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, 2015
Commission File Number 001-35570
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)
7621 Little Avenue, Suite 414, Charlotte, NC 28226
(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
Common Stock Warrants, $5.00 exercise price
(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. [X] Yes [ ] 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). [X] Yes [ ] No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [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.
The aggregate market value of the voting stock held by non-affiliates was $30,632,579 based on the closing sale price of the Company’s
Common Stock as reported on the NASDAQ Stock Market on June 30, 2015.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were
21,337,247 shares of common stock issued and outstanding as of March 25, 2016.
Chanticleer Holdings, Inc.
Form 10-K Index
Business
Risk Factors
Properties
Legal Proceedings
Mine Safety Disclosures
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 Accounting 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
Exhibits and Financial Statement Schedules
Item 15:
Signatures
Exhibit Index
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FORWARD-LOOKING STATEMENTS
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of The Private Securities Litigation
Reform Act of 1995. These statements include projections, predictions, expectations or statements as to beliefs or future events or
results or refer to other matters that are not historical facts. Forward-looking statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ materially from those contemplated by these statements.
The forward-looking statements contained in this Annual Report are based on various factors and were derived using numerous
assumptions. In some cases, you can identify these forward-looking statements by the words “anticipate”, “estimate”, “plan”,
“project”, “continuing”, “ongoing”, “target”, “aim”, “expect”, “believe”, “intend”, “may”, “will”, “should”, “could”, or the negative
of those words and other comparable words. You should be aware that those statements reflect only the Company’s predictions. If
known or unknown risks or uncertainties should materialize, or if underlying assumptions should prove inaccurate, actual results
could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind when reading
this Annual Report and not place undue reliance on these forward-looking statements. Factors that might cause such differences
include, but are not limited to:
● Operating losses may continue for the foreseeable future; we may never be profitable;
● Inherent risks in expansion of operations, including our ability to acquire additional territories, generate profits from new
restaurants, find suitable sites and develop and construct locations in a timely and cost-effective way;
● Inherent risks associated with acquiring and starting new restaurant concepts and store locations;
● General risk factors affecting the restaurant industry, including current economic climate, costs of labor and food prices;
● Intensive competition in our industry and competition with national, regional chains and independent restaurant operators;
● Our rights to operate and franchise the Hooters-branded restaurants are dependent on the Hooters’ franchise agreements;
● We do not have full operational control over the businesses of our franchise partners or operations where we hold less
100% ownership;
● Failure to protect our intellectual property rights, including the brand image of our restaurants;
● Our business has been adversely affected by declines in discretionary spending and may be affected by changes in
consumer preferences;
● Increases in costs, including food, labor and energy prices;
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● Our business and the growth of our Company is dependent on the skills and expertise of management and key personnel;
● Constraints could affect our ability to maintain competitive cost structure, including, but not limited to labor constraints;
● Work stoppages at our restaurants or supplier facilities or other interruptions of production;
● Our food service business and the restaurant industry are subject to extensive government regulation;
● We may be subject to significant foreign currency exchange controls in certain countries in which we operate;
● Inherent risk in foreign operations and currency fluctuations;
● Unusual expenses associated with our expansion into international markets;
● The risks associated with leasing space subject to long-term non-cancelable leases;
● We may not attain our target development goals and aggressive development could cannibalize existing sales;
● Current conditions in the global financial markets and the distressed economy;
● A decline in market share or failure to achieve growth;
● Negative publicity about the ingredients we use or the potential occurrence of food-borne illnesses or other problems at
our restaurants;
● Breaches of security of confidential consumer information related to our electronic processing of credit and debit card
transactions;
● Unusual or significant litigation, governmental investigations or adverse publicity, or otherwise;
● Our debt financing agreements expose us to interest rate risks, contain obligations that may limit the flexibility of our
operations, and may limit our ability to raise additional capital;
● Adverse effects on our results from a decrease in or cessation or clawback of government incentives related to investments;
and
● Adverse effects on our operations resulting from certain geo-political or other events.
You should also consider carefully the Risk Factors contained in Item 1A of Part I of this Annual Report, which address additional
factors that could cause its actual results to differ from those set forth in the forward-looking statements and could materially and adversely
affect the Company’s business, operating results and financial condition. The risks discussed in this Annual Report are factors that,
individually or in the aggregate, the Company believes could cause its actual results to differ materially from expected and historical
results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider such
disclosures to be a complete discussion of all potential risks or uncertainties.
4
The forward-looking statements are based on information available to the Company as of the date hereof, and, except to the extent
required by federal securities laws, the Company undertakes no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, the Company
cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
ITEM 1: BUSINESS
Chanticleer Holdings, Inc. (“Chanticleer” or the “Company”) is in the business of owning, operating and franchising fast casual
dining concepts domestically and internationally. The Company was organized October 21, 1999, under its original name, Tulvine Systems,
Inc., under the laws of the State of Delaware. On April 25, 2005, Tulvine Systems, Inc. formed a wholly owned subsidiary, Chanticleer
Holdings, Inc., and 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 presented below
(collectively referred to as the “Company”):
5
Name
CHANTICLEER HOLDINGS, INC.
Burger Business
American Roadside Burgers, Inc.
ARB Stores
American Roadside McBee, LLC
American Burger Morehead, LLC
American Roadside Morrison, LLC
American Burger Ally, LLC
BGR Acquisition, LLC
BGR Franchising, LLC
BGR Operations, LLC
BGR Old Town, LLC
BGR Dupont, LLC
BGR Arlington, LLC
BGR Old Keene Mill, LLC
BGR Potomac, LLC
BGR Cascades, LLC
BGR Washingtonian, LLC
BGR Tysons, LLC
BGR Springfield Mall, LLC
Virginia, USA
100%
Capitol Burger, LLC
Maryland, USA
100%
BT Burger Acquisition, LLC
BT's Burgerjoint Biltmore, LLC
BT's Burgerjoint Promenade, LLC
BT's Burgerjoint Sun Valley, LLC
BT's Burgerjoint Rivergate LLC
LBB Acquisition, LLC
Cuarto LLC
Segundo LLC
Noveno LLC
Primero LLC
Septimo LLC
Quinto LLC
Octavo LLC
Sexto LLC
Just Fresh
JF Franchising Systems, LLC
JF Restaurants, LLC
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
North Carolina,
USA
North Carolina,
USA
Jurisdiction of
Incorporation
Delaware, USA
Percent
Owned
Name
Jurisdiction of
Incorporation
Percent
Owned
Delaware, USA
100% Oregon Owl’s Nest, LLC
Pacific Northwest Hooters
Jantzen Beach Wings, LLC
Oregon, USA
Oregon, USA
100%
100%
100% Tacoma Wings, LLC
Washington, USA
100%
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
100%
100% South African Hooters
100%
Hooters On The Buzz (Pty) Ltd South Africa
100%
Chanticleer South Africa (Pty)
Ltd.
