UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2011
Commission File Number 000-29507
CHANTICLEER HOLDINGS, INC.
(Exact name of registrant as specified in the charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
20-2932652
(I.R.S. Employer
Identification Number)
11220 Elm Lane, Suite 203, Charlotte, NC 28277
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(704) 366-5122
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No.
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 x No.
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 past 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 x 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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerate filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No.
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter ($2.99 per share) (1,699,892 of 2,460,974 shares outstanding): $5,082,700 as of
June 30, 2011.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were
3,012,121 shares of common stock issued and 2,498,891 shares outstanding as of February 29, 2012.
DOCUMENTS INCORPORATED BY REFERENCE: No documents are incorporated by reference into this Report except those
Exhibits so incorporated as set forth in the Exhibit index.
Chanticleer Holdings, Inc.
Form 10-K Index
Business
Risk Factors
Properties
Legal Proceedings
[Removed and Reserved]
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Part I
Item 1:
Item 1A:
Item 2:
Item 3:
Item 4:
Part II
Item 5:
Item 6:
Item 7:
Item 7A:
Item 8:
Item 9:
Item 9A:
Item 9B:
Part III
Item 10:
Item 11:
Item 12:
Item 13:
Item 14:
Part IV
Item 15:
Exhibits and Financial Statement Schedules
Signatures
2
Page
3
6
6
6
6
7
8
8
15
16
45
45
45
46
48
49
50
52
54
55
FORWARD LOOKING STATEMENTS
PART I
This Annual Report contains forward-looking statements within the meaning of the federal securities laws that involve a number of risks
and uncertainties. Our future results may differ materially from our historical results and actual results could differ materially from those
projected in the forward-looking statements as a result of certain risk factors. Among the factors that could cause actual results to differ
materially from those expected are the following: business conditions and general economic conditions; competitive factors, such as pricing
and marketing efforts; and the pace and success of product research and development. These and other factors may cause expectations to
differ.
Effective March 23, 2011, the Company's common stock was forward split, 2 shares for each share issued, pursuant to written consent by
a majority of the Company's shareholders. All share references have been adjusted as if the split occurred prior to all periods presented.
ITEM 1:
BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The consolidated financial statements include the accounts of Chanticleer Holdings, Inc. and its subsidiaries, Chanticleer Advisors, LLC,
(“Advisors”), Avenel Ventures, LLC ("Ventures"), Avenel Financial Services, LLC ("AFS"), Chanticleer Holdings Limited ("CHL"),
Chanticleer Holdings Australia Pty, Ltd. (“CHA”), Chanticleer Investment Partners, LLC (“CIP”), DineOut SA Ltd. ("DineOut"), Kiarabrite
(Pty) Ltd (“KPL”), Dimaflo (Pty) Ltd (“DFLO”), Tundraspex (Pty) Ltd (“TPL”), Civisign (Pty) Ltd (“CPL”), Dimalogix (Pty) Ltd
(“DLOG”) and Crown Restaurants Kft. (“CRK”) (collectively referred to as “the Company,” “we,” “us,” or “the Companies”).
Information regarding the Company's subsidiaries is as follows:
· Advisors was formed as a wholly owned Nevada Limited Liability Company on January 18, 2007 to manage related companies,
Chanticleer Investors, LLC ("Investors LLC"), Chanticleer Investors II, LLC ("Investors II") and other investments owned by the
Company (For additional information, see www.chanticleeradvisors.com.);
· Ventures was formed as a wholly owned Nevada Limited Liability Company on December 24, 2008 to provide business
management and consulting services to its clients;
· CHL was formed as a wholly owned Limited Liability Company in Jersey on March 24, 2009 to own the Company's initial 50%
interest in Hooters SA, GP, the general partner of the Hooters restaurant franchises in South Africa;
· CHA was formed on September 30, 2011 in Australia as a wholly owned subsidiary to invest in Hooters restaurants in Australia;
· CIP was formed as a wholly owned North Carolina limited liability company on September 20, 2011. CIP has not commenced
business at December 31, 2011. CIP was formed to manage separate and customized investment accounts for investors. The
Company plans to register CIP as a registered investment advisor with the state of North Carolina so that it can market openly to
the public;
· DineOut was formed as a Private Limited Liability Company in England and Wales on October 29, 2009 to raise capital in Europe
for Hooters South African stores (the Company owns approximately 89% of DineOut at December 31, 2011;
· KPL was formed on August 30, 2011 in South Africa to manage the Hooters restaurants in South Africa. The Company owns
80% and local management owns 20% at December 31, 2011;
· DFLO was formed on August 16, 2011 in South Africa, is owned 90% by the Company and 10% by local investors at December
31, 2011 and owns the Hooters restaurant in Durban, South Africa;
·
TPL was formed on August 18, 2011in South Africa, is owned 95% by the Company and 5% by local investors at December 31,
2011 and owns the Hooters restaurant in Johannesburg, South Africa;
3
· CPL was formed on August 29, 2011 in South Africa, is owned 100% by the Company at December 31, 2011 and owns the
Hooters restaurant in Cape town, South Africa;
· DLOG was formed on August 27, 2011 in South Africa, is owned 100% by the Company at December 31, 2011 and owns the
Hooters restaurant in the Emperor’s Palace in Johannesburg, South Africa;
· CRK was formed on October 12, 2011 in Hungary, is owned 80% by the Company and 20% by a local investor at December 31,
2011 and is intended to own restaurants in Hungary and Poland; and
· A F S was formed as a Nevada Limited Liability Company on February 19, 2009 to provide unique financial services to the
restaurant, real estate development, investment advisor/asset management and philanthropic organizations. AFS's business
operation was not activated and was discontinued in September 2011.
Information regarding the Company’s unconsolidated affiliates is as follows:
·
·
Investors LLC is a limited liability company formed in 2006 through which the Company raised $5,000,000 and began its
relationship with Hooters of America, Inc. (“HOA”). Initially structured as a loan transaction, the loan was repaid in early 2011
and $3,550,000 was invested in HOA Holdings, LLC (“HOA LLC”). HOA LLC completed the acquisition of HOA and Texas
Wings, Inc. (“TW”) in early 2011 and created an operating company with 161 company-owned locations across sixteen states, or
nearly half of all domestic Hooters restaurants and over one-third of the locations worldwide. Investors LLC owns approximately
3.1% of HOA LLC and the Company owns approximately 14% of Investors LLC.
Investors II is a fund with $2,650,660 in net assets at January 1, 2012, is managed by Advisors and receives performance fees.
· Chanticleer Dividend Fund, Inc. (“CDF”) was formed on November 10, 2010 in Maryland. CDF filed a registration statement in
January 2011 under Form N-2 with plans to register as a non-diversified, closed-end investment company. Advisors will have a
role in management of CDF when its registration statement becomes effective.
· Chanticleer Foundation, Inc. (“CF”) is a non-profit organization formed for charitable purposes. CF is controlled by its board,
which consists of Mr. Pruitt, a director of the Company and an employee of the Company.
We have changed our focus recently from managing investments to owning and operating Hooters franchises internationally. Hooters
restaurants are casual beach-themed establishments with sports on television, jukebox music, and the “nearly world famous” Hooters
Girls. The menu consists of spicy chicken wings, seafood, sandwiches and salads. Each locations menu can vary with the tastes of the
locality it is in. Hooters began in 1983 with its first restaurant in Clearwater, Florida. From the original restaurant and licensee Mr. Robert
Brooks, Hooters has become a global brand, with locations in 44 states domestically and over 450 Hooters restaurants worldwide. Besides
restaurants, Hooters has also branched out to other areas, including licensing its name to a golf tour and the sale of packaged food in
supermarkets.
We expect to either own 100% of the Hooters franchise or partner with a local franchisee in the countries we target. We based this
decision on what we believe to be the successful launch of our South African Hooters venture and believe we have aligned partners and
operators in various international markets. We are focused on expanding our Hooters operations, and expect to use substantially all the net
proceeds from the upcoming offering, in the following countries: South Africa, Brazil, Hungary, Australia and Europe.
Accordingly, we operate in two business segments, Hooters franchise restaurants and our continuing investment management and
consulting services businesses.
South Africa
We currently have four Hooters locations in South Africa in Cape Town, Durban and Johannesburg (two locations), which are owned by
four companies which we control. In order to obtain investor funds to pay for the initial costs involved in commencing operations for each of
the South Africa locations, we agreed to allocate a portion of the profits from each restaurant such that the investors in Cape Town, Durban,
and the first Johannesburg location receive 80%, 60%, and 40%, respectively, of the net profits after taxation (the “SA Profits”) until they
have received a return of their investment and a pre-tax annual compounded return on that investment of 20% (the “SA Return”). Once the
investors have received the SA Return, the investors are thereafter entitled to receive 20%, 15% and 10%, respectively, of the SA Profits.
4
We formed a management company to operate the current South African Hooters locations. We own 80% of the management company,
with two members of local management owning the remaining 20%. The management company currently charges a management fee of 5% of
net revenues to the Hooters locations in South Africa.
Other Countries
We are currently targeting the following countries for the opening of additional restaurants:
· Brazil - we have acquired development rights for Hooters in five states of Brazil, which would include Rio de Janeiro. We will partner
with the current local franchisee who owns the Hooters franchise rights in the state of Sao Paolo and we will own 60% of the entity
holding the development rights and our local partner would own the remaining 40%.
· Hungary - we have applied to HOA for franchise rights in Hungary, where we currently own 80% of the entity we anticipate will
hold the franchise rights and our local partner owns the remaining 20%. We anticipate that we will contract with our local partner, who
we believe is an experienced franchise restaurateur, to manage the day-to-day operations of the locations.
· Australia - we have partnered with the current Hooters franchisee in a joint venture in which we own 49% and our partner 51%. The
first Hooters restaurant under this joint venture (which would be the third Hooters restaurant currently open in Australia) opened in
January 2012 in Campbelltown, a suburb of Sydney. We are in discussions to purchase from the same franchisee a partial interest in
the first two existing Hooters locations in the Sydney area. We plan on opening our second jointly-owned Australian Hooters in the
second quarter of 2012.
· Europe – we have a non-binding letter of intent with a current franchisee to purchase 100% of an existing Hooters location.
Acquisition of Hooters Restaurants
Our trend toward focusing on Hooters arose when the Company and our partners completed the acquisition of HOA and TW in 2011.
Investors LLC and its three partners, H.I.G. Capital, KarpReilly, LLC and Kelly Hall, president of TW, the largest Hooters franchisee in the
United States, combined to form HOA LLC which created an operating company with 161 company-owned locations across sixteen states, or
nearly half of all domestic Hooters restaurants and over one-third of the locations worldwide. The Company now owns approximately 14% of
Investors LLC, and Investors LLC owns approximately 3% interest in HOA LLC. As of December 31, 2011, the Company has not received
any revenue from our equity interest in HOA LLC.
The Company received a payment of $400,000 at closing for its services and expense reimbursement in facilitating the acquisition of
HOA and TW. In addition, for a minimum of four years, the Company will receive annual payments of $100,000 due in January each year
while Mr. Pruitt serves on its board.
Management and consulting services
The Company provides management and consulting services for small companies which are generally seeking to become publicly
traded. The Company also provides management and investment services for Investors LLC and Investors II, which are affiliates of the
Company, and plans to provide services for CDF when it’s registration statement becomes effective. We will occasionally invest in other non-
Hooters related opportunities when we believe this is in the best interests of the Company and its shareholders.
5
Corporate Information
Chanticleer Holdings, Inc. was organized October 21, 1999, under its original name, Tulvine Systems, Inc., under the laws of the State of
Delaware. The Company previously had limited operations and was considered a development stage company until July 2005. On April 25,
2005, the Company formed a wholly owned subsidiary, Chanticleer Holdings, Inc. On May 2, 2005, Tulvine Systems, Inc. merged with and
changed its name to Chanticleer Holdings, Inc.
Our principal executive offices are located at 11220 Elm Lane, Suite 203, Charlotte, NC 28277. Our web site is
www.chanticleerholdings.com.
EMPLOYEES
We had 95 (90 in South Africa) and 5 full-time employees at our U.S. office at December 31, 2011 and 2010, respectively.
Our employees are not represented by a labor union. We have experienced no work stoppage and believe that our employee relationships
are good.
ITEM 1A:
RISK FACTORS
Not applicable.
ITEM 2:
PROPERTIES
Effective August 1, 2010, the Company renewed its office lease agreement for a period of one year at a monthly rental of $2,100, for its
office located at 11220 Elm Lane, Suite 103, Charlotte, NC 28277. Since August 1, 2011, the lease has continued on a month-to-month basis.
The Company leases the land and building for our four restaurants in South Africa (three of which were open as of December 31, 2011
and one of which opened in February 2012) through our subsidiaries. The leases are for five year terms and include options to extend the
terms. We lease our restaurant facilities under “triple net” leases that require us to pay minimum rent, real estate taxes, maintenance costs and
insurance premiums and, in some instances, percentage rent based on sales in excess of specified amounts.
Our office and restaurant facilities are suitable and adequate for our business as it is presently conducted.
ITEM 3:
LEGAL PROCEEDINGS
We are not currently subject to any legal proceedings, nor, to our knowledge, is any legal proceeding threatened against us. However,
from time to time, we may be a party to certain legal proceedings in the ordinary course of business.
ITEM 4:
[REMOVED AND RESERVED]
N/A.
6
Part II
ITEM 5:
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is currently listed on the electronic quotation and reporting service maintained by the National Association of
Securities Dealers (“NASD”) and known as the “OTC Bulletin Board” or “OTCBB” system and currently trades under the symbol "CCLR".
The market closing, high and low prices during the period ended March 23, 2012 and each quarter for the two years ended December 31,
2011, are as follows:
QUARTER ENDED
Through March 23, 2012
March 31, 2011
June 30, 2011
September 30, 2011
December 31, 2011
March 31, 2010
June 30, 2010
September 30, 2010
December 31, 2010
CLOSING
HIGH
LOW
$
$
$
3.25 $
3.70 $
3.20 $
2.99
3.25
3.70
2.13 $
2.00
2.00
2.13
3.38 $
3.20
3.25
5.00
2.13 $
2.13
2.13
2.13
2.20
2.12
2.09
2.15
2.75
1.50
1.75
1.75
1.50
Number of Shareholders and Total Outstanding Shares
As of March 23, 2012 and December 31, 2011, there were 2,498,891 shares outstanding, 513,230 shares in treasury stock and a total of
3,012,121 shares issued, held by approximately 51 shareholders of record.
