marketing

According to the Food Marketing Institute, the average grocery store spends approximately 1.5% of its total revenue on advertising and marketing. By acquiring stores in locales that are not subject to intense competition, the Company believes that its advertising and marketing expense will be substantially below the industry average. All of the Company’s marketing dollars will be spent locally once it has acquired grocery stores and commenced operations. The Company’s marketing strategy will feature a convenient shopping experience to customers with a focus on service and fresh perishables. The advertising will occasionally be focused primarily on the promotion of events rather than prices; for example, the individual stores may emphasize special holiday selections, new products, specialty items, services and recipes. The Company will use aggressive marketing programs to continuously cement its image as the local store providing a broad spectrum of national brands, private labels, local and non-food items at fair and competitive prices.

The Company will primarily rely on print circulars as its advertising strategy. The Company will place advertisements in local newspapers and run radio and television commercials through local and affiliated station. It will also be an active participant in local events and community non-profit activities.

The Company will also consider the development of a frequent shopper program, which could provide discounts and rebates to its customers based on the volume of their purchases. According to the Food Marketing Institute, 51% of all grocery stores have frequent shopper programs.

Procurement

Once it has commenced operations, the Company anticipates that it will buy most of its products including nationally branded and private label grocery products, perishable food products, non-food items and specialty grocery products through one or more regional or national food distributors that may include such companies as Nash-Finch and SUPERVALU. The Company may also purchase certain specialty products from vendors other than its primary distributors if those products are not available from its primary distributors. Distribution prices are generally based on market prices plus fee and freight basis, with the fee based on the type of commodity and quantity purchased. Freight costs are subject to the addition of fuel surcharges during periods of rising fuel costs. Food distributors generally offer rebates and discounts to their customers that are based on the yearly volume of product that is purchased from the distributor.

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Some distributors offer enhanced services such as promotional, advertising and merchandising programs, installation of computerized ordering, receiving and scanning systems; retail equipment procurement assistance, providing contacts for accounting, budgeting and payroll services, consumer and market research, financial assistance primarily in connection with new store development or the upgrading and expansion of existing stores, securing existing grocery stores for sale or lease for possible sale or sublease to grocery store customers and internet services providing supply chain efficiencies. The Company intends to centralize its purchasing operations and retain just one primary distributor, which will allow it to use its enhanced purchasing power to maximize the discounts and rebates that are available to the Company.

Seasonality

The grocery business is somewhat seasonal with sales tending to increase during the last quarter of the year due to the holiday season and related specialty merchandise.

Information Technology

Once it commences operations, the Company will install a centralized operations and accounting software package to manage its individual stores. Such software systems are often provided at no charge to grocery stores by their distributors. The Company will be required to purchase the computer equipment and point-of-sale terminals on which the software will run. Distributors will supply to the Company periodic software updates for the software systems provided.

Intellectual Property

The Company plans to rely on a combination of trademark, service mark, copyright and trade secret laws, as well as confidentially agreements and contractual provisions, to protect its proprietary technology and brands, as appropriate.

Item 1A. Risk Factors

Not applicable.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s business offices are located at 216 South Jefferson Street, Suite LL1, Chicago, Illinois 60661. On October 1, 2010, the Company entered into a lease for $5,000 per month with Bella Group Investments, an entity affiliated by common ownership with certain of the Company’s shareholders. The lease was not extended when it expired on August 31, 2011. The office space is currently being provided to the Company rent free by Bella Investment Group, an entity affiliated with our CEO. We expect to enter into a lease for office space as needed as the Company develops from a startup business into an operating entity.

Item 3. Legal Proceedings

We are not currently involved in any pending litigation or other legal proceedings, and, to our knowledge, no litigation or other proceedings are threatened.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

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

Our common shares are issued in registered form. Island Stock Transfer, 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760, is our stock transfer agent. They can be contacted by telephone at 727-289-0010 and by facsimile at 727-483-5436.

Market Information

On October 30, 2014, our shares were listed for trading on the OTC Electronic Bulletin Board (OTCBB). The symbol is “KYLK.” There has been no active trading of our securities, and, therefore, no high and low bid pricing.

The Company became a reporting company on February 14, 2014, when the U.S. Securities and Exchange Commission (the “Commission”) declared effective our Registration Statement (the “Registration Statement”) on Form S-1/A registering 590,000 shares of our common stock. One selling stockholder sold 20,000 shares under the Registration Statement. On September 2, 2015, we filed a Post-Effective Amendment (“Amendment”) to the Registration Statement registering 570,000 shares of common stock for sale by selling stockholders under the Securities Act, which Amendment was declared effective on October 23, 2015.

As of the date of this report, we have 14,702,250 shares of common stock, 14,112,250 of which are owned by our controlling shareholders and may only be resold in compliance with Rule 144 of the Securities Act of 1933.