Hooters Emperors Palace (Pty.)
Ltd.
South Africa
South Africa
Virginia, USA
100%
Virginia, USA
Maryland, USA
Virginia, USA
Virginia, USA
100% Hooters PE (Pty) Ltd
100% Hooters Ruimsig (Pty) Ltd.
100% Hooters Umhlanga (Pty.) Ltd.
100% Hooters SA (Pty) Ltd
South Africa
South Africa
South Africa
South Africa
Virginia, USA
100%
Hooters Willows Crossing (Pty)
Ltd
South Africa
Maryland, USA
Virginia, USA
Maryland, USA
100%
100% Australian Hooters
100% HOTR AUSTRALIA PTY LTD Australia
Virginia, USA
100%
95%
100%
88%
100%
100%
90%
78%
100%
80%
80%
80%
80%
80%
80%
HOTR CAMPBELLTOWN
PTY LTD
HOTR GOLD COAST PTY
LTD
HOTR PARRAMATTA PTY
LTD
Australia
Australia
Australia
100%
HOTR PENRITH PTY LTD
Australia
HOTR TOWNSVILLE PTY
LTD
Australia
100%
100%
100% European Hooters
100%
Chanticleer Holdings Limited
Jersey
100%
100%
West End Wings LTD
United Kingdom
100%
Hungary
100% Crown Restaurants Kft.
100%
100% Inactive Entities
100% Hooters Brazil
100% DineOut SA Ltd.
100% Avenel Financial Services, LLC Nevada, USA
Nevada, USA
100% Avenel Ventures, LLC
Nevada, USA
100% Chanticleer Advisors, LLC
North Carolina,
Brazil
England
Chanticleer Investment
Partners, LLC
USA
Dallas Spoon Beverage, LLC Texas, USA
56% Dallas Spoon, LLC
Texas, USA
56%
Hoot Campbelltown Pty Ltd
Australia
Chanticleer Holdings Australia
Pty, Ltd.
Hoot Australia Pty Ltd
TMIX Management Australia
Pty Ltd.
Hoot Parramatta Pty Ltd
Hoot Penrith Pty Ltd
Hoot Gold Coast Pty Ltd
Hoot Townsville Pty. Ltd
Hoot Surfers Paradise Pty. Ltd.
MVLE DARLING HARBOUR
PTY LTD
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
MVLE GAMING PTY LTD
Australia
American Roadside Cross Hill,
LLC
North Carolina,
USA
80%
100%
89%
100%
100%
100%
100%
100%
100%
60%
100%
60%
60%
60%
60%
60%
60%
60%
50%
100%
100%
Restaurant Brands
Hooters Full Service
Hooters restaurants are casual beach-themed establishments featuring music, sports on large flat screens, and a menu that includes
seafood, sandwiches, burgers, salads, and of course, Hooters original chicken wings and the “nearly world famous” Hooters Girls. The
menu of each location can vary with the local tastes. 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 430 Hooters restaurants in over 28 countries.
We own and operate fifteen Hooters full service restaurants in the United States, Australia, South Africa, Hungary and the United
Kingdom. We expect to expand our Hooters operations in the following areas: United Kingdom, South Africa, and Australia. We may also
expand in the United States and other international markets on a case-by-case basis.
6
Better Burgers Fast Casual
We operate and franchise a system-wide total of forty fast casual restaurants specializing the “Better Burger” category of which
twenty-seven are company-owned and thirteen are owned and operated by franchisees under franchise agreements.
American Burger Company (“ABC”) is a fast casual dining chain consisting of five locations in North Carolina, South Carolina
and New York, known for its diverse menu featuring fresh salads, customized burgers, milk shakes, sandwiches, and beer and wine. BT’s
Burger Joint (“BT”) was acquired in July 2015 and consists of four locations in North Carolina. We are rebranding the BT’s locations under
the American Burger Company brand to increase consistency and brand recognition in the Carolinas market. With the addition of the BT’s
locations, ABC is now the second largest better burger brand in the Charlotte, NC area, just behind Five Guys.
BGR: The Burger Joint (“BGR”) was acquired in March 2015 and consists of ten company-owned locations in the United States
and thirteen franchisee-operated locations in the United States and the Middle East.
On September 30, 2015, Little Big Burger (“LBB”) was acquired, adding eight locations in Oregon.
We expect to expand our better burger business through a combination of company stores, franchising and partnerships in the
United States. We are also exploring opportunities to expand our better burger business internationally, primarily focusing on those regions
where we operate Hooters restaurants to leverage our local infrastructure and management teams across multiple brands.
Just Fresh Fast Casual
We operate Just Fresh, our healthier eating fast casual concept with seven company owned locations in Charlotte, North Carolina.
Just Fresh offers fresh-squeezed juices, gourmet coffee, fresh-baked goods and premium-quality, made-to-order sandwiches, salads and
soups. We currently hold a 56% controlling interest in Just Fresh.
We expect to expand our Just Fresh business in North Carolina primarily through the opening of additional company stores in our
current market. We are also exploring opportunities to expand our Just Fresh business through franchising in United States and
internationally.
Restaurant Geographic Locations
United States
We currently operate ABC, BGR, BT and LBB restaurants in the United States as our Better Burger Group. ABC and BT’s are located
in North Carolina, South Carolina and New York. BGR operates company restaurants in the mid-Atlantic region of the United States, as
well as franchise locations in the US and internationally. LBB operates in the Portland and Eugene, Oregon areas.
We operate Just Fresh restaurants in the Charlotte, North Carolina area.
We operate Hooters restaurants in Tacoma, Washington and Portland, Oregon (“Hooters Pacific NW”). We also operate gaming
machines in Portland, Oregon under license from the Oregon Lottery Commission.
7
South Africa
We currently own and operate six Hooters locations in South Africa: Durban, Pretoria, Port Elizabeth and Johannesburg (three locations).
Europe
We currently own 100% of West End Wings, Ltd, the entity that holds the franchise rights and operates the Hooters restaurant in
Nottingham, England (“Hooters Nottingham”). We currently own 80% of CRK, the entity that holds the Hooters franchise rights and
operates the Hooters restaurant in Budapest, Hungary, and our local partner owns the remaining 20%.
Australia
We own 80% of the Australia Hooters stores, with five locations in Sydney, Gold Coast and Townsville.