As of March 23, 2011, there were 2,571,918 shares of common stock issued and 2,048,688 shares of common stock outstanding after the
Company's common stock was forward split, 2 shares for each share issued, pursuant to written consent by a majority of the Company's
shareholders. All share references have been adjusted as if the split occurred prior to all periods presented.
Dividends on Common Stock
We have not previously declared a cash dividend on our common stock and we do not anticipate the payment of dividends in the near
future.
Options and Warrants
On January 6, 2011, the Company filed a Form S-1 Registration Statement under the Securities Act of 1933. The Registration Statement
was declared effective on July 14, 2011 and registered one Class A Warrant and one Class B Warrant for each common share of the Company
issued. The warrants had a subscription price of $0.04 which entitled our shareholders to acquire one Class A Warrant, which entitled the
holder to acquire one share of our common stock for $2.75, and one Class B Warrant, which entitled the holder to acquire one share of our
common stock for $3.50. The warrants have a five year life. At December 31, 2011, the Company had issued and outstanding 2,194,509
Class A and Class B warrants. Proceeds from the offering are summarized as follows and are included in additional paid-in capital.
7
Proceeds from sales of Class A and Class B warrants
Legal and professional fees incurred for the offering
Amount included in additional paid-in capital
$
$
87,780
(67,172)
20,608
On August 10, 2011, the Company issued two warrants to the shareholder who collateralized the Company’s $2,000,000 line of credit.
The first warrant is for 200,000 shares exercisable at $2.75 per share for 10 years and the second warrant is for 250,000 shares exercisable at
$3.50 per share for 10 years. The warrants were valued using Black-Scholes at $906,351. This amount will be amortized to interest expense
over the ten year life of the warrants. At December 31, 2011, interest expense includes $35,247 in amortization.
On November 1, 2011, the Company entered into an investor relations consulting agreement. In addition to cash compensation the
consultant is entitled to receive warrants for certain performance goals. These warrants will be accounted for when the goals are accomplished.
Securities Authorized for Issuance under Equity Compensation Plans
None.
Recent Sales of Unregistered Securities
Sales of our common stock during the first three quarters of the fiscal year were reported in Item 2 of Part II of the Form 10-Q filed for
each quarter. The Company issued 167 shares for $500 in cash during the fourth quarter of 2011. The shares were sold pursuant to an
exemption from registration under Section 4(2) promulgated under the Securities Act of 1933, as amended.
Repurchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6:
SELECTED FINANCIAL DATA
Not applicable.
ITEM 7:
MANAGEMENT’S DISCUSSION A N D ANALYSIS O F FINANCIAL CONDITION A N D R ES U LTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not historical fact are "forward-looking statements" as that term is defined in the Private
Securities Litigation Reform Act of 1995. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated,"
"believes," "estimates," "projects" or similar expressions are intended to identify these forward-looking statements. These statements are
subject to risks and uncertainties beyond our reasonable control that could cause our actual business and results of operations to differ
materially from those reflected in our forward-looking statements. The safe harbor provisions provided in the Securities Litigation Reform Act
do not apply to forward-looking statements we make in this report. Forward-looking statements are not guarantees of future performance. Our
forward-looking statements are based on trends which we anticipate in our industry and our good faith estimate of the effect on these trends of
such factors as industry capacity, product demand and product pricing. The inclusion of projections and other forward-looking statements
should not be regarded a representation by us or any other person that we will realize our projections or that any of the forward-looking
statements contained in this prospectus will prove to be accurate.
8
Management’s Analysis of Business
We have changed our focus recently from managing investments to owning and operating Hooters franchises internationally. Hooters
restaurants are casual beach-themed establishments with sports on television, jukebox music, and the “nearly world famous” Hooters
Girls. The menu consists of spicy chicken wings, seafood, sandwiches and salads. Each locations menu can vary with the tastes of the
locality it is in. Hooters began in 1983 with its first restaurant in Clearwater, Florida. From the original restaurant and licensee Mr. Robert
Brooks, Hooters has become a global brand, with locations in 44 states domestically and over 450 Hooters restaurants worldwide. Besides
restaurants, Hooters has also branched out to other areas, including licensing its name to a golf tour and the sale of packaged food in
supermarkets.
We expect to either own 100% of the Hooters franchise or partner with a local franchisee in the countries we target. We based this
decision on what we believe to be the successful launch of our South African Hooters venture and believe we have aligned partners and
operators in various international markets. We are focused on expanding our Hooters operations, and expect to use substantially all the net
proceeds from the upcoming offering, in South Africa, Brazil, Hungary, Australia and Europe.
Accordingly, we operate in two business segments; Hooters franchise restaurants and our legacy investment management and consulting
services businesses.
LIQUIDITY AND CAPITAL RESOURCES AND GOING CONCERN
Historical information:
At December 31, 2011 and 2010, the Company had current assets of $623,681 and $158,718; current liabilities of $3,627,306 and
$645,634; and a working capital deficit of $3,003,625 and $486,916, respectively. The Company incurred a loss of $1,103,390 during the
year ended December 31, 2011 and had an unrealized loss from available-for-sale securities of $13,005 and foreign currency translation losses
of $6,357, resulting in a comprehensive loss of $1,122,752.
The Company's corporate general and administrative expenses averaged approximately $295,000 per quarter during 2011. In the fourth
quarter of 2011, $64,000 was added when we began consolidating the South African operations. The Company expects costs to increase as
we expand our footprint internationally in 2012. Effective October 1, 2011, the Company acquired majority control of the restaurants in South
Africa and began consolidating these operations. The Company also will share 49% of the profits in our Hooters location opened in January
2012 in Campbelltown, Australia, a suburb of Sydney.
In addition, the Company has a note with a balance at December 31, 2011 of $242,964 owed to its bank which is due in August 2013 and
a line of credit with its bank with a balance at December 31, 2011 of $1,165,000 (total available $2,000,000) due on August 20, 2012. We also
have convertible notes payable with certain investors with a balance at December 31, 2011 of $1,625,000 due in the second quarter of 2012.
The Company plans to continue to use limited partnerships, if the Company’s contemplated raise is not completed, to fund its share of costs
for additional Hooters restaurants.
The Company expects to meet its obligations in 2012 with some or all of the following:
·
File an S-1 Registration during the second quarter of 2012, and, assuming it becomes effective, plans to raise up to $15,000,000 from
the sale of common stock and warrant units;
·
·
The Company received $100,000 in January 2012 as a fee for its CEO sitting on the Board of Hooters of America and expect to
continue to receive this fee for the next three years based on the current agreement;
Extend a portion of its existing line of credit;
· Convert its convertible notes payable into common stock.
If the above events do not occur or if the Company does not raise sufficient capital, substantial doubt about the Company’s ability to
continue as a going concern exists. These consolidated financial statements do not reflect any adjustments that might result from the outcome
of these uncertainties.
9
Evaluation of the amounts and certainty of cash flows:
The Company plans to use the funding from the S-1 Registration to complete its expansion plans in South Africa, Brazil, Australia,
Hungary and Europe. The Company has used short-term financing to meet the preliminary requirements of its planned expansion, principally
in South Africa and Australia. If the Company is unable to obtain the funding from the S-1 Registration, the Company would be required to
limit its expansion plans. We would use limited partner funding and other sources of capital to the extent necessary to attempt to fund as much
of the planned expansion as possible. There can be no assurance that any of this funding will be available when needed.
Cash requirements and capital expenditures:
In 2012, we expect to open one restaurant in each of the following countries – Australia (in addition to the one already opened in February
2012), Brazil, Hungary and South Africa. The Company expects the total cash requirements for these restaurants to be approximately $3.1
million, of which approximately $350,000 has been paid as of March 27, 2012.
In addition, we expect general and administrative expenses to be approximately $1.3-$1.4 million for 2012.
Discussion and analysis of known trends and uncertainties:
The World economy has been in a state of flux for some time with the debt problems of a number of countries in Europe, the recent
recession in the United States, the significant increase to debt in the United States compounded by continuing to give away more than can
reasonably be collected, the slowing economy in China and other factors. It is impossible to forecast what this will mean to our expansion
plans in South Africa, Brazil, Australia, Poland and Hungary. We feel that we minimize our risks through investment in different geographical
areas.
Expected changes in the mix and relative cost of capital resources:
Since the middle of 2010, the Company has utilized high cost capital to finance its international growth. The Company hopes to eliminate
the majority of this debt with new equity and further, to use this equity to complete its expansion plans over the next two years.
Other prospective sources for and uses of cash:
If the Company is unable to obtain the funding from its Offering, it will seek other sources of interim funding to maintain its current
operations and complete the restaurants already underway.
If the above events do not occur or the Company is unable to develop its business model, substantial doubt about the Company's ability to
continue as a going concern exists.
RESULTS OF OPERATIONS
Revenue
Revenue amounted to $1,463,820 in 2011 and $136,301 in 2010. Cash revenues were $493,167 and $967,418 in 2011 from the
management and restaurant businesses, respectively, and $84,218 in 2010 from the management business. The majority of our cash revenues
in 2011 for the management business was from a fee of $400,000 received in January 2011 for our services in facilitating the acquisition of
HOA and TW and of $91,667 of the Company’s annual payment from HOA of $100,000, which is due in January each year while Mr. Pruitt
serves on its board. In 2010 cash revenues were management fees from Investors LLC and Investors II. Non-cash revenues in 2011 and
2010 of $3,235 and $52,083, respectively were recognized from the receipt of securities for our services.
The fair value of the equity instruments for management fees received was determined based upon the stock prices as of the date we
reached an agreement with the third party. The terms of the securities are not subject to adjustment after the measurement date. See Note 4 of
the consolidated financial statements for details.
10
Restaurant cost of sales
Restaurant cost of sales totaled $360,810, or 37.3% of restaurant net sales. We expect the percentage to remain approximately the
same in 2012 as we expand our business in South Africa and other countries.
11
Restaurant operating expenses
Restaurant operating expenses totaled $483,946, or 50.0% of restaurant net sales. We expect the percentage of operating expenses to
restaurant net sales to decline as we open more Hooters locations, however we have a limited history to be able to forecast a range.
General and Administrative Expense (“G&A”)
G&A amounted to $1,245,752 in 2011 and $935,110 in 2010. The more significant components of G&A are summarized as follows:
Professional fees
Payroll and benefits
Consulting and investor relation fees
Travel and entertainment
Accounting and auditing
Director fees
Bad debt expense
Other G&A
2011
2010
$
104,016 $
563,323
261,315
84,767
70,450
-
750
161,131
$ 1,245,752 $
106,594
518,162
17,223
42,950
67,914
42,500
24,907
114,860
935,110
G&A costs are expected to increase in 2012 to $325-$350,000 per quarter, with the costs associated with the activities of the restaurant
business continuing to grow. Revenue from the restaurants is expected to exceed this increase in expense.
Payroll and benefits increased $45,161 in 2011 from 2010 primarily from the addition of restaurant management personnel in the fourth
quarter of 2011.
Consulting and investor relations fees increased $244,092 from 2011 to 2010 as the Company engaged experienced personnel to startup
our European subsidiary and to increase the Company’s recognition in the investment arena. Non-cash fees for services were $74,573 and
$25,000 in 2011 and 2010, respectively.
Travel and entertainment increased $41,817 as Company personnel, primarily the CEO, traveled to increase our company awareness and
lockdown financing and partners for the restaurant locales.
There were no director fees in 2011. Effective December 31, 2010, the Company issued 20,000 shares of its common stock to its outside
directors for current and prior director fees. The stock was valued at $42,500 based on the closing price of the common stock on that date.
The Company recognized a bad debt in the amount of $750 in 2011 and $24,907 in 2010. The amount in 2010 was for prior management
services of $24,000 and expense advances of $907 owed by Green St. Energy, Inc., a company for which the Company previously provided
management services.
Asset Impairment
In 2010, the Company recorded an impairment of $250,000 for our equity interest in BreezePlay as a result of it not being able to raise
sufficient capital to complete its business plan and substantially ceasing operation.
12
OTHER INCOME (EXPENSE)
Other income (expense) consisted of the following at December 31, 2011 and 2010:
Other income (expense):
Equity in earnings (losses) of investments
Realized gains from sale of investments
Interest expense
Interest income
Miscellaneous income
Other than temporary decline in available-for-sale securities
Equity in Earnings of Investments
2011
2010
$
$
(76,113) $
19,991
(180,825)
4,541
476
(147,973)
(379,903) $
58,337
106,035
(140,016)
46,000
-
(40,386)
29,970
Equity in earnings of investments includes our share of earnings from investments in which we own at least 20% and are being accounted
for using the equity method. This included losses from the Hoot Campbelltown and Hoot SA partnerships in 2011 of $66,857 and $9,256,
respectively and income from the Hoot SA partnerships in 2010 of $58,337.
Realized Gains from Sale of Investments
Realized gains are recorded when investments are sold and include transactions in 2011 from a gain on sales of DineOut and in 2010
from a gain on sales of DineOut of $157,807, a loss on sales of Vought Defense Systems of $58,355 and a gain on sales of Healthsport of
$6,583.
Interest Expense
Interest expense increased in 2011 from 2010 primarily due to the addition in 2011 of a line of credit for $1,165,000 and convertible notes
payable in the amount of $1,625,000, offset by the conversion of $686,500 of convertible notes payable from 2010.
Interest Income
Interest income in 2011 decreased $41,459 as 2011 includes earnings from Investors for one month, compared to 2010 which includes
our earnings from Investors for the entire year.
Other than Temporary Decline in Available-for-Sale Securities
The Company determined that its investment in available-for-sale securities had an other than temporary decline in value and recorded a
realized loss in the amount of $147,973 and $40,386 in 2011 and 2010, respectively. Valuations were determined based on the quoted market
price for the stock when it was determined the decline was not temporary and the decline was recorded. In 2011, the Company recorded an
impairment of $147,973 primarily related to the Company’s investment in HiTech Stages ($124,573) and Efftec International ($22,500). In
2010, the Company recorded an impairment of $40,386 primarily related to the Company’s investment in Remodel Auction ($39,100).
PROVISION FOR INCOME TAXES
The Company recorded income tax expense of $14,608 based on the net profit of one of our South African locations at a 28% corporate
income tax rate.
13
RECENT ACCOUNTING PRONOUNCEMENTS
There are several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not yet
effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of
these accounting pronouncements has had or will have a material impact on the Company’s financial position or operating results. See Note 2
to the consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
The SEC has suggested companies provide additional disclosure and commentary on their most critical accounting policies, which they
defined as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management
to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.