Our stock is listed on the OTCBB. The OTCBB is a regulated quotation service that displays real-time quotes, last sale prices and volume information in over-the-counter (OTC) securities. The OTCBB is not an issuer listing service, market or exchange. Although the OTCBB does not have any listing requirements, as such, to be eligible for quotation on the OTCBB, issuers must remain current in their filings with the SEC or applicable regulatory authority. Market Makers are not permitted to begin quotation of a security whose issuer does not meet this filing requirement. Securities already quoted on the OTCBB that become delinquent in their required filings will be removed following a 30 or 60 day grace period if they do not make their required filing during that time.

Holders

As at the date of this report, we have 40 shareholders. Each shareholder of our common stock is entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation.

Although there are no provisions in our charter or by-laws that may delay, defer or prevent a change in control, we are authorized, without shareholder approval, to issue shares of preferred stock that may contain rights or restrictions that could have this effect.

Dividends

We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the expansion of our business, and we do not anticipate paying any cash dividends on its common stock.

Securities authorized for issuance under equity compensation plans

We have 5,000,000 shares reserved for issuance pursuant to our incentive compensation plan, under which no awards have been made.

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Purchases of equity securities by the Issuer and affiliated purchasers

There were no shares of common stock or other securities issued to the issuer or affiliated purchasers during the year ended December 31, 2015.

Penny Stock

The Company's common stock is considered a "penny stock" as defined in the Commission's rules promulgated under the Exchange Act (the “Rules”). The Commission's rules regarding penny stocks impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally persons with net worth in excess of $1,000,000, exclusive of their residence, or an annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by the rules, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Thus the Rules affect the ability of broker-dealers to sell the Company's shares should they wish to do so because of the adverse effect that the Rules have upon liquidity of penny stocks. Unless the transaction is exempt under the Rules, under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, broker-dealers effecting customer transactions in penny stocks are required to provide their customers with (i) a risk disclosure document; (ii) disclosure of current bid and ask quotations if any; (iii) disclosure of the compensation of the broker-dealer and its sales personnel in the transaction; and (iv) monthly account statements showing the market value of each penny stock held in the customer's account. As a result of the penny stock rules, the market liquidity for the Company's securities may be severely adversely affected by limiting the ability of broker-dealers to sell the Company's securities and the ability of purchasers of the securities to resell them.

Section Rule 15(g) of the Securities Exchange Act of 1934

The Company's shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser's written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.

Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as "bid" and "offer" quotes, a dealers "spread" and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers rights and remedies in causes of fraud in penny stock transactions; and, FINRA's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.

Item 6. Selected Financial Data

Not applicable.

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

The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Report. The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily occur.  This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this Report, our actual results may differ materially from those anticipated in these forward-looking statements.

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Overview

The Company intends to acquire small and medium sized grocery stores that are the dominant presence in their non-urban markets. By acquiring stores that are situated in less competitive locales that are not directly served by large national supermarket chains, wholesale clubs and supercenters, the Company believes that it can achieve financial returns that meet or exceed industry norms because stores in less competitive locales will be under less pressure to heavily discount their prices. The acquisitions will be clustered regionally, which will allow the Company to centralize certain operational functions, including purchasing and marketing. The centralization of these functions should provide the consolidated stores with the critical mass and leverage to demand enhanced service and financial concessions from its distributors and marketing vendors.

We have not yet acquired any grocery stores under our business plan and have not begun operations.

Overall Outlook

Our main business emphasis will be on revenues from sales generated in our stores. Due to a number of factors affecting consumers, including among others the increasing Federal deficit, volatility in the stock market, the European debt crisis and high unemployment levels, all of which have resulted in reduced levels of consumer spending, the outlook for the supermarket industry remains highly unpredictable. Because of these uncertain conditions, we will need to focus on managing our operating margins. Our present objective is to manage our cost and expense structure to address the expected depressed business volumes and generate strong and stable cash flow. We will continually work to position our Company for greater success by strengthening our existing operations and growing through capital investment and other strategic initiatives.

Selected Financial Data

The Company was organized on May 13, 2010. Our total current assets as of December 31, 2015 and 2014 were $0 and $15, respectively, our current liabilities were $93,877 and $46,168, respectively, and our total liabilities were $165,080 and $108,287, respectively. Our total stockholders’ deficit was $165,080 and $108,272, respectively as of December 31, 2015 and 2014. As of December 31, 2015, the Company held cash and cash equivalents in the amount of $0. From inception through December 31, 2015, we accumulated a loss of $225,491.  

Plan of Operation

We have not yet started operations or generated or realized any revenues from our business operations. The Company does not own any grocery stores and has no current plans, proposals or arrangements, written or otherwise, to acquire any grocery stores. The Company has not identified any potential acquisition targets.

Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an ongoing business for the next twelve months unless we obtain additional capital to pay our bills. This is because as of December 31, 2015 we have an accumulated deficit of $225,491, we have not generated any revenues and no revenues are anticipated until we begin operating retail grocery establishments. Accordingly, we must raise cash from sources other than our operations. Our only other sources for cash at this time are commercial financings and additional sales of stock. Our success or failure will be determined by what additional financing we obtain and the success of our planned retail grocery establishments.

We have no employees at this time. We intend to hire employees and engage independent contractors as justified by the demands of the business and depending on the availability of funding.

Limited Operating History; Need for Additional Capital

After we acquire grocery stores, we intend to fund operations with revenue generated from operations. However, we have not yet commenced operations, and commencement of operations is subject to the availability of sufficient capital. Until we generate revenues, we expect to finance operating costs over the next twelve months with existing cash on hand, commercial financing, private loans and/or the proceeds from a public and/or private securities offering. The extent of our operations will be governed by the amount of capital we are able to raise.

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The Company has no cash and currently carries total liabilities of $165,080. In order to sustain viability until commencement of operations, the Company has relied principally upon loans from our President. As of the date of the filing of this Report, such loans are in the aggregate amount of $36,662.

Liquidity and Capital Resources

Since inception, we have raised $59,000 through the sale of our common stock and have incurred expenses of $225,491. Our projected financial requirements for the next 12 months are $163,500.

Our initial financial requirements will be funded by a public or private offering of securities, commercial financing, loan from officers or directors or a combination of these means. We have not yet made plans to conduct a securities offering, obtain commercial financing or a private loan. The Company does not have any commitments or arrangements to obtain any such funds and there can be no assurance that required financing will be available to the Company on acceptable terms, if at all. The unavailability of additional financing could prevent or delay the implementation of the Company’s business plan and may require the Company to curtail or terminate its operations. If sufficient financing is unavailable, the Company will defer non-essential operating expenses until sufficient funds become available. We will not begin to implement our business plan until we have secured the funds necessary to commence operations. The Company is in its development stage and has not begun operations.  As such, the Company has no historical periods with which to compare anticipated capital requirements in the future.

Results of Operations

Revenue

We have not earned any revenues for the years ended December 31, 2015 and 2014. We can provide no assurance that we will commence operations or that such operations, if commenced, will be successful.

Operating Expenses

Operating Loss

Our operating loss increased by $19,761, or 53.3%, from $37,047 for the year ended December 31, 2014 to $56,808 for the year ended December 31, 2015. The increase in operating losses for the year ended December 31, 2015 is primarily related to the increase in accounting, professional and Edgar conversion fees related to the filing of the Company’s post-effective amendment to its registration statement, the Form 10-Qs and Form 10-K filed during the first nine months of 2015 and the filing of applications for a stock symbol and DTC eligibility.

Net Loss

Our net loss increased by $19,761, or 53.3%, from $37,047 for the year ended December 31, 2014 to $56,808 for the year ended December 31, 2015. The increase in the net loss for the year ended December 31, 2014 is primarily related to the increase in accounting, professional and Edgar conversion fees related to the filing of the Company’s post-effective amendment to its registration statement, the Form 10-Qs and Form 10-K filed during the first nine months of 2015 and the filing of applications for a stock symbol and DTC eligibility.

Important Assumptions

Start-up companies involve a high degree of risk and many companies never commence operations or achieve their business plans.  At this stage without having commenced operations, we are unable to determine whether we will be able to sufficiently convert our business plan into a successful business operation. The implementation of our business plan will be possible only upon obtaining sufficient funding.

16

Off-Balance Sheet Arrangements

We do not have any 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 is material to investors.

Changes In and Disagreements with Accountants

None.

Critical Accounting Policies

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In accordance with GAAP, we are required to make estimates and assumptions that affect the reported amounts included in our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. On an ongoing basis, management reviews and refines those estimates, the following of which materially impact our financial statements: the recoverability of long-lived assets; preservation of assets held for development; valuation of indefinite-lived intangible assets and goodwill; determination of self-insured reserves; and provisions for deferred tax assets, certain tax liabilities and uncertain tax positions.

Judgments are based on information including, but not limited to, historical experience, industry trends, conventional practices, expert opinions, terms of existing agreements and information from outside sources. Judgments are subject to an inherent degree of uncertainty, and therefore actual results could differ from these estimates.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 8. Financial Statements and Supplementary Data

Key Link Assets Corp.

Financial Statements

December 31, 2015 and 2014

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LBB & ASSOCIATES LTD., LLP

10260 Westheimer Road, Suite 310

Houston, TX 77042

Phone: (713) 800-4343 Fax: (713) 456-2408

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders’ of Key Link Assets Corp.

We have audited the accompanying balance sheets of Key Link Assets Corp., as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2015 and 2014. Key Link Assets Corp’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Key Link Asset Corp., as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2015 and 2014, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 4 to the financial statements, the Company's absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2016 raise substantial doubt about its ability to continue as a going concern. The 2015 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ LBB & ASSOCIATES LTD., LLP

LBB & Associates Ltd., LLP

Houston, Texas

March 16, 2016

F-1

KEY LINK ASSETS CORP.