Competition
The restaurant industry is extremely competitive. We compete with other restaurants on the taste, quality and price of our food
offerings. Additionally, we compete with other restaurants on service, ambience, location and overall customer experience. We believe that
the unique atmosphere of our restaurants and the focus on quality and flavor of our food enable us to differentiate ourselves from our
competitors. We believe that we compete primarily with local and regional sports bars and national casual dining and quick casual
establishments, and to a lesser extent with quick service restaurants in general. Many of our competitors are well-established national,
regional or local chains and many have greater financial and marketing resources than we do. We also compete with other restaurant and
retail establishments for site locations and restaurant employees.
Proprietary Rights
We use the “Hooters” mark and certain other service marks and trademarks used in our Hooters restaurants pursuant to our franchise
agreements with Hooters of America.
We also have trademarks and trade names associated with our Just Fresh, American Burger, BGR and Little Big Burger businesses.
We believe that the trademarks, service marks and other proprietary rights that we use in our restaurants have significant value and are
important to our brand-building efforts and the marketing of our restaurant concepts. Although we believe that we have sufficient rights to
all of our trademarks and service marks, we may face claims of infringement that could interfere with our ability to market our restaurants
and promote our brand. Any such litigation may be costly and divert resources from our business. Moreover, if we are unable to
successfully defend against such claims, we may be prevented from using our trademarks or service marks in the future and may be liable
for damages.
Government Regulation
The restaurant industry is subject to numerous federal, state and local governmental regulations, including those relating to the
preparation and sale of food and alcoholic beverages, sanitation, public health, fire codes, zoning, and building requirements. Each
restaurant requires appropriate licenses from regulatory authorities allowing it to sell liquor, beer and wine, and each restaurant requires
food service licenses from local health authorities. Our licenses to sell alcoholic beverages may be suspended or revoked at any time for
cause, including violation by us or our employees of any law or regulation pertaining to alcoholic beverage control. We are subject to
various regulations by foreign governments related to the sale of food and alcoholic beverages and to health, sanitation and fire and safety
standards. Compliance with these laws and regulations may lead to increased costs and operational complexity and may increase our
exposure to governmental investigations or litigation.
We are also subject to regulations in Oregon where we operate gaming machines. Gaming operations are generally highly
regulated and conducted under the permission and oversight of the state or local gaming commission, lottery or other government agencies.
8
Corporate Information
Our principal executive offices are located at 7621 Little Avenue, Suite 414, Charlotte, NC 28226. Our web site is
www.chanticleerholdings.com.
EMPLOYEES
At December 31, 2015, our locations had approximately 745 full-time employees, including 351 in South Africa, 23 in Hungary, 19 in
the United Kingdom, 147 in Australia and 205 in the United States. Approximately 25 of our South African employees are represented by a
labor union. We have experienced no work stoppage and believe that our employee relationships are good.
AVAILABLE INFORMATION
We make available free of charge through our website, www.chanticleerholdings.com, our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports and statements filed pursuant to
Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable
after we file such material with, or furnish it to, the SEC. The public may read and copy any materials we file with or furnish to the
Securities and Exchange Commission (“SEC”) at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on
official business days during the hours of 10:00 am to 3:00 pm. The public may also obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. Furthermore, the SEC maintains a free website (www.sec.gov) which includes
reports, proxy and information statements, and other information regarding us and other issuers that file electronically with the SEC. Our
website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-
K. Additionally, we make available free of charge on our internet website: our Code of Ethics; the charter of our Nominating Committee;
the charter of our Compensation Committee; and the charter of our Audit Committee.
ITEM 1A: RISK FACTORS
Investing in our common stock involves risks. Prospective investors in our common stock should carefully consider, among other
things, the following risk factors in connection with the other information and financial statements contained in this Report. We have
identified the following factors that could cause actual results to differ materially from those projected in any forward looking statements
we may make from time to time.
We operate in a continually changing business environment in which new risk factors emerge from time to time. We can neither
predict these new risk factors, nor can we assess the impact, if any, of these new risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially from those projected in any forward looking statement. If any
of these risks, or combination of risks, actually occurs, our business, financial condition and results of operations could be seriously and
materially harmed, and the trading price of our common stock could decline. All forward-looking statements in this document are based on
information available to us as of the date hereof, and we assume no obligations to update any such forward-looking statements.
Risks Related to Our Company and Industry
We have not been profitable to date and expect our operating losses to continue for the foreseeable future; we may never be profitable.
We have incurred operating losses and generated negative cash flows since our inception and have financed our operations principally
through equity investments and borrowings. At this time, our ability to generate sufficient revenues to fund operations is uncertain. For the
fiscal year ended December 31, 2015, we had net revenue of $42.4 million and incurred a net loss of $12.1 million. Our total accumulated
deficit through December 31, 2015, was $33.0 million.
9
As a result of our brief operating history, future profitability is difficult to predict with certainty. Failure to achieve profita bility could
materially and adversely affect the value of our Company and our ability to effect additional financings. The success of the business
depends on our ability to increase revenues to offset expenses. If our revenues fall short of projections, our business, financial condition and
operating results will be materially adversely affected.
Our financial statements have been prepared assuming a going concern.
our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. Our
financial statement as of December 31, 2015, were prepared under the assumption that will continue as a going concern for the next twelve
months. Our independent registered public accounting firm has issued a report that includes an explanatory paragraph referring to our
losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming
available. Our ability to continue as a going concern is dependent upon our ability to obtain additional financing, obtain further operating
efficiencies, reduce expenditures and ultimately, create profitable operations. Such financings may not available or may not be available on
reasonable terms. Our financial statements do not include adjustments that result from the outcome of this uncertainly.
The recent acquisitions, as well as future acquisitions, may have unanticipated consequences that could harm our business and our
financial condition.
Any acquisition that we pursue, whether or not successfully completed, may involve risks, including:
● material adverse effects on our operating results, particularly in the fiscal quarters immediately following the acquisition as the
acquired restaurants and bar concepts are integrated into our operations;
● risks associated with entering into markets or conducting operations where we have no or limited prior experience;
● problems retaining key personnel;
● potential impairment of tangible and intangible assets and goodwill acquired in the acquisition;
● potential unknown liabilities;
● difficulties of integration and failure to realize anticipated synergies; and
● disruption of our ongoing business, including diversion of management’s attention from other business concerns.
Future acquisitions of restaurants or other businesses, which may be accomplished through a cash purchase transaction, the issuance of
our equity securities or a combination of both, could result in potentially dilutive issuances of our equity securities, the incurrence of debt
and contingent liabilities and impairment charges related to goodwill and other intangible assets, any of which could harm our business and
financial condition.