Based on this definition our most critical accounting policy is the valuation of our investments. The methods, estimates and judgments we use
in applying this accounting policy has a significant impact on the results we report in our financial statements.
Leases
Restaurant Operations lease certain properties under operating leases. Many of these lease agreements contain rent holidays, rent
escalation clauses and/or contingent rent provisions. Rent expense is recognized on a straight-line basis over the expected lease term, including
cancelable option periods when failure to exercise such options would result in an economic penalty. We use a time period for straight-line rent
expense calculation that equals or exceeds the time period used for depreciation. In addition, the rent commencement date of the lease term is
the earlier of the date when they become legally obligated for the rent payments or the date when they take access to the grounds for build out.
Accounting for leases involves significant management judgment.
Investments
We determine fair value to be the amount for which an investment could be exchanged in an orderly disposition over a reasonable period
of time between willing parties other than in a forced or liquidation sale. Our evaluation process is intended to provide a consistent basis for
determining the fair value of our available-for-sale investments. In summary, for individual securities classified as available-for-sale securities,
an enterprise shall determine whether a decline in fair value below the amortized cost basis is other than temporary. If the decline in fair value
is judged to be other than temporary, the individual security shall be written down to fair value as a new cost basis and the amount of the
write-down shall be included in earnings (accounted for as a realized loss). The new cost basis shall not be changed for subsequent recoveries
in fair value. Subsequent increases in the fair value of available-for-sale securities shall be included in other comprehensive income and
subsequent decreases in fair value, if not an other-than-temporary impairment, also shall be included in other comprehensive income.
The first step in the analysis is to determine if the security is impaired. All of our available-for-sale securities were listed and we use the
closing market price and other factors to determine the amount of impairment if any. The second step, if there is an impairment, is to determine
if the impairment is other than temporary. To determine if a decline in the value of an equity security is other than temporary and that a write-
down of the carrying value is required, we considered the following:
·
·
·
The length of time and the extent to which the market value has been less than the cost;
The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the
issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the
business that may affect the future earnings potential; or
The intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated
recovery in market value.
Unless evidence exists to support a realizable value equal to or greater than the carrying value of the investment in equity securities
classified as available-for-sale, a write-down to fair value accounted for as a realized loss should be recorded. Such loss should be recognized
in the determination of net income of the period in which it occurs and the written down value of the investment in the issuer becomes the new
cost basis of the investment.
14
Investments in which the Company has the ability to exercise significant influence and that, in general, are at least 20 percent owned are
stated at cost plus equity in undistributed net earnings (loss), less distributions received. The Company also has equity investments in which it
owns less than 20% which are stated at cost. An impairment loss would be recorded whenever a decline in the value of an equity investment
or investment carried at cost is below its carrying amount and is determined to be other than temporary. In judging “other than temporary,” the
Company considers the length of time and extent to which the fair value of the investment has been less than the carrying amount of the
investment, the near-term and long-term operating and financial prospects of the investee, and the Company’s long-term intent of retaining the
investment in the investee.
COMMITMENTS AND CONTINGENCIES
Effective August 1, 2010, the Company extended its office lease agreement for a period of one year at a monthly rental of $2,100, for its
office located at 11220 Elm Lane, Suite 103, Charlotte, NC 28277. Since August 1, 2011, the lease has continued at the same rate on a month-
to-month basis.
The Company leases the land and building for our four restaurants in South Africa through our subsidiaries. The leases are for five year
terms and include options to extend the terms. We lease our restaurant facilities under “triple net” leases that require us to pay minimum rent,
real estate taxes, maintenance costs and insurance premiums and, in some instances, percentage rent based on sales in excess of specified
amounts.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table presents a summary of our contractual operating lease obligations and commitments as of December 31, 2011:
Contractual Obligations
Long-Term Debt Obligations (1)
Operating Lease Obligations (2)
Purchase Obligations (3)
Total
Payments due by period
Total
Less than 1 year
1-3 years
3-5 years
$
263,921 $
3,202,977
550,000
$ 4,016,898 $
20,250 $
526,787
550,000
- $
1,463,047
-
1,097,037 $ 1,456,814 $ 1,463,047 $
243,671 $
1,213,143
-
More than 5
years
-
-
-
(1) Represents the outstanding principal amounts and interest on all our long-term debt.
(2) Represents operating lease commitments for our four Hooters restaurants in South Africa.
(3) Represents commitments for Hooters international restaurants in Australia
If the raise discussed in Note 14, Subsequent Events, is successful, the Company plans to commit approximately $4,500,000 in Brazil and
$3,400,000 in South Africa for additional restaurant locations.
ITEM 7A:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
15
ITEM 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANTICLEER HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDTED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2011 and 2010
Consolidated Statements of Operations for the Years Ended December 31, 2011 and 2010
Consolidated Statements of Stockholders’ Equity at December 31, 2011 and 2010
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010
Notes to Consolidated Financial Statements
16
Page
17
18
19
20
21
23
CREASON & ASSOCIATES, P.L.L.C.
7170 S. Braden Ave., Suite 100
Tulsa, Oklahoma 74136
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Chanticleer Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Chanticleer Holdings, Inc. and Subsidiaries (the "Company") as of
December 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash
flows for the years ended December 31, 2011 and 2010. These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the
financial statements of Kiarabrite (Pty) Ltd, Dimaflo (Pty) Ltd, Tundraspex (Pty) Ltd, Civisign (Pty) Ltd and Dimalogix (Pty) Ltd (collectively
referred to as the South Africa Operations), wholly-owned and majority-owned subsidiaries, which statements reflect total assets and revenues
constituting 72 percent and 66 percent, respectively, of the related consolidated totals. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the South Africa Operations, is based
solely on the reports of the other auditors.
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 audits to obtain reasonable assurance about whether the consolidated 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 audits 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 consolidated financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Chanticleer Holdings, Inc. and Subsidiaries as of December 31, 2011 and
2010, and the consolidated results of their operations and their cash flows for the years ended December 31, 2011 and 2010, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that Chanticleer Holdings, Inc. and Subsidiaries will
continue as a going concern. As discussed in Note 1 to the consolidated financial statements, Chanticleer Holdings, Inc. has incurred
substantial net losses and negative cash flows from operations for the past several years, along with negative working capital. In addition, the
Company has future plans that may require substantial financial obligations. There can be no assurance that the Company will be able to
generate sufficient cash revenues to fund its current operations and fulfill its future commitments. These conditions raise substantial doubt
about Chanticleer Holdings, Inc. and Subsidiaries’ ability to continue as a going concern. Management’s plans regarding these matters are also
described in Note 1. The consolidated financial statements do not include any adjustments that may result from the outcome of these
uncertainties.
Tulsa, Oklahoma
April 3, 2012
/s/Creason & Associates, P.L.L.C.
17
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2011 and 2010
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable
Inventory
Due from related parties
Prepaid expenses
TOTAL CURRENT ASSETS
Property and equipment, net
Intangible assets, net
Investments at fair value
Other investments
Deposits and other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and notes payable
Convertible notes payable
Accounts payable
Accrued expenses
Other current liabilities
Income taxes payable
Due to related parties
TOTAL CURRENT LIABILITIES
Long-term debt, less current maturities
TOTAL LIABILITIES
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock: $0.0001 par value; authorized 200,000,000 shares; issued 3,012,121 shares and
2,571,918 shares; and outstanding 2,498,891 and 2,048,688 shares at December 31, 2011 and 2010,
respectively
Additional paid in capital
Other comprehensive income
Non-controlling interest
Accumulated deficit
Less treasury stock, 513,230 shares and 523,230 shares at December 31, 2011 and 2010, respectively
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
18
$
$
$
2011
2010
151,928 $
103,982
59,266
76,591
231,914
623,681
2,508,823
470,164
318,353
1,579,677
3,980
5,504,678 $
1,171,855 $
1,625,000
267,475
21,521
496,643
14,608
30,204
3,627,306
236,109
3,863,415
46,007
4,258
-
84,269
24,184
158,718
25,563
-
352,500
853,798
23,980
1,414,559
250,000
-
211,432
66,103
1,750
-
116,349
645,634
686,500
1,332,134
301
6,459,506
48,665
1,692,019
(6,032,808)
257
5,456,067
68,027
24,175
(4,929,418)
(526,420)
1,641,263
5,504,678 $
(536,683)
82,425
1,414,559
$
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2011 and 2010
Revenue:
Restaurant sales, net
Management fee income - non-affiliates
Management fee income - affiliates
Total revenue
Expenses:
Restaurant cost of sales
Restaurant operating expenses
General and administrative expense
Asset impairment
Depreciation and amortization
Total expenses
Loss from operations
Other income (expense)
Equity in earnings (losses) of investments
Realized gains from sales of investments
Interest income
Miscellaneous income
Interest expense
Other than temporary decline in available-for-sale securities
Total other income (expense)
Net loss before income taxes
Provision for income taxes
Net loss before non-controlling interest
Non-controlling interest
Net loss
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities (none applies to non-controlling
interest)
Foreign translation losses
Other comprehensive loss
Net earnings (loss) per share, basic and diluted
Weighted average shares outstanding
See accompanying notes to consolidated financial statements.
19
$
2011
2010
967,418 $
493,167
3,235
1,463,820
360,810
483,946
1,245,752
-
87,617
2,178,125
(714,305)
(76,113)
19,991
4,541
476
(180,825)
(147,973)
(379,903)
(1,094,208)
14,608
(1,108,816)
5,426
(1,103,390)
-
20,833
115,468
136,301
-
-
935,110
250,000
11,079
1,196,189
(1,059,888)
58,337
106,035
46,000
-
(140,016)
(40,386)
29,970
(1,029,918)
-
(1,029,918)
18,353
(1,011,565)
(13,005)
(6,357)
(1,122,752) $
152,027
-
(859,538)
(0.47) $
(0.51)
2,370,036
1,990,462
$
$
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2011 and 2010
Accumulated
Other
Additional Comprehensive
Non-
Balance, December 31, 2009
Common stock issued for:
Consultants
Amounts due related party
Accounts payable
Director fees
Beneficial conversion feature of
convertible notes payable
Available-for-sale securities
Purchase treasury stock
Non-controlling interest
Net loss
Balance, December 31, 2010
Common stock issued for:
Convertible notes payable and
accrued interest
Services
Cash
Available-for-sale securities
contributed by CEO
Warrants sold, net
Amortize warrants
Sell treasury stock
Available-for-sale securities
Non-controlling interest
Foreign translation loss
Net loss
Common Stock
Shares
Par
Paid-in
Capital
Income
(Loss)
Controlling Accumulated Treasury
Deficit
Interest
Stock
Total
2,492,752 $
250 $ 5,255,624 $
(84,000) $
- $ (3,917,853) $
(536,003) $
718,018
15,572
33,594
10,000
20,000
-
-
-
-
-
1
3
1
2
-
-
-
-
-
24,999
58,787
17,499
42,498
56,660
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,000
58,790
17,500
42,500
-
152,027
-
-
-
-
-
-
42,528
(18,353)
-
-
-
-
(1,011,565)
56,660
-
152,027
-
(680)
(680)
-
42,528
- (1,029,918)
2,571,918
257 5,456,067
68,027
24,175
(4,929,418)
(536,683)
82,425
412,286
27,750
167
41
3
-
731,046
74,570
500
-
-
-
-
-
-
-
-
-
-
-
-
731,087
74,573
500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
125,331
20,608
35,247
16,137
-
-
-
-
-
-
-
-
(13,005)
-
-
-
-
-
- 1,673,270
-
(5,426)
(6,357)
-
-
-
-
-
-
-
-
(1,103,390)
125,331
-
20,608
-
35,247
-
26,400
10,263
-
(13,005)
- 1,673,270
-
(6,357)
- (1,108,816)
Balance, December 31, 2011
3,012,121 $
301 $ 6,459,506 $
48,665 $ 1,692,019 $ (6,032,808) $
(526,420) $ 1,641,263
See accompanying notes to consolidated financial statements.
20
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2011 and 2010
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Other than temporary decline in value of available-for-sale securities
Bad debt expense - related party
Non-controlling interest
Consulting and other services rendered in exchange for investment securities
Depreciation and amortization
Equity in (earnings) loss of investments
Asset impairment
Common stock issued for services
(Gain) loss on sale of investments
Beneficial converstion feature of convertible notes payable
Amortization of warrants
(Increase) decrease in amounts due from affiliate
(Increase) decrease in accounts receivable
(Increase) decrease in prepaid expenses and other assets
(Increase) decrease inventory
Increase (decrease) in accounts payable and accrued expenses
Increase (decrease) in income taxes payable
Increase (decrease) in deferred revenue
Advance from related parties for working capital
Net cash used by operating activities
Cash flows from investing activities:
Proceeds from sale of investments
Investment distribution
Purchase of investments
Acquisition of subsidiaries
Purchase of property and equipment
Treasury stock proceeds (acquired)
Deposit made for investment
Net cash provided (used) by investing activities
Cash flows from financing activities:
Proceeds from sale of common stock
Proceeds from sale of common stock warrants, net
Loan proceeds
Loan repayment
Loans to related parties
Loan from related party
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to consolidated financial statements.
21
2011
2010
$
(1,103,390) $
(1,011,565)
147,973
750
(5,426)
(1,500)
87,617
76,113
-
74,573
(19,991)
-
35,247
(54,217)
(73,830)
(168,393)
5,988
(58,779)
14,608
(1,750)
-
(1,044,407)
190,325
8,140
(1,285,500)
(205,000)
(388,109)
26,400
-
(1,653,744)
500
20,608
2,790,000
(7,036)
-
-
2,804,072
105,921
46,007
151,928 $
40,386
24,907
(18,353)
(33,000)
11,079
(58,337)
250,000
49,375
(106,035)
56,660
-
(46,547)
(4,258)
-
-
89,807
-
(19,083)
14,650
(760,314)
281,765
16,137
(26,334)
-
(4,517)
(680)
(20,000)
246,371
-
-
541,000
(4,500)
(48,924)
70,000
557,576
43,633
2,374
46,007
$
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 2011 and 2010
Supplemental cash flow information:
Cash paid for interest and income taxes:
Interest
Income taxes
Non-cash investing and financing activities:
Common stock issued for amounts due related party
Common stock issued for accounts payable
Reclassification of investment accounted for under the cost method as available-for-sale security
Due to related party exchanged for convertible note payable
Convertible notes payable exchanged for common stock
Accrued interest exchanged for common stock
Investment contributed byt the Company's CEO
Common stock issued for prepaid consulting contract
Acquisition of subsidiaries:
Current assets, excluding cash and cash equivalents
Property and equipment and intangible assets
Total assets excluding cash and cash equivalents
Liabilities assumed
Non-controlling interest
Prior investment of the Company
Purchase price, net assets acquired - cash paid
See accompanying notes to consolidated financial statements.