BALANCE SHEETS

The accompanying notes are an integral part of the financial statements.

F-2

KEY LINK ASSETS CORP.

STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of the financial statements.

F-3

KEY LINK ASSETS CORP.

STATEMENTS OF STOCKHOLDERS’ DEFICIT

The accompanying notes are an integral part of the financial statements.

F-4

KEY LINK ASSETS CORP.

STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of the financial statements.

F-5

KEY LINK ASSETS CORP.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS

Key Link Assets Corp. (the "Company") was incorporated in the State of Delaware on May 13, 2010 for the purpose of acquiring a portfolio of heavily discounted real estate properties in the Chicago metropolitan area. The Company has changed its focus and now plans to acquire small and medium sized grocery stores in non-urban locales that are not directly served by large national supermarket chains.

As of the date of this report, the Company has not yet commenced operations. The Company's primary activities since incorporation have been organizational in nature and related to the Company’s formation and the filing of a registration statement. The Company has not generated any revenues from these activities.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles.

Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 915-205 “Development-Stage Entities” and among the additional disclosures required as a development stage company are that the financial statements were identified as those of a development stage company, and that the statement of operations, stockholders’ deficit and cash flows disclosed activity since the date of our Inception (May 13, 2010) as a development stage company.  Effective June 10, 2014, FASB changed its regulations with respect to Development Stage Entities and these additional disclosures are no longer required for annual reporting periods beginning after December 15, 2014.

Fiscal year

The Company has selected December 31 as its fiscal year-end.

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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include cash in banks, money market funds and certificates of term deposits with original maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.

Start-up Costs

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 720, “Reporting on the Costs of Start-up Activities,” the Company has expensed all costs incurred in connection with the start-up and organization of the Company.

F-6

Fair value of financial instruments and derivative financial instruments

The Company has adopted ASC 815, “Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments.”  The carrying amount of accrued liabilities approximates its fair value because of the short maturity of this item.  Certain fair value estimates may be subject to and involve, uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision.  Changes in assumptions could significantly affect these estimates.  The Company does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments in the management of its foreign exchange, commodity price or interest rate market risks.

Federal income taxes

Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with ASC 740, “Income Taxes,” which requires the use of the asset/liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that includes the enactment date. When it is not considered to be more likely than not that a deferred tax asset will be realized, a valuation allowance is provided for the excess. Although the Company has loss carry-forwards available to reduce future income for tax purposes, no amount has been reflected on the balance sheet for deferred income taxes as any deferred tax asset has been fully offset by a valuation allowance.

Advertising Costs

The Company’s policy regarding advertising is to expense advertising when incurred.  The Company incurred no advertising expense for the years ended December 31, 2015 and 2014.

Earnings (loss) per share

The Company has adopted ASC 260, “Earnings Per Share” (“EPS”) which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.  In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.  There are no dilutive shares outstanding.

New accounting pronouncements

The Company has evaluated the most recent accounting standards through the date of these financial statements and in management’s opinion none of these pronouncements will have a material impact on the Company’s financial statements.

NOTE 3 - CAPITAL STOCK

Authorized Stock

The Company has authorized 100,000,000 common shares with a par value of $0.0001 per share and 25,000,000 preferred shares with a par value of $0.0001 per preferred share.  Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholder of the corporation is sought. The rights, preferences and restrictions of the preferred shares will be defined by the Company’s Board of Directors when and if the preferred shares are issued.

F-7

NOTE 4 - GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of December 31, 2015, the Company had an accumulated deficit of $225,491, negative working capital of $93,877 and has earned no revenues since inception. The Company intends to fund its operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements.

These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 5 - INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The cumulative tax effect at the expected rate of 34% of significant items comprising the net deferred tax amount is at December 31, 2015 and 2014 as follows

As of December 31, 2015, for U.S. federal income tax reporting purposes, the Company has approximately $225,000 of unused net operating losses (“NOLs”) available for carry forward to future years. The benefit from the carry forward of such NOLs will begin expiring during the year ended December 31, 2030. Because United States tax laws limit the time during which NOL carry forwards may be applied against future taxable income, the Company may be unable to take full advantage of its NOLs for federal income tax purposes should the Company generate taxable income. Further, the benefit from utilization of NOL carry forwards could be subject to limitations due to material ownership changes that could occur in the Company as it continues to raise additional capital. Based on such limitations, the Company has significant NOLs for which realization of tax benefits is uncertain and the Company has recorded valuation allowance of approximately $77,000 and $57,400 as of December 31, 2015 and 2014, respectively.