There are risks inherent in expansion of operations, including our ability to generate profits from new restaurants, find suitable sites
and develop and construct locations in a timely and cost-effective way.
We cannot project with certainty the number the number of new restaurants we and our partners will open in accordance with our
present plans and within the timeline or the budgets that we currently project. In addition, our franchise agreements with Hooters of
America (“HOA”) provide that we must exercise our option to open additional restaurants within each of our territories by a certain date set
forth in the development schedule and that each such restaurant must be open by such date. If we fail to timely exercise any option or if we
fail to open any additional restaurant by the required restaurant opening date, all of our rights to develop the rest of the option territory will
expire automatically and without further notice.
Our failure to effectively develop locations in new territories would adversely affect our ability to execute our business plan by, among
other things, reducing our revenues and profits and preventing us from realizing our strategy. Furthermore, we cannot assure you that our
new restaurants will generate revenues or profit margins consistent with those currently operated by us.
10
The number of openings and the performance of new locations will depend on various factors, including:
● the availability of suitable sites for new locations;
● our ability to negotiate acceptable lease or purchase terms for new locations, obtain adequate financing, on favorable terms,
required to construct, build-out and operate new locations and meet construction schedules, and hire and train and retain
qualified restaurant managers and personnel;
● managing construction and development costs of new restaurants at affordable levels;
● the establishment of brand awareness in new markets; and
● the ability of our Company to manage expansion.
Additionally, competition for suitable restaurant sites in target markets is intense. We have opened and plan to continue opening
restaurants in markets where we have little or no operating experience. Restaurants we open in new markets may take longer to reach
expected sales and profit levels on a consistent basis and may have higher construction, occupancy or operating costs than restaurants we
open in existing markets, thereby affecting our overall profitability.
New markets may have competitive conditions, consumer tastes and discretionary spending patterns that are more difficult to predict
or satisfy than our existing markets. We may need to make greater investments than we originally planned in advertising and promotional
activity in new markets to build brand awareness. We may find it more difficult in new markets to hire, motivate and keep qualified
employees who share our vision, passion and culture. We may also incur higher costs from entering new markets if, for example, we assign
regional managers to manage comparatively fewer restaurants than in more developed markets.
We may not be able to successfully develop critical market presence for our brand in new geographical markets, as we may be unable
to find and secure attractive locations, build name recognition or attract new customers. Inability to fully implement or failure to
successfully execute our plans to enter new markets could have a material adverse effect on our business, financial condition and results of
operations.
Not all of these factors are within our control or the control of our partners, and there can be no assurance that we will be able to
accelerate our growth or that we will be able to manage the anticipated expansion of our operations effectively.
We have debt financing arrangements, which could have a material adverse effect on our financial health and our ability to obtain
financing in the future, and may impair our ability to react quickly to changes in our business.
Our exposure to debt financing could limit our ability to satisfy our obligations, limit our ability to operate our business and impair
our competitive position. For example, it could:
● increase our vulnerability to adverse economic and industry conditions, including interest rate fluctuations, because a portion of
our borrowings are at variable rates of interest;
● require us to dedicate future cash flows to the repayment of debt, reducing the availability of cash to fund working capital,
capital expenditures or other general corporate purposes;
● limit our flexibility in planning for, or reacting to, changes in our business and industry; and
● limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants contained in
our debt agreements.
11
We may also incur additional indebtedness in the future, which could materially increase the impact of these risks on our financial
condition and results of operations.
Litigation and unfavorable publicity could negatively affect our results of operations as well as our future business.
We are subject to potential for litigation and other customer complaints concerning our food safety, service and/or other operational
factors. Guests may file formal litigation complaints that we are required to defend, whether or not we believe them to be true. Substantial,
complex or extended litigation could have an adverse effect on our results of operations if we incur substantial defense costs and our
management is distracted. Employees may also, from time to time, bring lawsuits against us regarding injury, discrimination, wage and
hour, and other employment issues. Additionally, potential disputes could subject us to litigation alleging non-compliance with franchise,
development, support service, or other agreements. Additionally, we are subject to the risk of litigation by our stockholders as a result of
factors including, but not limited to, performance of our stock price.
In certain states we are subject to “dram shop” statutes, which generally allow a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Some dram shop litigation
against restaurant companies has resulted in significant judgments, including punitive damages. We carry liquor liability coverage as part of
our existing comprehensive general liability insurance, but we cannot provide assurance that this insurance will be adequate in the event we
are found liable in a dram shop case.
In recent years there has been an increase in the use of social media platforms and similar devices that allow individuals’ access to a
broad audience of consumers and other interested persons. The availability of information on social media platforms is virtually immediate
in its impact. A variety of risks are associated with the use of social media, including the improper disclosure of proprietary information,
negative comments about our Company, exposure of personally identifiable information, fraud or outdated information. The inappropriate
use of social media platforms by our guests, employees or other individuals could increase our costs, lead to litigation, or result in negative
publicity that could damage our reputation. If we are unable to quickly and effectively respond, we may suffer declines in guest traffic,
which could materially affect our financial condition and results of operations.
Food safety and foodborne illness concerns could have an adverse effect on our business.
We cannot guarantee that our internal controls and training will be fully effective in preventing all food safety issues at our
restaurants, including any occurrences of foodborne illnesses such as salmonella, E. coli and hepatitis A. In addition, there is no guarantee
that our franchise restaurants will maintain the high levels of internal controls and training we require at our company-operated restaurants.
Furthermore, we and our franchisees rely on third-party vendors, making it difficult to monitor food safety compliance and
increasing the risk that foodborne illness would affect multiple locations rather than a single restaurant. Some foodborne illness incidents
could be caused by third-party vendors and transporters outside of our control. New illnesses resistant to our current precautions may
develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactive
basis. One or more instances of foodborne illness in any of our restaurants or markets or related to food products we sell could negatively
affect our restaurant revenue nationwide if highly publicized on national media outlets or through social media.
This risk exists even if it were later determined that the illness was wrongly attributed to us or one of our restaurants. A number of
other restaurant chains have experienced incidents related to foodborne illnesses that have had a material adverse effect on their operations.
The occurrence of a similar incident at one or more of our restaurants, or negative publicity or public speculation about an incident, could
have a material adverse effect on our business, financial condition and results of operations.
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We operate in the highly competitive restaurant industry. If we are not able to compete effectively, it will have a material adverse effect
on our business, financial condition and results of operations.