22
2011
2010
$
$
$
$
98,837 $
-
31,999
-
- $
-
-
25,000
711,500
10,000
125,331
44,850
93,638
2,651,197
2,744,835
630,369
1,647,710
261,756
2,523,259
205,000
58,790
17,500
100,000
-
-
-
-
-
-
-
-
-
-
-
-
-
Chanticleer Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1.
NATURE OF BUSINESS
ORGANIZATION
Chanticleer Holdings, Inc. (the “Company”) was organized October 21, 1999, under its original name, Tulvine Systems, Inc.,
under the laws of the State of Delaware. The Company previously had limited operations and was considered a development stage
company until July 2005. On April 25, 2005, the Company formed a wholly owned subsidiary, Chanticleer Holdings, Inc. On
May 2, 2005, Tulvine Systems, Inc. merged with and changed its name to Chanticleer Holdings, Inc.
The consolidated financial statements include the accounts of Chanticleer Holdings, Inc. and its subsidiaries, Chanticleer
Advisors, LLC, (“Advisors”), Avenel Ventures, LLC ("Ventures"), Avenel Financial Services, LLC ("AFS"), Chanticleer
Holdings Limited ("CHL"), Chanticleer Holdings Australia Pty, Ltd. (“CHA”), Chanticleer Investment Partners, LLC (“CIP”),
DineOut SA Ltd. ("DineOut”), Kiarabrite (Pty) Ltd (“KPL”), Dimaflo (Pty) Ltd (“DFLO”), Tundraspex (Pty) Ltd (“TPL”),
Civisign (Pty) Ltd (“CPL”) and Dimalogix (Pty) Ltd (“DLOG”) (collectively referred to as “the Company,” “we,” “us,” or “the
Companies”). All significant inter-company balances and transactions have been eliminated in consolidation.
Effective March 23, 2011, the Company's common stock was forward split, 2 shares for each share issued, pursuant to
written consent by a majority of the Company's shareholders. All share references have been adjusted as if the split occurred prior
to all periods presented.
Information regarding the Company's subsidiaries is as follows:
· Advisors was formed as a wholly owned Nevada Limited Liability Company on January 18, 2007 to manage related
companies, Chanticleer Investors, LLC ("Investors LLC"), Chanticleer Investors II, LLC ("Investors II") and other
investments owned by the Company;
· Ventures was formed as a wholly owned Nevada Limited Liability Company on December 24, 2008 to provide business
management and consulting services to its clients;
· CHL was formed as a wholly owned Limited Liability Company in Jersey on March 24, 2009 to own the Company's
initial 50% interest in Hooters SA, GP, the general partner of the Hooters restaurant franchises in South Africa;
· CHA was formed on September 30, 2011 in Australia as a wholly owned subsidiary to invest in Hooters restaurants in
Australia;
· CIP was formed as a wholly owned North Carolina limited liability company on September 20, 2011. CIP has not
commenced business at December 31, 2011. CIP was formed to manage separate and customized investment accounts
for investors. The Company plans to register CIP as a registered investment advisor so that it can market openly to the
public;
· DineOut was formed as a Private Limited Liability Company in England and Wales on October 29, 2009 to raise capital
in Europe (the Company owns approximately 89% of DineOut at December 31, 2011);
· KPL was formed on August 30, 2011 in South Africa to manage the Hooters restaurants in South Africa. The Company
owns 80% and local management owns 20% at December 31, 2011;
· DFLO was formed on August 16, 2011 in South Africa, is owned 90% by the Company and 10% by local investors at
December 31, 2011, and owns the Hooters restaurant in Durban, South Africa;
23
·
TPL was formed on August 18, 2011in South Africa, is owned 95% by the Company and 5% by local investors at
December 31, 2011, and owns the Hooters restaurant in Johannesburg, South Africa;
· CPL was formed on August 29, 2011 in South Africa, is owned 100% by the Company at December 31, 2011 and owns
the Hooters restaurant in Cape town, South Africa;
· DLOG was formed on August 27, 2011 in South Africa, is owned 100% by the Company at December 31, 2011 and
owns the Hooters restaurant in the Emperor’s Palace in Johannesburg, South Africa; and
· AFS was formed as a Nevada Limited Liability Company on February 19, 2009 to provide unique financial services to
the restaurant, real estate development, investment advisor/asset management and philanthropic organizations. AFS's
business operation was not activated and was discontinued in September 2011.
GOING CONCERN
At December 31, 2011 and 2010, the Company had current assets of $623,681 and $158,718; current liabilities of $3,627,306
and $645,634; and a working capital deficit of $3,003,625 and $486,916, respectively. The Company incurred a loss of
$1,103,390 during the year ended December 31, 2011 and had an unrealized loss from available-for-sale securities of $13,005 and
foreign currency translation losses of $6,357, resulting in a comprehensive loss of $1,122,752.
The Company's corporate general and administrative expenses averaged approximately $295,000 per quarter during 2011. In
the fourth quarter of 2011, $64,000 was added when we began consolidating the South African operations. The Company expects
costs to increase as we expand our footprint internationally in 2012. Effective October 1, 2011, the Company acquired majority
control of the restaurants in South Africa and began consolidating these operations. The Company also will share 49% of the
profits in our Hooters location opened in January 2012 in Campbelltown, Australia, a suburb of Sydney.
In addition, the Company has a note with a balance at December 31, 2011 of $242,964 owed to its bank which is due in
August 2013 and a line of credit with its bank with a balance at December 31, 2011 of $1,165,000 (total available $2,000,000) due
on August 20, 2012. We also have convertible notes payable with certain investors with a balance at December 31, 2011 of
$1,625,000 due in the second quarter of 2012. The Company plans to continue to use limited partnerships, if the Company’s
contemplated raise is not completed, to fund its share of costs for additional Hooters restaurants.
The Company expects to meet its obligations in 2012 with some or all of the following:
·
·
·
File an S-1 Registration during the second quarter of 2012, and, assuming it becomes effective, plans to raise up to
$15,000,000 from the sale of common stock and warrant units;
The Company received $100,000 in January 2012 as a fee for its CEO sitting on the Board of Hooters of America and
expect to continue to receive this fee for the next three years based on the current agreement;
Extend a portion of its existing line of credit;
· Convert its convertible notes payable into common stock.
If the above events do not occur or if the Company does not raise sufficient capital, substantial doubt about the Company’s
ability to continue as a going concern exists. These consolidated financial statements do not reflect any adjustments that might
result from the outcome of these uncertainties.
24
2.
SIGNIFICANT ACCOUNTING POLICIES
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. Significant estimates include the valuation of the investments in portfolio companies and deferred tax asset
valuation allowances. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of 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.
REVENUE RECOGNITION
Restaurant Net Sales
We record revenue from restaurant sales at the time of sale, net of discounts. Sales revenues are presented net of sales and value
added (VAT) taxes. Cost of sales primarily includes the cost of food, beverages, and merchandise and disposable paper and plastic
goods used in preparing and selling our menu items, and excludes depreciation and amortization.
Management Fee Income
The Company receives revenue from management fees from both affiliated companies and non-affiliated companies. Our revenue
recognition policy provides that revenue is generally realized or realizable and earned when all of the following criteria have been met:
Persuasive evidence of an arrangement exists;
·
· Delivery has occurred or services have been rendered;
·
· Collectability is reasonably assured.
The seller's price to the buyer is fixed or determinable; and
We may collect revenue in both cash and in the equity securities of the company to whom we are providing services. Typically
when we are paid cash for services, it is based on a monthly fee and is recorded when earned. When we receive equity securities for
our management services, we generally receive the securities in advance for our services to be earned over the life of the contract,
generally one year. We value these securities and defer recognition of the revenue over the life of the management contract.
The fair value of the equity instruments received was determined based upon the stock prices as of the date we reached an
agreement with the third party and is not subject to adjustment after the measurement date.
ACCOUNTS RECEIVABLE
The Company monitors its exposure for credit losses on its receivable balances and the credit worthiness of its receivables on an
ongoing basis and records related allowances for doubtful accounts. Allowances are estimated based upon specific customer balances,
where a risk of default has been identified, and also include a provision for non-customer specific defaults based upon historical
experience. As of December 31, 2011 and December 31, 2010, the Company has not recorded an allowance for doubtful accounts. If
circumstances related to specific customers change, estimates of the recoverability of receivables could also change.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or market, and consist primarily of restaurant food items and
supply inventory.
25
OPERATING LEASES
The Company leases certain property under operating leases. Many of these lease agreements contain rent holidays, rent escalation
clauses and/or contingent rent provisions. Rent expense is recognized on a straight-line basis over the expected lease term, including
cancelable option periods when failure to exercise such options would result in an economic penalty. In addition, the rent
commencement date of the lease term is the earlier of the date when we become legally obligated for the rent payments or the date when
we take access to the property or the grounds for build out.
MARKETABLE EQUITY SECURITIES
Trading securities
The Company's investment in marketable equity securities are carried at fair value and are classified as current assets in the
consolidated balance sheets. Unrealized gains and losses, net of tax, are reported in the statement of operations as unrealized gain (loss)
on marketable equity securities. Gains and losses are reported in the consolidated statements of operations when realized, based on the
disposition of specifically identified investments, using a first-in, first-out method.
Available-for-sale securities
The Company’s investments in marketable equity securities which are classified as available-for-sale are carried at fair value.
Investments available for current operations are classified in the consolidated balance sheets as current assets; investments held for
long-term purposes are classified as non-current assets. Unrealized gains and losses, net of tax, are reported in other comprehensive
income as a separate component of stockholders’ equity. Gains and losses are reported in the consolidated statements of operations
when realized, determined based on the disposition of specifically identified investments, using a first-in, first-out method.
Investments identified by the Company as being potentially impaired are subject to further analysis to determine if the impairment is
other than temporary. Other than temporary declines in market value from original costs are charged to investment and other income,
net, in the period in which the loss occurs. In determining whether investment holdings are other than temporarily impaired, the
Company considers the nature, cause, severity and duration of the impairment.
OTHER INVESTMENTS
Investments in which the Company has the ability to exercise significant influence and that, in general, are at least 20 percent
owned are stated at cost plus equity in undistributed net earnings (loss), less distributions received. The Company also has equity
investments in which it owns less than 20% which are stated at cost. An impairment loss would be recorded whenever a decline in the
value of an equity investment or cost investment is below its carrying amount and is determined to be other than temporary. In judging
“other than temporary,” the Company considers the length of time and extent to which the fair value of the investment has been less
than the carrying amount of the investment, the near-term and long-term operating and financial prospects of the investee, and the
Company’s long-term intent of retaining the investment in the investee.
FAIR VALUE MEASUREMENTS
For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price we would receive to sell an
asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active
markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and,
in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction
that occurs at the measurement date.
26
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market
assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are
observable.
Level 3 Significant inputs to the valuation model are unobservable.
We maintain policies and procedures to value instruments using the best and most relevant data available. Our investment
committee reviews and approves all investment valuations.
Our available-for-sale equity securities are all valued using Level 1 inputs or Level 2 inputs.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose fair value information about financial instruments when it is practicable to estimate that value.
The carrying amounts of the Company’s cash, accounts receivable, inventory, accounts payable, accrued expenses, other current
liabilities, convertible notes payable and notes payable approximate their estimated fair value due to the short-term maturities of these
financial instruments and because related interest rates offered to the Company approximate current rates.
FIXED ASSETS
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the
estimated useful lives of the respective assets (generally five and seven years). The carrying amount of all long-lived assets is evaluated
periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted. Based upon
its most recent analysis, the Company believes that no impairment of property and equipment exists at December 31, 2011 and 2010.
Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and
equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain
or loss is included in operations.
INTANGIBLE ASSETS
Intangible assets are recorded for the initial franchise fees for our restaurants as well as certain costs capitalized upon startup of the
restaurants. The Company amortizes these amounts over a 20 year periods, which is the life of the franchise agreement.
INCOME TAXES
Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment. The Company has provided a valuation allowance for the full amount of the deferred tax assets.
As of December 31, 2011 and 2010 the Company had no accrued interest or penalties relating to any tax obligations. The
Company currently has no federal or state examinations in progress, nor has it had any federal or state tax examinations since its
inception. The last three years of the Company's tax years are subject to federal and state tax examination.
27
STOCK-BASED COMPENSATION
The compensation cost relating to share-based payment transactions (including the cost of all employee stock options) is required
to be recognized in the financial statements. That cost is measured based on the estimated fair value of the equity or liability instruments
issued. A wide range of share-based compensation arrangements including share options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase plans are included. The Company’s financial statements would include
an expense for all share-based compensation arrangements granted on or after January 1, 2006 and for any such arrangements that are
modified, cancelled or repurchased after that date based on the grant-date estimated fair value.
As of December 31, 2011 and 2010, there were no options outstanding. See Note 9 regarding outstanding warrants.
EARNINGS (LOSS) PER COMMON SHARE
The Company is required to report both basic earnings per share, which is based on the weighted-average number of common
shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding
plus all potentially dilutive shares outstanding. At December 31, 2011 and 2010, there are no potentially dilutive shares outstanding.
Accordingly, no common stock equivalents are included in the earnings (loss) per share calculations and basic and diluted earnings per
share are the same for all periods presented.
FOREIGN CURRENCY TRANSLATION
Adjustments resulting from the process of translating foreign functional currency financial statements into U.S. dollars are
included in accumulated other comprehensive income in common stockholders’ equity. Foreign currency transaction gains and losses
are included in current earnings. Most of our foreign operations use their local currency as the functional currency.
COMPREHENSIVE INCOME
Standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements requires that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial
statements. We are required to (a) classify items of other comprehensive income by their nature in financial statements, and (b) display
the accumulated balance of other comprehensive income separately in the equity section of the balance sheet for all periods presented.
concentration of credit risk
Cash is maintained at financial institutions, which at times, may exceed the FDIC insurance limit.