The Internal Revenue Service has not examined the Company’s Federal income tax returns. However, the Company’s federal income returns are subject to examination by the IRS, generally for three years after they were filed. Additional years can be added if a substantial error is identified.  Generally, if a substantial error is identified, the IRS will not go back more than the last six years.

The difference between the statutory tax rate (34%) and the effective tax rate (0%) of the Company relates to the change in the valuation allowance for each respective period.

NOTE 6 - RELATED PARTY TRANSACTIONS

During the years ending December 31, 2015 and 2014, Mr. Clark loaned the Company $9,084 and $15,620, respectively. The notes payable for these loans, which are due on June 30, 2017, are non-interest bearing and have no collateral. The outstanding balance as of December 31, 2015 and 2014 was $36,662 and $27,578, respectively.

F-8

NOTE 7 - NOTE PAYABLE

On September 29, 2013, a creditor of the Company converted accounts payable in the amount of $34,541 into a note payable. The note payable, which is due on June 30, 2017, is non-interest bearing and has no collateral. The outstanding balance as of December 31, 2015 and 2014 was $34,541 and $34,541, respectively.

NOTE 8 - SUBSEQUENT EVENT

During the first quarter of 2016 through February 22, 2016, Mr. Clark loaned the Company $2,950. The loan is due on June 30, 2017, is non-interest bearing and has no collateral.

F-9

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

None.

Item 9A. Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company's management conducted an evaluation of the effectiveness, as of December 31, 2015, of the Company's disclosure controls and procedures, based on the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2015.

The Company and its advisors are considering the implementation of a formal Disclosure Controls and Procedures policy and hopes to have such a policy in place by the end of the third quarter 2016 and to continue to take additional steps necessary to ensure all controls and procedures are in place for full compliance with a goal to have all of our remediation measures in place by the end of the fourth quarter 2016. Management is in the process of implementing a remediation plan of the above-mentioned weaknesses in our internal control over financial reporting which includes but is not limited to the following steps:

·

Establish and implement a detailed timeline for review and completion of financial reports to be included in our Forms 10-Q and 10-K;

·

Employ the use of appropriate  SEC and U.S. GAAP checklists in connection with our closing process and the preparation of our Forms 10-Q and 10-K.

The implementation of these remediation plans is expected to be initiated and continued through 2016. The material weaknesses will not be considered remediated until the applicable remedial procedures are tested and management has concluded that the procedures are operating effectively. Management recognizes that use of our financial resources will be required not only for implementation of these measures but also for testing their effectiveness and may seek the assistance of an outside service provider to assist in this process.

If we are not able to implement controls to avoid the occurrence of material weaknesses in our internal control over financial reporting in the future, then we might report results that are not consistent with our actual results and we may need to restate results that will have been previously reported.

Item 9B. Other Information

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The name, age and positions of our sole executive officer and director as of the date hereof are as follows:

The principal occupations for the past five years (and, in some instances, for prior years) of our sole executive officer and director are as follows:

Shawn P. Clark - President and Chief Executive Officer and Director

Shawn P. Clark has served as a Director and officer of the Company since its formation on May 13, 2010. Mr. Clark has over 13 years of experience in the Chicago real estate market as a realtor, property manager and developer of multi-unit residential and commercial properties. From 2004 until 2011, he served as President of Bella Development Group, Inc., a real estate development company that successfully developed nine multi-unit residential and commercial properties in the Chicago metropolitan area. The projects, comprised of over three hundred thousand square feet of residential and commercial space, generated over $100 million in revenue. Bella Development Group was founded in 2004.

From 2006 until 2011, Mr. Clark was the President of Bella Management Group, Co. (“BMG”), a property management company that he founded in 2006 in response to the qualitative deficiencies of the property management companies that were then servicing BMG properties.

In 1999, Mr. Clark founded Gold Coast Realty - Chicago, where he served as Vice President. In 2007 he sold the company so that he could concentrate his efforts full time on managing and growing Bella Development Group.

Since 2011, Mr. Clark has been self-employed as an independent commercial real estate development and management consultant.

The number of directors which constitutes the entire Board of Directors of the Company is three. There is currently one director of the Company, with two vacancies on the Board. Directors hold office until the next annual meeting of stockholders and the election and qualification of their successors.  Officers are elected annually by the Board of Directors and serve at the discretion of the Board.

To the best of our knowledge, Shawn Clark, our sole director and executive officer has not, during the past ten years, been involved in any of the items below that the Company deems material to their service on behalf of the Company:

1.

Any bankruptcy petition filed by or against any business of which any such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.

2.

Any conviction in a criminal proceeding or being subject to a pending criminal proceeding.

3.

An order, judgment, or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting such person’s involvement in any type of business, securities or banking activities.

4.

Found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Future Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

Board Committees

We do not have an audit committee, compensation committee or nominations and governance committee. During 2016, our board of directors expects to create such committees, in compliance with established corporate governance requirements.