We face significant competition from restaurants in the fast casual dining and traditional fast food segments of the restaurant
industry. These segments are highly competitive with respect to, among other things, taste, price, food quality and presentation, service,
location and the ambience and condition of each restaurant. Our competition includes a variety of locally owned restaurants and national
and regional chains offering dine-in, carry-out, delivery and catering services. Many of our competitors have existed longer and have a
more established market presence with substantially greater financial, marketing, personnel and other resources than we do. Among our
competitors are a number of multi-unit, multi-market, fast casual restaurant concepts, some of which are expanding nationally. As we
expand, we will face competition from these restaurant concepts as well as new competitors that strive to compete with our market
segments. These competitors may have, among other things, lower operating costs, better locations, better facilities, better management,
more effective marketing and more efficient operations. Additionally, we face the risk that new or existing competitors will copy our
business model, menu options, presentation or ambience, among other things.
Any inability to successfully compete with the restaurants in our markets and other restaurant segments will place downward
pressure on our customer traffic and may prevent us from increasing or sustaining our revenue and profitability. Consumer tastes,
nutritional and dietary trends, traffic patterns and the type, number and location of competing restaurants often affect the restaurant
business, and our competitors may react more efficiently and effectively to those conditions. Several of our competitors compete by
offering menu items that are specifically identified as low in carbohydrates, gluten-free or healthier for consumers. In addition, many of our
traditional fast food restaurant competitors offer lower-priced menu options or meal packages, or have loyalty programs. Our sales could
decline due to changes in popular tastes, “fad” food regimens, such as low carbohydrate diets, and media attention on new restaurants. If
we are unable to continue to compete effectively, our traffic, sales and restaurant contribution could decline which would have a material
adverse effect on our business, financial condition and results of operations.
Our rights to operate and franchise Hooters-branded restaurants are dependent on the Hooters’ franchise agreements.
Our rights to operate and franchise Hooters-branded restaurants, and our ability to conduct our business are derived principally from
the rights granted or to be granted to us by Hooters in our franchise agreements. As a result, our ability to continue operating in our current
capacity is dependent on the continuation and renewal of our contractual relationship with Hooters.
In the event Hooters does not grant us franchises to acquire additional locations or terminates our existing franchise agreements, we
would be unable to operate and/or expand our Hooters-branded restaurants, identify our business with Hooters or use any of Hooters’
intellectual property. As the Hooters brand and our relationship with Hooters are among our competitive strengths, the failure to grant or
the expiration or termination of the franchise agreements would materially and adversely affect our business, results of operations, financial
condition and prospects.
Our business depends on our relationship with Hooters and changes in this relationship may adversely affect our business, results of
operations and financial condition.
Pursuant to the franchise agreements, Hooters has the ability to exercise substantial influence over the conduct of our business. We
must comply with Hooters’ high quality standards. We cannot transfer the equity interests of our subsidiaries without Hooters’ consent, and
Hooters has the right to control many of the locations’ daily operations.
Notwithstanding the foregoing, Hooters has no obligation to fund our operations. In addition, Hooters does not guarantee any of our
financial obligations, including trade payables or outstanding indebtedness, and has no obligation to do so. If the terms of the franchise
agreements excessively restrict our ability to operate our business or if we are unable to satisfy our obligations under the franchise
agreements, our business, results of operations and financial condition would be materially and adversely affected.
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We do not have full operational control over the businesses where we control less than 100% ownership.
We are and will be dependent on our partners to maintain quality, service and cleanliness standards, and their failure to do so could
materially affect our brands and harm our future growth. We do not presently have formal written agreements in place with any of our
partners regarding these types of matters. Although we intend to exercise significant control over partners through written agreements in the
future, our partners will continue to have some flexibility in the operations, including the ability to set prices for our products in their
restaurants, hire employees and select certain service providers. In addition, it is possible that some partners may not operate their
restaurants in accordance with our quality, service and cleanliness, health or product standards. Although we intend to take corrective
measures if partners fail to maintain high quality service and cleanliness standards, we may not be able to identify and rectify problems with
sufficient speed and, as a result, our image and operating results may be negatively affected.
A failure by Hooters to protect its intellectual property rights, including its brand image, could harm our results of operations.
The profitability of our Hooters business depends in part on consumers’ perception of the strength of the Hooters brand. Under the
terms of our franchise agreements, we are required to assist Hooters with protecting its intellectual property rights in our jurisdictions.
Nevertheless, any failure by Hooters to protect its proprietary rights in the world could harm its brand image, which could affect our
competitive position and our results of operations.
Our business could be adversely affected by declines in discretionary spending and may be affected by changes in consumer
preferences.
Our success depends, in part, upon the popularity of our food products. Shifts in consumer preferences away from our restaurants or
cuisine could harm our business. Also, our success depends to a significant extent on discretionary consumer spending, which is influenced
by general economic conditions and the availability of discretionary income. Accordingly, we may experience declines in sales during
economic downturns or during periods of uncertainty. A continuing decline in the amount of discretionary spending could have a material
adverse effect on our sales, results of operations, and business and financial condition.
Increases in costs, including food, labor and energy prices, will adversely affect our results of operations.
Our profitability is dependent on our ability to anticipate and react to changes in our operating costs, including food, labor, occupancy
(including utilities and energy), insurance and supplies costs. Various factors beyond our control, including climatic changes and
government regulations, may affect food costs. Specifically, our dependence on frequent, timely deliveries of fresh meat and produce
subject us to the risks of possible shortages or interruptions in supply caused by adverse weather or other conditions which could adversely
affect the availability and cost of any such items. In the past, we have been able to recover some of our higher operating costs through
increased menu prices. There have been, and there may be in the future, delays in implementing such menu price increases, and
competitive pressures may limit our ability to recover such cost increases in their entirety.
Our ability to maintain consistent price and quality throughout our restaurants depends in part upon our ability to acquire specified food
products and supplies in sufficient quantities from third-party vendors, suppliers and distributors at a reasonable cost. We do not control the
businesses of our vendors, suppliers and distributors, and our efforts to specify and monitor the standards under which they perform may
not be successful. If any of our vendors or other suppliers are unable to fulfill their obligations to our standards, or if we are unable to find
replacement providers in the event of a supply or service disruption, we could encounter supply shortages and incur higher costs to secure
adequate supplies, which would have a material adverse effect on our business, financial condition and results of operations.
Furthermore, if our current vendors or other suppliers are unable to support our expansion into new markets, or if we are unable to find
vendors to meet our supply specifications or service needs as we expand, we could likewise encounter supply shortages and incur higher
costs to secure adequate supplies, which could have a material adverse effect on our business, financial condition and results of operations.
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Changes in employment laws and minimum wage standards may adversely affect our business.