RECLASSIFICATIONS
Certain reclassifications have been made in the financial statements at December 31, 2010 and for the periods then ended to
conform to the December 31, 2011 presentation. The reclassifications had no effect on net loss.
RECENT ACCOUNTING PRONOUNCEMENTS
There are several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not
yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company. At March 30, 2012, none of
these pronouncements are expected to have a material effect on the financial position, results of operations or cash flows of the
Company.
28
3.
ACQUISITION OF MAJORITY OWNED HOOTERS RESTAURANTS
Effective October 1, 2011, the Company acquired majority ownership of a management company and four Hooters restaurants in
South Africa. Previously, the Company owned 50% of the restaurants but was not in control and these operations were accounted for
using the equity method of accounting. New entities were formed for the operations and the Company’s ownership is as follows: KPL
80%, DFLO 90%, TPL 95%, CPL 100% and DLOG 100%. The restaurant owned by DFLO in Durban opened in January 2010, the
restaurant owned by TPL in Johannesburg opened in June 2010 and the restaurant owned by CPL in Cape Town opened in June
2011. The restaurant owned by DLOG opened in February 2012.
The acquisition was accounted for using the purchase method of accounting and, accordingly, the consolidated statements of
operations include the results of the South African operations beginning October 1, 2011. The assets acquired and the liabilities
assumed were recorded at estimated fair values as determined by the Company’s management based on information currently available
and on current assumptions as to future operations. A summary of the estimated fair value of assets acquired and liabilities assumed in
the acquisition follows:
Current assets, excluding cash and cash equivalents
Property and equipment and intangible assets
Total assets excluding cash and cash equivalents
Liabilities assumed
Non-controlling interest
Prior investment of the Company
Purchase price (net assets acquired)
Cash paid
$
$
$
$
93,638
2,651,197
2,744,835
630,369
1,647,710
261,756
205,000
205,000
Liabilities assumed includes $496,643 at December 31, 2011 and $524,832 at September 30, 2011 in bank debt of the prior
entities which the Company has agreed to repay without interest upon completion of its new financing. The $496,643 at December 31,
2011 in included in other liabilities.
Unaudited pro forma results of operations for the two years ended December 31, 2011 and 2010, as if the Company had acquired
majority ownership of the South African Hooters restaurants on January 1, 2010 is as follows. The pro forma results include estimates
and assumptions which management believes are reasonable. However, pro forma results are not necessarily indicative of the results
that would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future.
Net revenues
Net earnings (loss)
2011
2010
$
4,828,085 $
4,078,964
$
(971,811) $
(466,153)
Net earnings (loss) per share, basic and diluted
$
(0.41) $
(0.23)
29
4.
INVESTMENTS
INVESTMENTS AT FAIR VALUE CONSIST OF THE FOLLOWING AT DECEMBER 31, 2011 AND 2010
Available-for-sale investments at fair value
Trading securities
Total
2011
2010
$
$
318,353 $
-
318,353 $
352,500
-
352,500
TRADING SECURITIES:
The Company had no transactions in trading securities during 2011. The following table summarizes the activity during 2010.
Balance, beginning of year
Shares acquired from a related party
Cost of securities sold
Balance, end of year
Proceeds from sale of trading securities
Gain from sale of trading securities
AVAILABLE-FOR-SALE SECURITIES
Activity in our available-for-sale securities may be summarized as follows:
Cost at beginning of year
Contributed to the Company by it's CEO
Transfer from investments accounted for by the cost method
Received as management fees
Acquired in exchange for DineOut shares
Proceeds from sale of securities
Realized loss from sale of securities
Other than temporary loss in available-for-sale securities
Cost at end of year
Unrealized gain (loss)
Total
30
2010
-
26,334
(26,334)
-
32,917
6,583
$
$
$
$
2011
2010
$
$
284,473 $
125,331
-
1,500
-
-
-
(147,973)
263,331
55,022
318,353 $
167,286
-
100,000
33,000
124,573
(41,645)
(58,355)
(40,386)
284,473
68,027
352,500
Our available-for-sale securities consist of the following:
December 31, 2011
Remodel Auction *
North Carolina Natural Energy *
North American Energy
North American Energy *
North American Energy
Efftec International, Inc. *
HiTech Stages
December 31, 2010
Syzygy Entertainment, Ltd. *
Remodel Auction *
North American Energy
North American Energy *
Efftec International, Inc. *
Efftec International, Inc. (warrant) *
Vought Defense System Corp.
HiTech Stages
Unrecognized
Holding
Gains (Losses)
Fair
Value
Cost
Realized
Holding
Loss
Loss
on
Sale
$
$
$
$
- $
1,500
126,000
10,500
125,331
-
-
263,331 $
- $
900
126,000
10,500
22,500
-
-
124,573
284,473 $
- $
-
(42,000)
7,500
89,522
-
-
55,022 $
- $
100
(98,000)
(4,500)
22,500
22,500
-
125,427
68,027 $
- $
1,500
84,000
18,000
214,853
-
-
318,353 $
- $
1,000
28,000
6,000
45,000
22,500
-
250,000
352,500 $
(900) $
-
-
-
-
(22,500)
(124,573)
(147,973) $
(1,286) $
(39,100)
-
-
-
-
-
-
(40,386) $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(58,355)
-
(58,355)
* Investments acquired in exchange for management services.
Syzygy Entertainment, Ltd. (“Syzygy”) – During 2007, the Company acquired 342,814 shares of Syzygy for management services
and Mr. Pruitt contributed an additional 300,000 shares to the Company. The shares had an initial cost of $1,114,221 which has now been
fully impaired.
Remodel Auction Incorporated (“REMC”) – During 2009, the Company acquired 334 shares of REMC for management services
with an initial cost of $275,000 which has now been fully impaired.
North Carolina Natural Energy, Inc. (“NCNE”) – NCNE is a successor to REMC whose business was discontinued. NCNE has
plans to become involved in some form of natural energy. The Company received 100,000,000 shares of NCNE (less than 1% on a fully
diluted basis) for management services during 2011. The shares were valued at $1,500 based on NCNE’s valuation as a shell.
North American Energy Resources, Inc. - During the quarter ended June 30, 2009, the Company exchanged its oil & gas property
investments for 700,000 shares of North American Energy Resources, Inc. ("NAEY") which were valued at $126,000 based on the closing
price of NAEY on the date of the trade. At December 31, 2011 and 2010, the stock was $0.12 and $0.04 per share and the Company recorded
an unrealized loss of $42,000 and $98,000, respectively, based on the Company's determination that the price decline was temporary.
During the first quarter of 2010, the Company received an additional 150,000 shares of NAEY in exchange for management services. The
shares were initially valued at $10,500, based on the trading price at the time. At December 31, 2010, the Company recorded an unrealized
loss of $4,500 based on the market value of $6,000 at December 31, 2010. At December 31, 2011, the shares were valued at $18,000 and the
Company recorded unrealized appreciation of $7,500.
31
During June 2011, the Company’s CEO contributed 1,790,440 shares of NAEY to the Company which was valued at $125,331 based on
the trading price at the time. Mr. Pruitt did not receive additional compensation as a result of the transfer. At December 31, 2011, the Company
recorded unrealized appreciation of $89,522 based on a market value of $214,853.
NAEY appointed a new management team in December 2010 and they are seeking acquisition opportunities for onshore and offshore oil
and gas properties. Accordingly, the Company determined that any decline was temporary.
Vought Defense Systems Corp. (“VDSC”) – Initially the Company invested $100,000 for debt with a face value of $1,177,395 of
Lifestyle Innovations, Inc. After VDSC was acquired by the company in 2010, we converted our debt into 449,959 shares of VDSC which
were sold during 2010 for $41,645, resulting in a loss of $58,355.
EffTec International, Inc. - Effective April 1, 2010, the Company's CEO became a director and the CEO of EffTec International, Inc.
The Company received 150,000 shares of EffTec and an option to acquire an additional 150,000 shares at $0.15 per share in exchange for the
management services to be provided. The shares were valued at $22,500 based on the trading price of EffTec at the date of the transaction. At
December 31, 2010, the shares were valued at $0.30 per share and the $22,500 increase in value plus the value of the option of $22,500 was
included in accumulated other comprehensive income (loss). At September 30, 2011, the market value of the Efftec stock dropped to less than
$0.01 per share and the Company determined the reduction was other than temporary and impaired its investment to zero.
EffTec developed an Internet-based chiller tool called EffTrack™ that: collects, stores and analyzes chiller operating data, calculates and
trends chiller performance, diagnoses the cause of chiller inefficiencies, notifies plant contacts when problems occur, recommends corrective
actions, measures the results of corrective actions and provides cost analysis of operational improvements.
HiTech Stages, Ltd. (“HiTech”) – The Company originally acquired 275,000 shares of HiTech in exchange for 150,450 shares of
DineOut during the June 2010 quarter. HiTech was unable to raise sufficient capital to fund its business plan and the stock price dropped to
near zero at September 30, 2011. The Company determined the decline was other than temporary and fully impaired its investment on
September 30, 2011.
OTHER INVESTMENTS ARE SUMMARIZED AS FOLLOWS AT DECEMBER 31, 2011 AND 2010.
Investments accounted for under the equity method
Investments accounted for under the cost method
Total
INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Activity in investments accounted for using the equity method is summarized as follows.
Balance, beginning of year
Equity in earnings (loss)
New investments
Sale of investment
Distributions received
Balance, end of year
Equity investments consist of the following at December 31, 2011 and December 31, 2010:
32
2011
2010
$
813,079 $
766,598
$ 1,579,677 $
87,200
766,598
853,798
2011
2010
$
$
87,200 $
(76,113)
810,133
-
(8,141)
813,079 $
82,500
58,337
-
(37,500)
(16,137)
87,200
Carrying value:
Hoot SA I, II, III - South Africa
Hoot Campbelltown Pty. Ltd. (49%) - Australia
Hoot Surfers Paradise Pty. Ltd. (49%) - Australia
Brazil
2011
2010
$
$
140,803 $
570,134
102,041
101
813,079 $
87,200
-
-
-
87,200
Equity in earnings (loss) and distributions from equity investments during the year ended December, 2011 and 2010 follows. The activity
from the South African restaurants is through September 30, 2011 at which time the Company acquired majority ownership and began
consolidating these operations.
Equity in earnings (loss):
Hoot S.A. I, II, III
Hoot Campbelltown (49%)
Distributions:
Hoot S.A. I, LLC (20%)
Hoot S.A. II, LLC (20%)
2011
2010
(9,256)
(66,857)
(76,113) $
6,248
1,893
8,141 $
58,337
-
58,337
16,137
-
16,137
$
$
The summarized financial data for the South African operations of which we owned 20% at December 31, 2010 follows. The Company
acquired majority ownership effective September 30, 2011, accordingly, the amounts in 2011 are for only nine months. In addition, the
restaurant at the Hoot Campbelltown location incurred a loss for certain pre-opening expenses before it opened in January 2012, our share of
which is included above.
Revenue
Gross profit
Income from continuing operations
Net income
2011
2010
$ 3,364,265 $ 3,942,663
2,717,191
545,412
545,412
2,122,073
131,949
131,949
The summarized balance sheets for the two locations in Australia of which we owned 49% at December 31, 2011 and the Hoot SA
limited partnerships of which we owned 20% at December 31, 2010 follows:
ASSETS
Current assets
Non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
PARTNER'S EQUITY
TOTAL LIABILITIES AND PARTNERS' EQUITY
33
2011
2010
$
$
$
$
58,975 $
1,646,508
1,705,483 $
101,900
1,604,500
1,706,400
76,035 $
1,629,448
1,705,483 $
172,700
1,533,700
1,706,400
Hooters S.A., GP - The Company formed CHL to own the Company's 50% general partner interest in Hooters S.A., GP, the general
partner of the Hooters' restaurant franchises in South Africa. The initial restaurant opened in December 2009 in Durban, South Africa and
operations commenced in January 2010. In the initial restaurant CHL had a 10% interest in restaurant cash flows until the limited partners
receive payout and a 40% interest in restaurant cash flows after limited partner payout. The second location opened in Johannesburg in June
2010 and a third location opened in Cape Town in June of 2011 with similar structures. Effective September 30, 2011, the Company acquired
majority control of the South African operations and began consolidating its operations on October 1, 2011.
CHA (Hoot Campbelltown Pty. Ltd and Hoot Surfers Paradise Pty. Ltd.) – CHA entered into a partnership with the current local
Hooters franchisee in Australia in which CHA will own 49% and its partner own 51%. The local partner will also manage the restaurants. The
first location, Hoot Campbelltown Pty. Ltd. opened in Capmbelltown, a suburb of Sydney, in January 2012. A second location, Hoot Surfers
Paradise Pty. Ltd., is underway with plans to open in the second quarter of 2012.
INVESTMENTS ACCOUNTED FOR USING THE COST METHOD
A summary of the activity in investments accounted for using the cost method follows.
Investments at cost:
Balance, beginning of year
Impairment
Proceeds from sale of investment
Investment transferred to available-for-sale
securities
Total
Investments at cost consist of the following at December 31, 2011 and 2010:
Chanticleer Investors, LLC
Edison Nation LLC (FKA Bouncing Brain Productions)
Chanticleer Investors II
2011
2010
766,598 $ 1,191,598
(250,000)
(75,000)
-
-
-
766,598 $
(100,000)
766,598
2011
2010
500,000 $
250,000
16,598
766,598 $
500,000
250,000
16,598
766,598
$
$
$
$
Chanticleer Investors LLC - The Company sold 1/2 of its investment in Investors LLC in May 2009, which reduced its ownership
from 23% to 11.5%. Accordingly, in May 2009, the Company discontinued accounting for this investment using the equity method and began
to account for the investment using the cost method. In December 2010, the Company sold an additional $75,000 of its investment at cost.
On April 18, 2006, the Company formed Investors LLC and sold units for $5,000,000. Investors LLC’s principal asset was a convertible
note in the amount of $5,000,000 with Hooters of America, Inc. (“HOA”), collateralized by and convertible into 2% of Hooters common
stock. The original note included interest at 6% and was due May 24, 2009. The note was extended until November 24, 2010 and included an
increase in the interest rate to 8%.
The Company owned $1,150,000 (23%) of Investors LLC until May 29, 2009 when it sold 1/2 of its share for $575,000. Under the
original arrangement, the Company received 2% of the 6% interest as a management fee ($25,000 quarterly) and 4% interest on its investment
($11,500 quarterly). Under the extended note and revised operating agreement, the Company receives a management fee of $6,625 quarterly
and interest income of $11,500 quarterly.