19

Audit Committee. We plan to establish an audit committee of the board of directors. The audit committee’s duties would be to recommend to the board of directors the engagement of independent auditors to audit our financial statements and to review our accounting and auditing principles. The audit committee would review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee would at all times be composed exclusively of directors who are, in the opinion of the board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

Compensation Committee. We plan to establish a compensation committee of the board of directors. The compensation committee would review and approve our salary and benefits policies, including compensation of executive officers. The compensation committee would also administer our proposed Incentive Compensation Plan, and recommend and approve grants of stock options and restricted stock under that plan.

Nominations and Governance Committee. We plan to establish a nominations and governance committee of the board of directors. The purpose of the nominations and governance committee would be to select, or recommend for our entire board’s selection, the individuals to stand for election as directors at the annual meeting of stockholders and to oversee the selection and composition of committees of our board. The nominations and governance committee’s duties would also include considering the adequacy of our corporate governance and overseeing and approving management continuity planning processes.

Director Compensation

Directors are expected to timely and fully participate in all regular and special board meetings, and all meetings of committees on which they serve. Currently, our directors serve without compensation. Upon commencement of operations and after generation of revenue, we expect to compensate non-management directors through cash compensation and stock option or restricted stock grants under our 2010 Incentive Compensation Plan. We plan to pay non-management directors $5,000 per year in cash and to provide restrictive stock grants to such directors of 25,000 shares per year which would vest one year from issuance. Our management directors do not receive any additional cash compensation for service on the Board.

Indebtedness of Directors and Executive Officers

None of our executive officers or present or proposed directors, or their respective associates or affiliates, is indebted to us.

As of the date hereof, the Company owes a balance of $36,662 to Shawn Clark, the CEO of the Company, under notes payable by the Company to Mr. Clark which are due on June 30, 2017, and are non-interest bearing and have no collateral.

Key Link Assets Corp. 2010 Incentive Compensation Plan

On May 13, 2010, our board of directors and holders of a majority of our outstanding shares of common stock adopted and approved the Key Link Assets Corp. 2010 Incentive Compensation Plan (“Incentive Compensation Plan”). The purpose of our Incentive Compensation Plan is to provide stock options, stock issuances and other equity interests to employees, officers, directors, consultants, independent contractors, advisors and other persons who have made or are expected to make contributions to our company.  

20

Administration.  Our Incentive Compensation Plan is to be administered by our Compensation Committee, provided, however, that except as otherwise expressly provided in the plan, the committee may delegate some or all of its power or authority to our President, Chief Executive Officer or other executive officer. Subject to the terms of our plan, the committee is authorized to construe and determine the stock option agreements, other agreements, awards and the plan, prescribe, amend and rescind rules and regulations relating to the plan and awards, determine acceleration of vesting schedules or award payments and forfeitures, determine terms and provisions of stock options agreements (which need not be identical), grant awards for performance goals and option awards and stock appreciation rights based upon a vesting schedule  and correct defects, supply omissions or reconcile inconsistencies in the plan or any award thereunder, and make all other determinations as the committee may deem necessary or desirable for the administration and interpretation of our plan.

Eligibility.  The persons eligible to receive awards under our Incentive Compensation Plan are the employees, officers, directors, consultants, independent contractors and advisors of our company or any parent or subsidiary of our company and other persons who have made or are expected to make contributions to our company.  

Types of Awards.  Our Incentive Compensation Plan provides for the issuance of stock options, incentive stock options, restricted compensation shares, restricted compensation share units, stock appreciation rights (or SARs), performance shares, award shares and  other stock-based awards. Performance share awards entitle recipients to acquire shares of common stock upon the attainment of specified performance goals within a specified performance period, as determined by the committee.

Shares Available for Awards; Annual Per-Person Limitations.  Subject to certain recapitalization events described in our plan, the aggregate number of shares of common stock that may be issued pursuant to our Incentive Compensation Plan at any time during the term of the plan is 5,000,000 shares. If any award expires, or is terminated, surrendered or forfeited, the common stock covered by such award will again be available for the grant of awards under our plan. No participant may be granted awards during a fiscal year to purchase more than 1,000,000 shares of common stock subject to recapitalization events.

Stock Options and Stock Appreciation Rights.  The committee is authorized to grant stock options, including both incentive stock options (or ISOs), and non-qualified stock options, restricted compensation shares, restricted compensation share units, stock appreciation rights, performance shares and award shares. The terms and conditions of awards under the plan including number of shares covered, exercise price per share and term are determined by the committee, but in the case of an ISO, the exercise price must not be less than the fair market value of a share of common stock on the date of grant. For purposes of our Incentive Compensation Plan, if at the time of a grant, our company’s common stock is publicly traded, the term “fair market value” means (i) if listed on an established stock exchange or national market system, the last reported sales price or the closing bid if no sales were reported on such exchange or system, or (ii) the average of the closing bid and asked prices last quoted by an established quotation service for over-the-counter securities if the common stock is not reported on a national market system. In the absence of an established market for our common stock, the fair market value shall be determined in good faith by the committee. The number of shares covered by each option or stock appreciation right, the times at which each option or stock appreciation right will be exercisable, and provisions requiring forfeiture of unexercised options or stock appreciation rights at or following termination of employment generally are fixed by the committee, except that no option or stock appreciation right may have a term exceeding ten years. The committee also determines the terms and conditions of restricted compensation shares, restricted compensation share units, performance shares, award shares and other stock-based awards under our plan.