Labor is a primary component in the cost of operating our restaurants. If we face labor shortages or increased labor costs because
of increased competition for employees, higher employee turnover rates, increases in the federal, state or local minimum wage or other
employee benefits costs (including costs associated with health insurance coverage), our operating expenses could increase and our growth
could be negatively impacted.
In addition, our success depends in part upon our ability to attract, motivate and retain a sufficient number of well-qualified
restaurant operators and management personnel, as well as a sufficient number of other qualified employees, including customer service
and kitchen staff, to keep pace with our expansion schedule. In addition, restaurants have traditionally experienced relatively high employee
turnover rates. Although we have not yet experienced significant problems in recruiting or retaining employees, our ability to recruit and
retain such individuals may delay the planned openings of new restaurants or result in higher employee turnover in existing restaurants,
which could have a material adverse effect on our business, financial condition and results of operations.
Various federal and state labor laws govern the relationship with our employees and impact operating costs. These laws include
employee classification as exempt or non-exempt for overtime and other purposes, minimum wage requirements, unemployment tax rates,
workers’ compensation rates, immigration status and other wage and benefit requirements. Significant additional government-imposed
increases in the following areas could have a material adverse effect on our business, financial condition and results of operations:
● minimum wages;
● mandatory health benefits;
● vacation accruals;
● paid leaves of absence, including paid sick leave; and
● tax reporting.
We could also become subject to fines, penalties and other costs related to claims that we did not fully comply with all
recordkeeping obligations of federal and state immigration compliance laws. These factors could have a material adverse effect on our
business, financial condition and results of operations.
We are subject to all of the risks associated with leasing space subject to long-term non-cancelable leases.
We lease substantially all of the real property and we expect the new restaurants we open in the future will also be leased. We are
obligated under non-cancelable leases for our restaurants and our corporate headquarters. Our restaurant leases generally require us to pay a
proportionate share of real estate taxes, insurance, common area maintenance charges and other operating costs. Some restaurant leases
provide for contingent rental payments based on sales thresholds, although we generally do not expect to pay significant contingent rent on
these properties based on the thresholds in those leases. Additional sites that we lease are likely to be subject to similar long-term non-
cancelable leases.
If an existing or future restaurant is not profitable, and we decide to close it, we may nonetheless be committed to perform our
obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as
each of our leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to
pay increased occupancy costs or to close restaurants in desirable locations. These potential increased occupancy costs and closed
restaurants could have a material adverse effect on our business, financial condition and results of operations.
Our business and the growth of our Company are dependent on the skills and expertise of management and key personnel.
During the upcoming stages of our Company’s anticipated growth, we will be entirely dependent upon the management skills and
expertise of our management and key personnel, including Michael Pruitt, our current Chairman and Chief Executive Officer. Mr. Pruitt
also sits on HOA’s board of directors. The loss of services of Mr. Pruitt or other executive officers would dramatically affect our business
prospects. Certain of our employees are particularly valuable to us because:
● they have specialized knowledge about our company and operations;
● they have specialized skills that are important to our operations; or
● they would be particularly difficult to replace.
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In the event that the services of Mr. Pruitt or any key management personnel ceased to be available to us, our growth prospects or
future operating results may be adversely impacted.
Our food service business, gaming revenues and the restaurant industry are subject to extensive government regulation.
We are subject to extensive and varied country, federal, state and local government regulation, including regulations relating to public
health, gambling, safety and zoning codes. We operate each of our locations in accordance with standards and procedures designed to
comply with applicable codes and regulations. However, if we could not obtain or retain food or other licenses, it would adversely affect
our operations. Although we have not experienced, and do not anticipate experiencing any significant difficulties, delays or failures in
obtaining required licenses, permits or approvals, any such problem could delay or prevent the opening of, or adversely impact the viability
of, a particular location or group of restaurants.
We may be subject to significant foreign currency exchange controls in certain countries in which we operate.
Certain foreign economies have experienced shortages in foreign currency reserves and their respective governments have adopted
restrictions on the ability to transfer funds out of the country and convert local currencies into U.S. dollars. This may increase our costs and
limit our ability to convert local currency into U.S. dollars and transfer funds out of certain countries. Any shortages or restrictions may
impede our ability to convert these currencies into U.S. dollars and to transfer funds, including for the payment of dividends or interest or
principal on our outstanding debt. In the event that any of our subsidiaries are unable to transfer funds to us due to currency restrictions, we
are responsible for any resulting shortfall.
Our foreign operations subject us to risks that could negatively affect our business.
We expect most of our Hooters restaurants will be operated in foreign countries and territories outside of the U.S. As a result, our
business is exposed to risks inherent in foreign operations. These risks, which can vary substantially by market, include political instability,
corruption, social and ethnic unrest, changes in economic conditions (including wage and commodity inflation, consumer spending and
unemployment levels), the regulatory environment, tax rates and laws and consumer preferences as well as changes in the laws and policies
that govern foreign investment in countries where our restaurants are operated.
In addition, our results of operations and the value of our foreign assets are affected by fluctuations in foreign currency exchange rates,
which may adversely affect reported earnings. More specifically, an increase in the value of the United States Dollar relative to other
currencies, such as the Australian Dollar, the British Pound, the Euro and the South African Rand could have an adverse effect on our
reported earnings. There can be no assurance as to the future effect of any such changes on our results of operations, financial condition or
cash flows.
We may not attain our target development goals and aggressive development could cannibalize existing sales.
Our growth strategy depends in large part on our ability to increase our net restaurant count. The successful development of new units
will depend in large part on our ability and the ability of our franchisees to open new restaurants and to operate these restaurants on a
profitable basis. We cannot guarantee that we, or our franchisees, will be able to achieve our expansion goals or that new restaurants will
be operated profitably. Further, there is no assurance that any new restaurant will produce operating results similar to those of our existing
restaurants. Other risks that could impact our ability to increase our net restaurant count include prevailing economic conditions and our, or
our franchisees’/partners’, ability to obtain suitable restaurant locations, obtain required permits and approvals in a timely manner and hire
and train qualified personnel.
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Our franchisee operators also frequently depend upon financing from banks and other financial institutions in order to construct and
open new restaurants. If it becomes more difficult or expensive for our franchisees/partners to obtain financing to develop new restaurants,
our planned growth could slow and our future revenue and cash flows could be adversely impacted.
In addition, the new restaurants could impact the sales of our existing restaurants nearby. It is not our intention to open new restaurants
that materially cannibalize the sales of our existing restaurants. However, as with most growing retail and restaurant operations, there can
be no assurance that sales cannibalization will not occur or become more significant in the future as we increase our presence in existing
markets over time.
Changing conditions in the global economy and financial markets may materially adversely affect our business, results of operations
and ability to raise capital.