34
On January 24, 2011, Investors LLC and its three partners combined to form HOA Holdings, LLC ("HOA LLC") and completed the
acquisition of Hooters of America, Inc. ("HOA") and Texas Wings, Inc. ("TW"). Together HOA LLC has created an operating company with
161 company-owned locations across sixteen states, or nearly half of all domestic Hooters restaurants and over one-third of the locations
worldwide.
Investors, LLC had a note receivable in the amount of $5,000,000 from HOA that was repaid at closing. Investors LLC then invested
$3,550,000 in HOA LLC (approximately 3.1%) ($500,000 of which is the Company's share). One of the investors in Investors LLC that
owned a $1,750,000 share is a direct investor in HOA LLC and will now carry its ownership in HOA LLC directly. The Company now owns
approximately 14% of Investors LLC.
Based on the current status of this investment, the Company does not consider the investment to be impaired.
EE Investors, LLC - On January 26, 2006, we acquired an investment in EE Investors, LLC with cash in the amount of $250,000. We
acquired 1,205 units (3.378%) in EE Investors, LLC, whose sole asset is 40% of Edison Nation, LLC (formerly Bouncing Brain Productions,
LLC). Edison Nation was formed to provide equity capital for new inventions and help bring them to market. The initial business plan
included developing the products and working with manufacturers and marketing organizations to sell the products. This has evolved into a
less hands-on program which involves selling products with patents to other larger companies and retaining royalties. Edison Nation has now
reached cash flow break-even, and in addition has been retained by a number of companies for which they do product searches to supplement
its business. Edison Nation plans to repay the majority of its debt in 2012 and expects to subsequently begin making distributions to its
owners. Based on the current status of this investment, the Company does not consider the investment to be impaired.
Chanticleer Investors II - The Company paid $16,598 in professional services to form this partnership. Chanticleer Advisors, LLC acts
as the managing general partner and receives a management fee based on a percentage of profits.
5.
PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2011 and 2010:
Office and computer equipment
Furniture and fixtures
Construction in progress
Restaurant furnishings and equipment
Accumulated depreciation
2011
2010
$
32,179 $
67,794
296,660
2,246,089
2,642,722
(133,899)
$ 2,508,823 $
29,371
47,686
-
-
77,057
(51,494)
25,563
Construction in progress consists of costs incurred as of December 31, 2011 for our Emperor’s Palace location in Johannesburg,
South Africa, which opened in February 2012. Restaurant furnishings and equipment consists of leasehold improvements, and bar, kitchen
and restaurant equipment used in our three locations opened as of December 31, 2011.
6.
INTANGIBLE ASSETS, NET
Intangible assets, net at December 31, 2011 consists of franchise fees for the Company’s South African restaurants of $475,376, less
amortization of $5,212. The Company is amortizing these costs from the opening of each restaurant for the 20 year term of the franchise
agreement with HOA.
35
7.
LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable are summarized as follows.
December 31, December 31,
2011
2010
$2,000,000 line of credit with a bank, interest at Wall Street Journal Prime +0.5% (minimum of
4.5%) payable monthly; due August 20, 2012; collateralized by a certificate of deposit owned by a
shareholder; collateralized by substantially all of the Company's assets and guaranteed by Mr. Pruitt
$
1,165,000 $
-
Note payable to a bank due in monthly installments of $1,739 including interest at Wall Street
Journal Prime + 1% (minimum of 5.5%); remaining balance due August 10, 2013; collateralized by
substantially all of the Company's assets and guaranteed by Mr. Pruitt
242,964
250,000
18% convertible notes payable; interest payable quarterly; due on the six-month anniversary of the
date issued; convertible under the same terms as the subsequent capital raised in connection with a
public offering of the Company's securities (currently approximately 544,000 shares)
10% convertible notes payable; interest payable quarterly; due January 4, 2012; converted into
common stock at the rate of $1.75 per share on March 30, 2011
Notes payable and current portion of long-term debt
Long-term debt, less current portion
1,625,000
-
-
3,032,964
2,796,855
236,109 $
$
686,500
936,500
250,000
686,500
The Company pays the shareholder whose certificate of deposit is used as collateral on the $2,000,000 line of credit 1% of the outstanding
balance on the line of credit monthly. In addition, the Company issued warrants to the shareholder, as described in Note 9.
During the three months ended March 31, 2011, the Company issued convertible notes payable with a total principal balance of $25,000
in exchange for an amount due a related party of $25,000. The convertible notes included interest at 10% per annum, which was payable
quarterly beginning on April 1, 2010 until maturity on January 4, 2012. The convertible notes were convertible into our common stock at the
rate of $1.75 per share. Convertible notes with a face value of $711,500 and accrued interest of $19,588 were converted into 412,286 shares
of our common stock on March 30, 2011.
36
8.
INCOME TAXES
Income taxes charged to income were:
Foreign - current
2011
2010
$
14,608 $
-
The amounts of U.S. and foreign income before income taxes, with a reconciliation of tax at the federal statutory rate (34%) with the
provision for income taxes were:
2011
2010
Loss (earnings) before income taxes:
United States
Foreign
Computed "expected" income tax expense (benefit)
Foreign taxes below federal statutory rate
State income taxes, net of federal benefit
Travel, entertainment and other
Valuation allowance
Income tax expense (benefit)
$
965,303 $ 1,069,902
(58,337)
123,479
$ 1,088,782 $ 1,011,565
(343,900)
$
-
(40,500)
10,100
374,300
-
(370,200) $
12,300
(43,600)
4,008
412,100
14,608 $
$
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes. Major components of deferred tax assets and liabilities at December 31, 2011 and
2010 were:
Net operating loss carryforwards
Capital loss carryforwards
Investments
Foreign operations
Total deferred tax assets
Valuation allowance
Net deferred tax assets
2011
2010
630,100
(86,700)
49,000
$ 1,688,500 $ 1,381,600
478,300
8,900
-
2,280,900 1,868,800
(2,280,900) (1,868,800)
-
- $
$
The Company has a net operating loss carryforward of approximately $4,443,000 which will expire at various dates beginning in 2024
through 2031, if not utilized. The Company has a capital loss carryforward of $1,658,000 which expires between 2015 and0 2016 if not
utilized. The tax basis of investments is less than their book cost by approximately $228,000.
37
9.
STOCKHOLDERS’ EQUITY
The Company has 200,000,000 shares of its $0.0001 par value common stock authorized and 3,012,121 and 2,571,918 shares issued and
2,498,891 and 2,048,688 shares outstanding at December 31, 2011 and 2010, respectively. There are no options outstanding.
Effective March 23, 2011, the Company's common stock was forward split, 2 shares for each share issued, pursuant to written consent by
a majority of the Company's shareholders. All share references have been adjusted as if the split occurred prior to all periods presented.
2011 Transactions
On March 30, 2011, the Company issued 412,286 shares of its common stock in exchange for convertible notes payable with a balance of
$711,500 and accrued interest of $19,588.
On July 28, 2011, the Company issued 10,000 shares of its common stock in exchange for consulting services valued at $21,500.
On September 23, 2011, the Company issued 15,000 shares of its common stock in exchange for consulting services to be performed
valued at $44,850.
On September 23, 2011, the Company issued 2,750 shares of its common stock in exchange for services performed and valued at $8,223.
On October 19, 2011, the Company issued 167 shares of its common stock in exchange for cash in the amount of $500.
2010 Transactions
During the year ended December 31, 2010, the Company issued: 15,572 shares of its common stock valued at $25,000 to two consultants
for consulting services; 33,594 shares of its common stock valued at $58,790 for amounts due a related party; and issued 10,000 shares for
$17,500 in accounts payable. Effective December 31, 2010, the Company issued 20,000 shares of its common stock to its outside directors for
directors fees valued at $42,500.
Warrants
On January 6, 2011, the Company filed a Form S-1 Registration Statement under the Securities Act of 1933. The Registration Statement
was declared effective on July 14, 2011 and registers one Class A Warrant and one Class B Warrant for each common share of the Company
issued and outstanding. The warrants have a subscription price of $0.04 which entitles our shareholders to acquire one Class A Warrant which
would entitle the holder to acquire one share of our common stock for $2.75 and one Class B Warrant which would entitle the holder to
acquire one share of our common stock for $3.50. The warrants have a five year life. At December 31, 2011, the Company had issued
2,194,509 Class A and Class B warrants. Proceeds from the offering are summarized as follows.
Proceeds from sales of Class A and Class B warrants
Legal and professional fees incurred for offering
$
$
87,780
(67,172)
20,608
On August 10, 2011, the Company issued two warrants to the shareholder who collateralized the Company's $2,000,000 line of credit
discussed in Note 7. The Class A Warrant is for 200,000 shares exercisable at $2.75 per share for 10 years and the Class B Warrant is for
250,000 shares exercisable at $3.50 per share for 10 years. The warrants were valued using Black-Scholes at $906,351. This amount will be
amortized to interest expense over the ten year life of the warrants. At December 31, 2011, additional paid-in capital and interest expense
include $35,247 in amortization.
38
On November 1, 2011, the Company entered into an investor relations consulting agreement. In addition to cash compensation, the
consultant is entitled to receive warrants for certain performance goals. These warrants will be accounted for when the goals are accomplished.
10.
RELATED PARTY TRANSACTIONS
Due to related parties
The Company has received non-interest bearing loans and advances from related parties. The amounts owed by the Company as of
December 31, 2011 and 2010 are as follows:
Hoot SA III, LLC
Hoot SA I, LLC
Chanticleer Foundation, Inc.
Chanticleer Investors, LLC
Avenel Financial Group
Due from related parties
2011
2010
$
$
- $
15,409
10,750
4,045
-
30,204 $
70,000
-
-
-
46,349
116,349
The Company has earned income from and made advances to related parties. The amounts owed to the Company at December 31, 2011
and 2010 is as follows:
Chanticleer Investors II, LLC
Chanticleer Investors, LLC
Chanticleer Dividend Fund, Inc.
Hoot SA II, LLC
Other
Management income from affiliates
The Company had management income from its affiliates in 2011 and 2010, as follows:
Chanticleer Investors, LLC
Chanticleer Investors II, LLC
Efftec International, Inc.
North American Energy Resources, Inc.
39
2011
2010
$
$
1,485 $
-
74,281
825
-
76,591 $
46,547
6,035
30,937
-
750
84,269
2011
2010
$
$
- $
1,485
-
1,750
3,235 $
26,500
57,718
22,500
8,750
115,468
Chanticleer Investors LLC
Investors LLC collected its note receivable and reinvested $3,550,000 in HOA LLC (See Note 4). The Company received $26,500 in
management income from Investors LLC in 2010, before the investment in HOA LLC was completed. There was no management income
from Investors LLC in 2011.
Chanticleer Investors II LLC
The Company manages Investors II and earned management income of $1,485 and $57,718 ($46,547 was collected March 15, 2011 and
$11,171 was collected in 2010) in 2011 and 2010, respectively.
Chanticleer Dividend Fund, Inc. ("CDF")
On November 10, 2010 the Company formed CDF under the general corporation laws of the State of Maryland. CDF filed a registration
statement under Form N-2 to register as a non-diversified, closed-end investment company in January 2011. The Company, through
Advisors, will have a role in management of CDF when its registration statement becomes effective.
Hoot SA, LLC; Hoot SA II, LLC; and Hoot SA III, LLC
The Hoot partnerships were formed to help finance the first three Hooters restaurants in South Africa.
Efftec International, Inc. ("Efftec")
The Company's CEO became CEO and the sole director of Efftec during 2010 and the Company received 150,000 common shares and an
option to acquire 150,000 shares for management services. The shares and option were initially valued at $22,500, based on the trading price
of Efftec at the time.
North American Energy Resources, Inc. ("NAEY")
The Company's CEO became CEO and a director of NAEY during 2010 and the Company received 150,000 common shares for
management services. The shares were valued at $10,500, based on the trading price of NAEY at the time. The Company's CEO resigned as
CEO of NAEY in December 2010 and remains a director. During June 2011, the Company’s CEO contributed 1,790,440 shares of NAEY to
the Company which was valued at $125,331 based on the trading price at the time. Mr. Pruitt did not receive additional compensation as a
result of the transfer.
Chanticleer Foundation, Inc.
Chanticleer Foundation, Inc. is a Donor-Advised Fund whose governing body consists of Mr. Pruitt, a director of the Company and an
employee of the Company. The Foundation loaned the Company $10,750 during 2011.
Avenel Financial Group, Inc.
Avenel Financial Group, Inc. is a company owned by Mr. Pruitt. Advances previously made to the Company were repaid during 2011.
Other
The Company acquired trading securities from a related party for $26,334 which were sold for $32,917 in 2010.
40
11.
SEGMENTS OF BUSINESS
The Company is organized into two segments as of the end of 2011 and 2010.
Management and consulting services ("Management")
The Company provides management and consulting services for small companies which are generally seeking to become publicly traded.
The Company also provides management and investment services for Investors LLC, Investors II and other unaffiliated companies.
Operation of restaurants ("Restaurants")
At December 31, 2011, the Company has majority ownership of four restaurants and a management company in South Africa. Three of
the restaurants and the management company were operating at December 31, 2011 and the fourth restaurant opened in February 2012.
Majority ownership was acquired effective September 30, 2011 and these operations are consolidated with the Company’s other operations
since that date. At December 31, 2011, the Company has 49% ownership of two restaurants in Australia, one of which opened in January
2012 and the second is under construction and expected to open in the second quarter of 2012. The operations in Australia will be accounted
for using the equity method. The Company has also begun activity in Hungary, Brazil and Europe, but has not finalized any arrangement.
Financial information regarding the Company's segments is as follows for 2011 and 2010.