Restricted Compensation Shares and Restricted Compensation Share Units.  The committee is authorized to grant restricted compensation shares and restricted compensation shares units. An award of restricted compensation shares is a grant which entitles recipients to acquire shares of common stock subject to restrictions on transfer and which may be forfeited if all specified employment, vesting and/or performance conditions as determined by the committee are not met.  An award of restricted compensation share units confers upon a recipient the right to acquire, at some time in the future, restricted compensation shares, subject to forfeiture if all specified award conditions as determined by the committee are not met

21

Performance Shares and Award Shares.  The committee is authorized to grant awards entitling recipients to acquire shares of common stock upon the attainment of specified performance goals and grant awards entitling recipients to acquire shares of common stock subject to such terms, restrictions, conditions, performance criteria, vesting requirements and payment needs as determined by the committee, subject to such other terms as the committee may specify.

Other Stock-Based Awards.  The committee is authorized to grant other awards based upon the common stock having such terms and conditions as the committee may determine including, without limitation, the grant of securities convertible into common stock and the grant of phantom stock awards or stock units.

Performance Goals and Other Criteria.  The committee shall establish objective performance goals for participants or groups of participants for performance-based awards under the plan excluding options and stock appreciation rights.  With respect to participants who are “covered employees” (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended), an award other than an option or a stock appreciation right may be based only on performance factors that are compliant with applicable regulations.

Other Terms of Awards.   Options may be exercised by written notice of exercise to us by way of cashless exercise, settlement of which shall be made solely in cash. Unless otherwise determined by the committee, awards may not be transferred except by will or the laws of descent and distribution and, during the life of the participant, may be exercisable only by the participant. However, except as the committee may otherwise determine, nonstatutory options and restricted compensation shares may be transferred pursuant to a qualified domestic relations order (as defined by ERISA) or pursuant to certain estate-planning vehicles. To the extent not inconsistent with the plan or applicable law, the committee may include additional provisions in awards such as, among other things, restrictions on transfer, commitments to pay cash bonuses and guaranty loans. The committee shall determine the effect on awards of disability, death, retirement, leave of absence or other change in participant status. We have the right to deduct applicable taxes from payments to award recipients. Participants have no right to continued employment or other relationship with us, and subject to award provisions, participants have no rights as shareholders of our company until becoming record shareholders.

Acceleration or Extension of Vesting; Change in Control. The committee may, in its discretion, accelerate the dates on which all or any particular option or award under the plan may be exercised and may extend the dates during which all or any particular option or award under the plan may be exercised or vest. In the case of a “change in control” of our company, as defined in our Incentive Compensation Plan, we will take one or a combination of  the following actions: (a) make appropriate provision for the continuation or assumption of the awards; (b) acceleration of exercise or vesting of the awards; (c) exchange of the awards for the right to participate in a benefit plan of a successor; (d) repurchase of awards; or (e) termination of awards immediately prior to a change in control.

Amendment and Termination. The board of directors may amend, suspend or terminate our Incentive Compensation Plan provided, however, that no amendment may be made without stockholder approval if such approval is  necessary to comply with any applicable law, rules or regulations. Our plan became effective upon the date it was adopted by the committee and approved by our stockholders, and no awards may be granted under the plan after the completion of ten years thereafter. Awards previously granted may extend beyond that date.

We have made no awards under the Incentive Compensation Plan.

Section 16(a) Beneficial Ownership Reporting Compliance

We have no securities registered under Section 12 of the Exchange Act and, accordingly, our directors, officers and affiliates are not required to file reports under Section 16(a) of the Exchange Act.

22

Item 11. Executive Compensation

The following table sets forth information concerning the annual and long-term compensation earned during the two most recent fiscal years by the Company’s principal executive officer, each of our two most highly compensated executive officers who were serving as executive officers as of the date of this Report.

On May 13, 2010, the Company issued 4,233,675 shares of Company common stock to Mr. Clark for services rendered in connection with the organization of the Company (a portion of which were subsequently transferred in a private transaction as described below in Item 13). Other than the issuance of said shares, we have not compensated and have no arrangements to compensate our officers and directors for their services to us as officers and directors. There are no employment agreements or consulting agreements with our current director and executive officer except as provided herein. There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We do not have any bonus or profit sharing plans pursuant to which cash or non-cash compensation has been paid to our directors or executive officers. We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.