Our business and results of operations may be materially affected by conditions in the financial markets and the economy generally.
The demand for our products could be adversely affected in an economic downturn and our revenues may decline under such
circumstances. In addition, we may find it difficult, or we may not be able, to access the credit or equity markets, or we may experience
higher funding costs in the event of adverse market conditions. Future instability in these markets could limit our ability to access the
capital we require to fund and grow our business.
Changes to accounting rules or regulations may adversely affect the reporting of our results of operations.
Changes to existing accounting rules or regulations may impact the reporting of our future results of operations or cause the perception
that we are more highly leveraged. Other new accounting rules or regulations and varying interpretations of existing accounting rules or
regulations have occurred and may occur in the future. For instance, accounting regulatory authorities have indicated that they will require
lessees to capitalize operating leases in their financial statements. Such a change would require us to record significant lease obligations on
our balance sheet and make other changes to our financial statements. This and other future changes to accounting rules or regulations
could have a material adverse effect on the reporting of our business, financial condition and results of operations. In addition, many
existing accounting standards require management to make subjective assumptions, such as those required for stock compensation, tax
matters, franchise accounting, acquisitions, litigation, and asset impairment calculations. Changes in accounting standards or changes in
underlying assumptions, estimates and judgments by our management could significantly change our reported or expected financial
performance.
We may not be able to adequately protect our intellectual property, which could harm the value of our brand and have a material
adverse effect on our business, financial condition and results of operations.
Our intellectual property is material to the conduct of our business. Our ability to implement our business plan successfully
depends in part on our ability to further build brand recognition using our trademarks, service marks, trade dress and other proprietary
intellectual property, including our name and logos and the unique ambience of our restaurants. While it is our policy to protect and defend
vigorously our rights to our intellectual property, we cannot predict whether steps taken by us to protect our intellectual property rights will
be adequate to prevent misappropriation of these rights or the use by others of restaurant features based upon, or otherwise similar to, our
restaurant concept. It may be difficult for us to prevent others from copying elements of our concept and any litigation to enforce our rights
will likely be costly and may not be successful. Although we believe that we have sufficient rights to all of our trademarks and service
marks, we may face claims of infringement that could interfere with our ability to market our restaurants and promote our brand. Any such
litigation may be costly and could divert resources from our business. Moreover, if we are unable to successfully defend against such
claims, we may be prevented from using our trademarks or service marks in the future and may be liable for damages, which in turn could
have a material adverse effect on our business, financial condition and results of operations.
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In addition, we license certain of our proprietary intellectual property, including our name and logos, to third parties. For example, we grant
our franchisees and licensees a right to use certain of our trademarks in connection with their operation of the applicable restaurant. If a
franchisee or other licensee fails to maintain the quality of the restaurant operations associated with the licensed trademarks, our rights to,
and the value of, our trademarks could potentially be harmed. Negative publicity relating to the franchisee or licensee could also be
incorrectly associated with us, which could harm our business. Failure to maintain, control and protect our trademarks and other proprietary
intellectual property would likely have a material adverse effect on our business, financial condition and results of operations and on our
ability to enter into new franchise agreements.
We may incur costs resulting from breaches of security of confidential consumer information related to our electronic processing of
credit and debit card transactions.
The majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches
in which credit and debit card information has been stolen. We may in the future become subject to claims for purportedly fraudulent
transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other
proceedings relating to these types of incidents. In addition, most states have enacted legislation requiring notification of security breaches
involving personal information, including credit and debit card information. Any such claim or proceeding could cause us to incur
significant unplanned expenses, which could have a material adverse effect on our business, financial condition and results of operations.
Further, adverse publicity resulting from these allegations may have a material adverse effect on our business and results of operations.
We rely heavily on information technology, and any material failure, weakness, interruption or breach of security could prevent us
from effectively operating our business.
We rely heavily on information systems, including point-of-sale processing in our restaurants, for management of our supply
chain, payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures. Our ability to
efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. Our operations
depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss,
telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses and other
disruptive problems. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new
platforms, or a breach in security of these systems could result in delays in customer service and reduce efficiency in our operations.
Remediation of such problems could result in significant, unplanned capital investments.
Adverse weather conditions could affect our sales.
Adverse weather conditions, such as regional winter storms, floods, severe thunderstorms and hurricanes, could affect our sales at
restaurants in locations that experience these weather conditions, which could materially adversely affect our business, financial condition
or results of operations.
Risks Related to Our Common Stock
Our stock price has experienced price fluctuations and may continue to do so, resulting in a substantial loss in your investment.
The current market for our common stock has been characterized by volatile prices. As a result, investors in our common stock may
experience a decrease in the value of their securities, including decreases unrelated to our operating performance or prospects. The market
price of our common stock is likely to be highly unpredictable and subject to wide fluctuations in response to various factors, many of
which are beyond our control. These factors include:
● quarterly variations in our operating results and achievement of key business metrics;
● changes in the global economy and in the local economies in which we operate;
● our ability to obtain working capital financing, if necessary;
● the departure of any of our key executive officers and directors;
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● changes in the federal, state, and local laws and regulations to which we are subject;
● changes in earnings estimates by securities analysts, if any;
● any differences between reported results and securities analysts’ published or unpublished expectations;
● market reaction to any acquisitions, joint ventures or strategic investments announced by us or our competitors;
● future sales of our securities;
● announcements or press releases relating to the casual dining restaurant sector or to our own business or prospects;
● regulatory, legislative, or other developments affecting us or the restaurant industry generally; and
● market conditions specific to casual dining restaurant, the restaurant industry and the stock market generally.
Our common stock could be further diluted as the result of the issuance of additional shares of common stock, convertible securities,
warrants or options.
In the past, we have issued common stock, convertible securities (such as convertible notes) and warrants in order to raise capital. We
have also issued common stock as compensation for services and incentive compensation for our employees and directors. We have shares
of common stock reserved for issuance upon the exercise of certain of these securities and may increase the shares reserved for these
purposes in the future. Our issuance of additional common stock, convertible securities, options and warrants could affect the rights of our
stockholders, could reduce the market price of our common stock or could result in adjustments to exercise prices of outstanding warrants
(resulting in these securities becoming exercisable for, as the case may be, a greater number of shares of our common stock), or could
obligate us to issue additional shares of common stock to certain of our stockholders.
Shares eligible for future sale may adversely affect the market.
From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary
brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to certain limitations. In
general, pursuant to Rule 144, stockholders who have been non-affiliates for the preceding three months may sell shares of our common
stock freely after six months subject only to the current public information requirement. Affiliates may sell shares of our common stock
after six months subject to the Rule 144 volume, manner of sale, current public information and notice requirements. Any substantial sales
of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.