Year ended December 31, 2011
Revenues
Interest expense
Depreciation and amortization
Profit (loss)
Investments and other
Non-controlling interest
Assets
Investments
Management Restaurants
Total
$
$
$
496,402 $
967,418 $ 1,463,820
118,995 $
61,830 $
180,825
8,013 $
79,604 $
87,617
$ (1,004,157) $
(104,659) $(1,108,816)
-
5,426
$(1,103,390)
$
471,701 $ 3,948,026 $ 4,419,727
1,084,951
$ 5,504,678
Liabilities
$
3,522,775 $
340,640 $ 3,863,415
Expenditures for non-current assets
$
2,807 $
385,302 $
388,109
41
Year ended December 31, 2010
Management Restaurants
Total
Revenues
Interest expense
Depreciation and amortization
Profit (loss)
Investments and other
Non-controlling interest
$
$
$
$
Assets
Investments
$
208,261 $
136,301 $
- $
136,301
140,016 $
- $
140,016
11,079 $
- $
11,079
(949,904) $
58,337 $ (891,567)
(138,351)
18,353
$(1,011,565)
87,200 $
295,461
1,119,098
$ 1,414,559
Liabilities
$
1,332,134 $
- $ 1,332,134
Expenditures for non-current assets
$
4,517 $
- $
4,517
The following is revenues and long-lived assets by geographic area as of and for the years ended December 31:
Revenue:
United States
South Africa
2011
2010
$ 496,402 $136,301
-
$1,463,820 $136,301
967,418
Long-lived assets, end of year:
United States
South Africa
Australia
Brazil
2011
2010
$1,109,288 $1,168,641
87,200
3,112,783
-
672,175
-
101
$4,894,347 $1,255,841
The Company used multiple foreign currency exchange rates during the periods presented. For South Africa, for the Statements of
Operations we used average rates for the period ranging from 7.94-8.17 Rands per USD, and for the Balance Sheet current assets and
liabilities were at 8.12 and non-current assets and liabilities ranging from 6.93-8.07. For Australia, for the Statement of Operations we used an
average rate of 1.02 USD per AUD and for the balance sheet we used 1.06 for current assets and liabilities, and 1.02 for non-current assets
and liabilities.
12.
COMMITMENTS AND CONTINGENCIES
Effective August 1, 2010, the Company extended its office lease agreement for its office for a term of one year with monthly lease
payments of $2,100. Since August 1, 2011, the office lease continues at the same rate on a month-to-month basis.
42
The Company leases the land and buildings for its four restaurants in South Africa through its subsidiaries. The leases are for five year
terms and include options to extend the terms. We lease our restaurant facilities under “triple net” leases that require us to pay minimum rent,
real estate taxes, maintenance costs and insurance premiums and, in some instances, percentage rent based on sales in excess of specified
amounts. Rent obligations for our four restaurants are presented below:
2012
2013
2014
2015
thereafter
Totals
$ 526,787
578,252
634,891
697,223
765,824
$3,202,977
Rent expense for the years ended December 31, 2011 and December 31, 2010 was $126,909 and $25,200, respectively. Rent expense for
the year ended December 31, 2011 for the South African restaurants was $97,691, and is included in the “Restaurant operating expenses” of
the Consolidated Statement of Operations. Rent expense for the year ended December 31, 2011 for the management segment was $29,218,
and is included in the “General and administrative expense” of the Consolidated Statement of Operations. Rent expense for the year ended
December 31, 2010 was all for the management segment.
13.
DISCLOSURES ABOUT FAIR VALUE
Assets and liabilities measured at fair value on a recurring basis are summarized in the following tables according to FASB ASC 820
pricing levels.
Fair Value Measurement Using
Quoted
prices
in active
markets of
identical
assets
(Level 1)
other
observable
inputs
(Level 2)
Significant
Recorded
value
December 31, 2011
Assets:
Available-for-sale securities
$
318,353 $
316,853 $
1,500 $
December 31, 2010
Assets:
Available-for-sale securities
$
352,500 $
101,500 $
251,000 $
Significant
Unobservable
Inputs
(Level 3)
-
-
At December 31, 2011 and 2010, the Company's available-for-sale equity securities were valued using Level 1 and Level 2 inputs as
summarized above. Level 1 inputs are based on unadjusted prices for identical assets in active markets that the Company can access. Level 2
inputs are based on quoted prices for similar assets other than quoted prices in Level 1, quoted prices in markets that are not yet active, or other
inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the
assets.
The Company does not have any investments that are measured on a recurring basis using Level 3 inputs.
Certain assets are not carried at fair value on a recurring basis, including investments accounted for under the equity and cost methods.
Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to re-measurement at fair
value after initial recognition and the resulting re-measurement is reflected in the consolidated financial statements.
43
In 2010, the Company considered a cost basis investment to be impaired and recognized an impairment loss of $250,000 in the
consolidated statement of operations. This impairment was determined using Level 3 inputs to determine the estimated fair value, which was
determined to be less than the recorded amounts.
See Note 4 for further details of the Company's investments.
14.
SUBSEQUENT EVENTS
CONVERTIBLE NOTES PAYABLE
On January 5, 2012, March 15, 2012 and March 29, 2012, the Company received an additional $100,000, $135,000 and $865,000,
respectively, of convertible debt, bringing the total to $2,725,000.
EQUITY RAISE
On February 22, 2012, the Company filed a Form S-1 Registration Statement under the Securities Act of 1933. The Registration
Statement, when effective, would seek to raise $15 million with the issuance of 5 million units consisting of Common Stock shares at $3.00
per share and five year warrants at $3.25 per share.
NEW HOOTERS DEVELOPMENT RIGHTS
On March 15, 2012, the Company announced it had secured exclusive rights to operate Hooters restaurants in 3 of the most populated
states of Brazil. The Company has partnered with the Nash Group, an established restaurant operating company, forming a joint venture
company Chanticleer & Nash Brasil Foods Participações Ltda. ("CNBF"), where Chanticleer will own 60% of the operating entity. The group
expects to open its first restaurant in the 3rd quarter 2012. The franchise agreement, signed with CNBF and Hooters of America on March 13,
2012, provides CNBF exclusive rights to open and operate Hooters restaurants in 3 states, including Rio de Janeiro, Minas Gerais and
Espirito Santo, over the next 20 years.
44
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Under the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant
deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material
weakness, yet important enough to merit the attention by those responsible for oversight of the company's financial reporting. A material
weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.
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) and Rule 15d-
15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of December 31, 2011. Our management has
determined that, as of December 31, 2011, the Company's disclosure controls and procedures are effective.
Management's report on internal control over financial reporting
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting, as defined
in Rule 13a-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable
assurance to the Company's management and Board of Directors regarding the preparation and fair presentation of published financial
statements in accordance with the United States' generally accepted accounting principles (US GAAP), including those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition
of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with US GAAP and that receipts and expenditures are being made only in accordance with authorizations of
management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer,
we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in its Internal Control - Integrated Framework.
Based on our evaluation under the framework in Internal Control - Integrated Framework, our management has concluded that our internal
control over financial reporting was effective as of December 31, 2011.
There were no significant changes in internal controls or in other factors that could significantly affect these controls during the quarter
ended December 31, 2011.
ITEM 9B: OTHER INFORMATION
Not applicable.
45
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following section sets forth the names, ages and current positions with the Company held by the Directors, Executive Officers and
Significant Employees as of December 31, 2011; together with the year such positions were assumed. There is no immediate family
relationship between or among any of the Directors, Executive Officers or Significant Employees, and the Company is not aware of any
arrangement or understanding between any Director or Executive Officer and any other person pursuant to which he was elected to his current
position.
Each Director and Executive Officer will serve until he or she resigns or is removed or otherwise disqualified to serve or until his or her
successor is elected. The Company currently has five Directors.
NAME
Michael D. Pruitt
Michael Carroll
Brian Corbman
Paul I. Moskowitz
Keith Johnson
Michael D. Pruitt
AGE
51
63
36
55
54
POSITION
President, CEO and Director since June 2005
Independent Director since June 2005
Independent Director since August 2005
Independent Director since April 2007
Independent Director since November 2009
Michael Pruitt, a long-time entrepreneur with a proven track record, possesses the expertise to evaluate potential investments, form key
relationships and recognize a strong management team. Mr. Pruitt founded Avenel Financial Group, a boutique financial services firm
concentrating on emerging technology company investments. The business succeeded immediately, and in order to grow Avenel Financial
Group to its full potential and better represent the company's ongoing business model, he formed Avenel Ventures, an innovative technology
investment and private venture capital firm. In the late 1980s, Mr. Pruitt owned Southern Cartridge, Inc., which he eventually sold to
MicroMagnetic, Inc., where he continued working as Executive Vice President and a Board member until Southern Cartridge was sold to
Carolina Ribbon in 1992. From 1992 to 1996, Mr. Pruitt worked in a trucking firm where he was instrumental in increasing revenues from
$6 million to $30 million. The firm was sold in 1996 to Priority Freight Systems. Between 1997 and 2000, Mr. Pruitt assisted several public
and private companies in raising capital, recruiting management and preparing companies to go public or be sold. He was the CEO, President
and Chairman of the Board of Onetravel Holdings, Inc. (formerly RCG Companies), a publicly traded holding company formerly listed on the
AMEX. Mr. Pruitt received a Bachelor of Arts degree from Coastal Carolina University in Conway, South Carolina, where he sits on the
Board of Visitors of the Wall School of Business. Mr. Pruitt is currently a director of North American Energy Resources, Inc. and CEO and
director of Efftec International, Inc.
Michael Carroll
Michael Carroll currently owns and operates a sales and training consulting firm based in Richmond, Virginia. Mr. Carroll has also
served as a director for OneTravel Holdings, Inc., formerly RCG Companies Incorporated, since January of 2004. He previously spent 22
years in the distribution business, 19 of which were in computer products distribution. In 1978, Mr. Carroll founded MicroMagnetic, Inc., a
computer supply distribution company that he sold to Corporate Express in 1997. From 1997 to 1999, he was a division president at
Corporate Express, a publicly traded business-to-business office products and service provider. He holds a Bachelor’s Degree in Business
Management from The College of William & Mary in Williamsburg, Virginia, and a Master’s Degree in Business Administration from
Virginia Commonwealth University.
46
Brian Corbman
Brian Corbman is the managing director of Ardent Advisors, a consulting company he co-founded in 2003, that specializes in business
strategy and corporate advisory services for emerging growth companies. Mr. Corbman is in the process of becoming an Officer of
Supervisory Jurisdiction under the Westor Capital broker dealer umbrella and services buy-side institutional investors via equity research,
institutional trading execution and investment banking activities. Previously, he was an institutional salesman at Fulcrum Global Partners and
Banc of America Securities. Prior to that, he gained valuable corporate experience working for GSI Commerce, a publicly traded company,
where he was the sole corporate development analyst. A Magna Cum Laude graduate of George Washington University in Washington, DC,
he holds a Bachelor’s degree in Business Administration. Mr. Corbman has also attained the NASD general securities principal Series 24,
Series 7 and Series 63 licenses.
Paul I. Moskowitz
Paul Moskowitz is a Phi Beta Kappa of Vassar College and Cardozo Law School. Mr. Moskowitz was a co-founder and partner of a
successful New York law firm specializing in corporate and real estate law. He became affiliated with The World Travel Specialist Group/The
Lawyers’ Travel Service (“WTSG/LTS”) in 1988 and served as corporate counsel, representing the growing travel agency network in legal,
real estate, and other business activities. In 1989, he joined WTSG full time as President and Chief Operating Officer until March 2003, with
his primary responsibilities including day-to-day operations which encompassed WTSG’s airline relationships and sales and marketing. Mr.
Moskowitz led the growth of WTSG to one of the top 20 U.S. travel management firms with more than 90 offices throughout the U.S. Mr.
Moskowitz is currently engaged as a consultant for another travel organization.
Keith Johnson
Mr. Johnson currently serves as President of Efficiency Technologies, Inc., the wholly owned operating subsidiary of Efftec
International, Inc. Prior to that he was the President and Chief Executive Officer of YRT² (Your Residential Technology Team) in Charlotte,
North Carolina, from 2004 until May 2010. Mr. Johnson served as Executive Vice President and Chief Financial Officer of The Telemetry
Company in Dallas, Texas (1997-2004), Senior Vice President - Finance and Administration of Brinks Home Security in Dallas, Texas
(1995-1997), and Chief Financial Officer of BAX Global in London, England (1992-1995). Mr. Johnson has a BS in accounting from
Fairfield University in Fairfield, Connecticut.
We believe that each of our directors’ experience in business and financial matters qualifies them to serve as one of our directors.
AUDIT COMMITTEE
We have a separately designated standing audit committee established in accordance with Section 3 (a)(58)(A) of the Exchange Act,
which is currently made up of Mr. Johnson and Mr. Corbman. The Board of Directors has determined that Keith Johnson meets the
requirements of a financial expert and serves as Chairman of the Audit Committee. Mr. Johnson is independent as specified in Item 7
(d)(3)(iv) of Schedule 14A under the Exchange Act.
The primary responsibility of the Audit Committee is to oversee our financial reporting process on behalf of the Board of Directors and
report the result of their activities to the Board. Such responsibilities shall include, but shall not be limited to, the selection and, if necessary,
the replacement of our independent auditors and review and discussion with such independent auditors of (i) the overall scope and plans for
the audit, (ii) the adequacy and effectiveness of the accounting and financial controls, including our system to monitor and manage business
risks, and legal and ethical programs, and (iii) the results of the annual audit, including the financial statements to be included in our annual
report on Form 10-K. In this regard, the Audit Committee has:
· Reviewed and discussed the audited financial statements with management;
· Discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61, as
amended and as adopted by the Public Company Accounting Oversight Board in Rule 3200T;
· Received the written disclosures and the letter from the independent accountant required by applicable requirements of the Public
Company Accounting Oversight Board regarding the independent accountant's communications with the audit committee
concerning independence, and has discussed with the independent accountant the independent accountant's independence; and
· Based on the review and discussions referred to in the first three items, has recommended to the board of directors that the audited
financial statements be included in the Company's annual report on Form 10-K for the last fiscal year for filing with the
Commission.
47
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and persons who own more
than ten percent of our common stock to file initial reports of ownership and changes in ownership with the SEC. Additionally, SEC
regulations require that we identify any individuals for whom one of the referenced reports was not filed on a timely basis during the most
recent fiscal year or prior fiscal years. To the best of our knowledge, based solely on a review of reports furnished to us, each of the Directors,
Officers and 10% Shareholders timely filed any required Form 4’s during fiscal 2011.
CODE OF ETHICS
The Board of Directors of the Company adopted a Code of Ethics which was effective May 23, 2005, which was filed as Exhibit 14 to
is available on our website at
the Company’s Form 10-K/A dated December 31, 2007. A copy of
www.chanticleerholdings.com, free of charge, under the Corporate Governance Investors section.
this document
NOMINATING COMMITTEE
We do not currently have a standing nominating committee, or a committee performing similar functions. The full Board of Directors
currently serves this function.