Outstanding Equity Awards at Fiscal Year-End

Compensation of Directors

Directors are expected to timely and fully participate in all regular and special board meetings, and all meetings of committees on which they serve. Currently our sole director serves without compensation. Upon commencement of operations and after generation of revenue, we expect to compensate non-management directors through cash compensation and stock option or restricted stock grants under our 2010 Incentive Compensation Plan. We plan to pay non-management directors $5,000 per year in cash and to provide restrictive stock grants to such directors of 25,000 shares per year which would vest one year from issuance. Our management directors do not receive any additional cash compensation for service on the Board.

We do not have any non-management directors.

23

Director Compensation

Employment Agreements

 At present, we have no employees and no employment agreements. We are not a party to any collective bargaining agreements. Our officers and directors currently provide services on a consultant basis. As the Company progresses beyond startup to an operational stage, we intend to hire employees and engage independent contractors on as as-needed basis.

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

Equity Compensation Plan Information

On May 13, 2010, we adopted the 2010 Incentive Compensation Plan. The following table provides information as of December 31, 2015, with respect to the shares of common stock that may be issued under our existing equity compensation plan.

Equity Compensation Plan Information

The material provisions of the 2010 Incentive Compensation Plan approved by security holders are described herein. A copy of the 2010 Incentive Compensation Plan and a copy of the form of option agreement thereunder are included as Exhibits 10.1 and 10.2, respectively, to this Report.

The following table sets forth information regarding the number of shares of our common stock beneficially owned on March 16, 2016 by:

•

each person who is known by us to beneficially own 5% or more of our common stock,

•

each of our directors and executive officers, and

•

all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.  Shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days after the date indicated in the table are deemed beneficially owned by the optionees. Subject to any applicable community property laws, the persons or entities named in the table above have sole voting and investment power with respect to all shares indicated as beneficially owned by them.

24

(1)

The percentage of class is based on 14,702,250 shares of common stock issued and outstanding as of the date of this Report.

(2)

Consists of (a) 3,528,062 held by Ms. Womack and (b) 3,528,063 held by Shawn P. Clark, Ms. Womack’s husband.

(3)

The address of the sole executive officer and director is 216 S. Jefferson, Suite LL1, Chicago, IL 60661

(4)

Consists of (a) 3,528,063 held by Mr. Clark and (b) 3,528,062 held by Dena M. Womack, Mr. Clark’s wife.

The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.

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

Transactions with Related Persons

Since inception, the following transactions were entered into with our directors and officers.

On May 13, 2010, an aggregate of 14,112,250 shares of the Company’s common stock were issued to three founders (Shawn P. Clark, Tysen J. Kamin and Dena Womack) in connection with the organization of the Company. The founding shareholders acquired their shares with the intent to hold the shares for investment purposes and not with a view to further resale or distribution, except as permitted under exemptions from registration requirements under applicable securities laws.

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On November 29, 2010 Shawn P. Clark sold 705,612 shares of his common stock to Glenn Petersen, Dena Womack sold 705,613 shares of her common stock to Glenn Petersen and Tysen J. Kamin sold 352,806 of his shares to Glenn Petersen and 1,764,031 of his shares to Christopher J. Dunkel, each in private transactions.

The certificates issued to our founding shareholders and their transferees contain a restrictive legend with respect to the issuance of securities pursuant to exemptions from registration requirements and the restrictions upon transfer of the securities under the Securities Act.

On October 1, 2012 the Company entered into a lease for $5,000 per month with Bella Group Investments, an entity affiliated by common ownership with certain of the Company’s shareholders. The lease expired on August 31, 2011 and was not renewed. The office space is currently being provided to the Company rent free by Bella Group Investments. Bella Group Investments is owned in part by Shawn Clark, CEO of the Company,

As of the date hereof, the Company owes a balance of $36,662 to Shawn Clark, the CEO of the Company, under notes payable by the Company to Mr. Clark which are due on June 30, 2017, and are non-interest bearing and have no collateral.

Director Independence

Our sole director is not an “independent director” as defined under NASDAQ rules and by the regulations of the SEC.

Item 14. Principal Accounting Fees and Services

For the year ended December 31, 2015, the total fees charged to the Company for audit services were approximately $4,000. These audit fees were incurred for the audit of the Company’s annual financial statements. The Company incurred approximately $10,550for tax or other various financial statement consulting services for the year ended December 31, 2015.

For the year ended December 31, 2014, the total fees charged to the Company for audit services were approximately $4,000. These audit fees were incurred for the audit of the Company’s annual financial statements. The Company incurred approximately $6,400 for tax or other various financial statement consulting services for the year ended December 31, 2014.

The current policy of the board of directors is to approve the appointment of the principal auditing firm and any permissible audit-related services. The audit and audit-related fees were approved by board action in 2015.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

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* Pursuant to Rule 406T of Regulation S-T, the interactive files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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