ITEM 11: EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors deliberates executive compensation matters to the extent they are not delegated to
the Chief Executive Officer.
a. Summary Compensation Table
The following table shows the compensation of the Company’s Chief Executive Officer and each executive officer whose total cash
compensation exceeded $100,000 for the two years ended December 31, 2011.
ANNUAL COMPENSATION
Name and Principal Position
Year
Salary
Bonus
Total
Michael D. Pruitt (CEO since
June 2005)
2011 $
2010 $
168,000 $
154,000 $
- $
- $
168,000
154,000
Required columns for stock awards, option awards, non-entity incentive plan compensation, change in pension value and nonqualified
deferred compensation earnings and all other compensation are omitted from the table above as the amounts are all zero.
b. Compensation of directors
The Company did not compensate its directors in 2011.
The Company intends to pay its Executives and Directors salaries, wages or fees commensurate with experience and industry standards in
relationship to the success of the Company.
48
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table indicates all persons who, as of February 29, 2012, the most recent practicable date, are known by us to own
beneficially more than 5% of any class of our outstanding voting securities. As of February 29, 2012, there were 3,012,121 shares of our
common stock issued and 2,498,891 shares of our common stock outstanding. The calculations below are based on the number of shares
issued, which includes treasury stock of 513,230 shares. Except as otherwise indicated below, to the best of our knowledge, each person
named in the table has sole voting and investment power with respect to the securities beneficially owned by them as set forth opposite their
name.
Title of Class
Common
Common
Name and Address of
Beneficial Owner
Amount and Nature of
Beneficial Owner
% of Class
Sandor Capital Master Fund LP (1)
Robert B. Prag (2)
298,200
298,200
9.9%
9.9%
(1) John S. Lemak has investment and voting control over the securities held by Sandor Capital Master Fund LP. Sandor maintains principal
offices at 2828 Routh Street, Suite 500, Dallas, TX 75201. The amounts set forth in the table include 174,772 shares of common stock
owned by Sandor, 24,700 shares of common stock owned by John S. Lemak and 98,728 shares of common stock underlying Class A
Warrants owned by Sandor. The amounts set forth in the table exclude additional shares underlying Class A Warrants and Class B
Warrants owned by Sandor and John S. Lemak, which warrants limit exercise to that number of shares that, when aggregated with the
holder’s existing ownership of the Company’s common stock, would result in such holder, together with related persons or entities,
owning more than 9.9% of the Company’s issued and outstanding common stock. This information is based solely on information in
Schedule 13G.
(2) Mr. Prag's address is 2455 El Amigo Road, Del Mar, CA 92014. The amounts set forth in the table include 152,000 shares of common
stock owned by Mr. Prag, 28,000 shares of common stock owned by Del Mar Consulting Group, Inc. Retirement Plan Trust 9with respect
to which Mr. Prag serves as Trustee), and 115,000 shares of common stock underlying Class A Warrants and Class B Warrants owned by
Mr. Prag and Del Mar Consulting Group, Inc. Retirement Plan Trust, which warrants limit exercise to that number of shares that, when
aggregated with the holder’s existing ownership of the Company’s common stock, would result in such holder, together with related
persons or entities, owning more than 9.9% of the Company’s issued and outstanding common stock. This information is based solely on
information in Schedule 13G.
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates the beneficial ownership of our voting securities of all Directors of the Company and all Executive Officers
who are not Directors of the Company, and all officers and directors as a group, as of February 29, 2012, the most recent practicable date. As
of February 29, 2012, there were 3,012,121 shares of our common stock issued and 2,498,891 shares of our common stock outstanding. The
calculations below are based on the number of shares issued, which includes treasury stock of 513,230 shares. Except as otherwise indicated
below, to the best of our knowledge, each person named in the table has sole voting and investment power with respect to the securities
beneficially owned by them as set forth opposite their name. All options are currently exercisable, unless otherwise indicated.
49
Title of Class
Common
Common
Common
Common
Common
Common
* Less than 1%.
Name and Address of
Beneficial Owner
Amount and Nature of
Beneficial Owner
% of Class
Michael D. Pruitt (1)
11220 Elm Lane, Suite 203
Charlotte, NC 28277
Michael Carroll (2)
11220 Elm Lane, Suite 203
Charlotte, NC 28277
Paul I. Moskowitz (2)
11220 Elm Lane, Suite 203
Charlotte, NC 28277
Brian Corbman (2)
11220 Elm Lane, Suite 203
Charlotte, NC 28277
Keith Johnson (2)
11220 Elm Lane, Suite 203
Charlotte, NC 28277
All officers and directors as a
Group (5 persons)
404,610
13.4%
33,000
18,600
33,100
6,000
*
*
*
*
495,310
16.1%
(1) Includes 62,680 shares of common stock held by Avenel Financial Group, Inc., a corporation controlled by Mr. Pruitt. The amounts set
forth in the table exclude additional shares underlying Class A Warrants and Class B Warrants owned by Mr. Pruitt and Avenel Financial
Group, Inc., which warrants limit exercise to that number of shares that, when aggregated with the holder’s existing ownership of the
Company’s common stock, would result in such holder, together with related persons or entities, owning more than 9.9% of the
Company’s issued and outstanding common stock.
(2) Includes Class A and Class B warrants as follows.
Shares
Owned
Class A
Class B
Warrants
Warrants
Total
Michael Carroll
Brian Corbman
Paul I. Moskowitz
Keith Johnson
11,000
11,100
6,200
2,000
11,000
11,000
6,200
2,000
11,000
11,000
6,200
2,000
33,000
33,100
18,600
6,000
EQUITY COMPENSATION PLAN INFORMATION
We do not currently have an equity compensation plan.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Due to related parties
The Company has received non-interest bearing loans and advances from related parties. The amounts owed by the Company as of
December 31, 2011 and 2010 are as follows:
50
Hoot SA III, LLC
Hoot SA I, LLC
Chanticleer Foundation
Chanticleer Investors, LLC
Avenel Financial Group
2011
2010
$
$
- $
15,409
10,750
4,045
-
30,204 $
70,000
-
-
-
46,349
116,349
Due from related parties
The Company has earned income from and made advances to related parties. The amounts owed to the Company at December 31, 2011
and 2010 is as follows:
Chanticleer Investors II, LLC
Chanticleer Investors, LLC
Chanticleer Dividend Fund, Inc.
Hoot SA II, LLC
Other
2011
2010
$
$
1,485 $
-
74,281
825
-
76,591 $
46,547
6,035
30,937
-
750
84,269
Management income from affiliates
The Company had management income from its affiliates in 2011 and 2010, as follows:
Chanticleer Investors, LLC
Chanticleer Investors II, LLC
Efftec International, Inc.
North American Energy Resources, Inc.
2011
2010
$
$
- $
1,485
-
1,750
3,235 $
26,500
57,718
22,500
8,750
115,468
Chanticleer Investors LLC
Investors LLC collected its note receivable and reinvested $3,550,000 in HOA LLC (See Note 4). The Company received $26,500 in
management income from Investors LLC in 2010, before the investment in HOA LLC was completed. There was no management income
from Investors LLC in 2011.
Chanticleer Investors II LLC
The Company manages Investors II and earned management income of $1,485 and $57,718 ($46,547 was collected March 15, 2011 and
$11,171 was collected in 2010) in 2011 and 2010, respectively.
Chanticleer Dividend Fund, Inc. ("CDF")
On November 10, 2010 the Company formed CDF under the general corporation laws of the State of Maryland. CDF filed a registration
statement under Form N-2 to register as a non-diversified, closed-end investment company in January 2011. The Company, through
Advisors, will have a role in management of CDF when its registration statement becomes effective.
51
Hoot SA, LLC; Hoot SA II, LLC; and Hoot SA III, LLC
The Hoot partnerships were formed to help finance the first three Hooters restaurants in South Africa.
Efftec International, Inc. ("Efftec")
The Company's CEO became CEO and the sole director of Efftec during 2010 and the Company received 150,000 common shares and an
option to acquire 150,000 shares for management services. The shares and option were initially valued at $22,500, based on the trading price
of Efftec at the time.
North American Energy Resources, Inc. ("NAEY")
The Company's CEO became CEO and a director of NAEY during 2010 and the Company received 150,000 common shares for
management services. The shares were valued at $10,500, based on the trading price of NAEY at the time. The Company's CEO resigned as
CEO of NAEY in December 2010 and remains a director.
During June 2011, the Company’s CEO contributed 1,790,440 shares of NAEY to the Company which was valued at $125,331 based on
the trading price at the time. Mr. Pruitt did not receive additional compensation as a result of the transfer. At December 31, 2011, the Company
recorded unrealized appreciation of $89,522 based on a market value of $214,853.
Chanticleer Foundation, Inc.
Chanticleer Foundation, Inc. is a Donor-Advised Fund whose governing body consists of Mr. Pruitt, a director of the Company and an
employee of the Company. The Foundation loaned the Company $10,750 during 2011.
Avenel Financial Group, Inc.
Avenel Financial Group, Inc. is a company owned by Mr. Pruitt. Advances previously made to the Company were repaid during 2011.
Other
The Company acquired trading securities from a related party for $26,334 which were sold for $32,917 in 2010.
Director Independence
We undertook a review of the independence of our directors and, using the definitions and independence standards for directors provided
in the rules of The Nasdaq Stock Market, although not required as the standard for the Company as it is traded on the Over-the-Counter
Market considered whether any director has a material relationship with us that could interfere with his ability to exercise independent
judgment in carrying out his responsibilities. As a result of this review, we determined that Michael Carroll, Brian Corbman, Paul Moskowitz
and Keith Johnson are "independent directors" as defined under the rules of The Nasdaq Stock Market.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES: For the fiscal years ended December 31, 2011 and 2010, Creason & Associates, P.L.L.C. billed the Company for services
rendered through March 16, 2012, for the audit of the Company’s financial statements included in its report on Form 10-K and the reviews of
the financial statements included in its reports on Form 10-Q filed with the SEC as follows (the 2011 period will not include all billings for the
audit):
52
Audit and review services
AUDIT RELATED FEES: None.
TAX FEES: Not applicable.
OTHER FEES: None.
2011
2010
$
53,000 $
48,500
The Audit Committee reviews, and in its sole discretion pre-approves, our independent registered public accounting firm’s annual
engagement letter, including proposed fees and all audit and non-audit services provide by the independent registered public accounting firm.
All services described above were pre-approved by our Audit Committee. The Board may not engage the independent registered public
accounting firm to perform non-audit services proscribed by law or regulation.
53
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) The following documents are filed as part of this report:
1. Financial Statements – The following financial statements of Chanticleer Holdings, Inc. are contained in Item 8 of this
Form 10-K:
· Report of Independent Registered Public Accounting Firm
· Consolidated Balance Sheets at December 31, 2011 and 2010
· Consolidated Statements of Operations – For the years ended December 31, 2011 and 2010
· Consolidated Statements of Stockholders’ Equity at December 31, 2011 and 2010
· Consolidated Statements of Cash Flows – For the years ended December 31, 2011 and 2010
· Notes to the Consolidated Financial Statements
2. Financial Statement Schedules were omitted, as they are not required or are not applicable, or the required information is
included in the Financial Statements.
3. Exhibits – The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in
accordance with Rule 12b-32 under the Securities Exchange Act of 1934.
Exhibit Description
3.1(a) Certificate of Incorporation (2)
3.1(b) Certificate of Merger, filed May 2, 2005 (3)
3.1(c) Certificate of Amendment, filed July 16, 2008
3.1(d) Certificate of Amendment, filed March 18, 2011 (4)
3.2 Bylaws (2)
4.1 Form of Common Stock Certificate (5)
4.2 Form of Unit Certificate (1)
4.3 Form of Warrant Certificate (1)
4.4 Form of Warrant Agreement (1)
4.5 Form of Representative’s Warrant (1)
10.1 Revolving Credit Facility dated August 10, 2011 between the Company and Paragon Commercial Bank (5)
10.2 Form of Franchise Agreement between the Company and Hooters of America, LLC (5)
21 Subsidiaries
31.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934
32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350
(1) Incorporated by reference to the Registration Statement on Form S-1 filed on February 3, 2012.
(2) Incorporated by reference to the Registration Statement on Form 10-SB filed on February 15, 2000.
(3) Incorporated by reference from Exhibit 2.1 to the Quarterly Report on Form 10-Q, filed August 15, 2011.
(4) Incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K, filed on March 18, 2011.
(5) Incorporated by reference to the Registration Statement on Form S-1 filed on December 2, 2011.
54
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 on April 4, 2012.
SIGNATURES
CHANTICLEER HOLDINGS, INC.
By:
/s/ Michael D. Pruitt
Michael D. Pruitt, Chairman,
Chief Executive Officer,
Chief Financial Officer, and Principal
Accounting Officer
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 in the capacities and on the dates indicated.
Date
April 4, 2012
April 4, 2012
April 4, 2012
April 4, 2012
April 4, 2012
Title (Capacity)
Chairman, Chief Executive Officer,
Chief Financial Officer, and Principal
Accounting Officer
Director
Director
Director
Director
55
Signature
/s/ Michael D. Pruitt
Michael D. Pruitt
/s/ Michael Carroll
Michael Carroll
/s/ Brian Corbman
Brian Corbman
/s/ Paul I. Moskowitz
Paul I. Moskowitz
/s/ Keith Johnson
Keith Johnson
Exhibit 31.1
CHANTICLEER HOLDINGS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002
I, Michael D. Pruitt, certify that:
1. I have reviewed this Report on Form 10-K of Chanticleer Holdings, Inc;
2. Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-a15(f) and 15d-15(f) for the registrant and
have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
me by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s
current fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and;
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions);
a. All significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal controls.
Date: April 4, 2012
/s/ Michael D. Pruitt
President, Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)
Exhibit 32.1
CHANTICLEER HOLDINGS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael D. Pruitt, certify that:
1. I am the Chief Executive Officer and Chief Financial Officer of Chanticleer Holdings, Inc.
2. Attached to this certification is Form 10-K for the fiscal year ended December 31, 2011, a periodic report (the “periodic report”) filed
by the issuer with the Securities Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934
(the “Exchange Act”), which contains financial statements.
3 I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
· The periodic report containing the financial statements fully complies with the requirements of Section 13(a) or 15(d) of the
Exchange Act; and
· The information in the periodic report fairly presents, in all material respects, the financial condition and results of operations
of the issuer for the periods presented.
April 4, 2012
/s/ Michael D. Pruitt
Michael D. Pruitt
President, Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)