While our public warrants are outstanding, it may be more difficult to raise additional equity capital.
We have warrants that are publicly traded on NASDAQ under the symbol “HOTRW”. During the term that the public warrants are
outstanding, the holders of the public warrants will be given the opportunity to profit from a rise in the market price of our common stock.
We may find it more difficult to raise additional capital while these public warrants are outstanding. At any time during which these public
warrants are likely to be exercised, we may be able to obtain additional capital on more favorable terms from other sources. These warrants
expire in June 2017.
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We do not expect to pay cash dividends in the foreseeable future and therefore investors should not anticipate cash dividends on their
investment.
Our board of directors does not intend to pay cash dividends in the foreseeable future but instead intends to retain any and all earnings
to finance the growth of the business. To date, we have not paid any cash dividends and there can be no assurance that cash dividends will
ever be paid on our common stock.
We may issue additional shares of our common stock, which could depress the market price of our common stock and dilute your
ownership.
Market sales of large amounts of our common stock, or the potential for those sales even if they do not actually occur, may have the
effect of depressing the market price of our common stock. In addition, if our future financing needs require us to issue additional shares of
common stock or securities convertible into common stock, the amount of common stock available for resale could be increased which
could stimulate trading activity and cause the market price of our common stock to drop, even if our business is doing well. Furthermore,
the issuance of any additional shares of our common stock, or securities convertible into our common stock could be substantially dilutive
to holders of our common stock.
Director and officer liability is limited.
As permitted by Delaware law, our bylaws limit the liability of our directors for monetary damages for breach of a director’s fiduciary
duty except for liability in certain instances. As a result of our bylaw provisions and Delaware law, stockholders may have limited rights to
recover against directors for breach of fiduciary duty.
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a
material adverse effect on our business and stock price.
As a publicly traded company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the
Sarbanes-Oxley Act, which requires management to certify financial and other information in our quarterly and annual reports and provide
an annual management report on the effectiveness of controls over financial reporting. We have identified internal control weaknesses and
may need to undertake various actions, such as implementing new internal controls, new systems and procedures and hiring additional
accounting or internal audit staff, which could increase our operating expenses. In addition, we may identify additional deficiencies in our
internal control over financial reporting as part of that process.
In addition, if we are unable to resolve internal control deficiencies in a timely manner, investors could lose confidence in the
accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.
We have received a notification indicating that our share price was not in compliance with NASDAQ’s continued listing requirements.
On February 18, 2016, Chanticleer Holdings received notification from the Listing Qualifications Department of NASDAQ
indicating that, for the 30 consecutive business days ended February 17, 2016, the bid price for Chanticleer Holdings’ common stock had
closed below the $1.00 per share minimum bid price requirement for continued listing on The NASDAQ Capital Market under NASDAQ
Listing Rule 5550(a)(2) (“the Bid Price Rule”).
The NASDAQ notice indicated that, in accordance with NASDAQ Marketplace Rule 5810(c)(3)(A), Chanticleer Holdings would
be provided 180 calendar days ending on August 16, 2016 to regain compliance. If, at any time before August 16, 2016 the bid price of
Chanticleer Holdings’ common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, August 16, 2016
staff will provide written notification that it has achieved compliance with the Bid Price Rule.
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If Chanticleer Holdings fails to regain compliance with the Bid Price Rule before August 16, 2016, but meets all of the other
applicable standards for initial listing on the NASDAQ Capital Market with the exception of the minimum bid price, then Chanticleer
Holdings may be eligible to have an additional 180 calendar days through February 12, 2017 to regain compliance with the Bid Price Rule.
In the event that Chanticleer Holdings fails to regain compliance with the Bid Price Rule, then the directors of Chanticleer Holdings may be
required to consider a common stock consolidation which would enable the common stock to continue to be traded on The NASDAQ
Capital Market.
ITEM 2: PROPERTIES
The Company, through its subsidiaries, leases the land and buildings for our five restaurants in South Africa, one restaurant in
Nottingham, United Kingdom, thirty-five restaurants in the U.S., five restaurants in Australia, and one restaurant in Hungary. The terms for
our leases vary from two to twenty years and have options to extend. We lease some of 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.
We also lease our corporate office space in Charlotte, North Carolina.
Chanticleer Holdings Inc. owns one commercial real estate property in Port Elizabeth, South Africa.
Our office and restaurant facilities are suitable and adequate for our business as it is presently conducted.
ITEM 3: LEGAL PROCEEDINGS
On March 26, 2013, our South African operations received Notice of Motion filed in the Kwazulu-Natal High Court, Durban, Republic
of South Africa, filed against Rolalor (PTY) LTD (“Rolalor”) and Labyrinth Trading 18 (PTY) LTD (“Labyrinth”) by Jennifer Catherine
Mary Shaw (“Shaw”). Rolalor and Labyrinth were the original entities formed to operate the Johannesburg and Durban locations,
respectively. On September 9, 2011, the assets and the then-disclosed liabilities of these entities were transferred to Tundraspex (PTY)
LTD (“Tundraspex”) and Dimaflo (PTY) LTD (“Dimaflo”), respectively. The current entities, Tundraspex and Dimaflo are not parties in
the lawsuit. Shaw is requesting that the Respondents, Rolalor and Labyrinth, be wound up in satisfaction of an alleged debt owed in the
total amount of R4,082,636 (approximately $480,000). The two Notices were defended and argued in the High Court of South Africa
(Durban) on January 31, 2014. Madam Justice Steryi dismissed the action with costs on May 5, 2014. Ms. Shaw has appealed this decision.
On January 28, 2016, our Just Fresh subsidiary was notified that it had been served with a copyright infringement complaint, Kevin
Chelko Photography, Inc. f. JF Restaurants, LLC, Case No. 3:13-CV-60-GCM (W.D. N.C.). The claim was filed in the United States
District Court for the Western District of North Carolina Charlotte Division and seeks unspecified damages related to the use of certain
photographic assets allegedly in violation of the United States copyright laws. The Company has asserted numerous defenses in answer to
the complaint and intends to defend itself fully and vigorously.
Prior to the Company’s acquisition of Little Big Burger, a class action lawsuit was filed in Oregon by certain current and former
employees of Little Big Burger asserting that the former owners of Little Big Burger failed to compensate employees for overtime hours
and also that an employee had been wrongfully terminated. The plaintiffs and defendants agreed to enter into a settlement agreement
pursuant to which the former owners of Little Big Burger will pay a gross settlement of up to $675,000, inclusive of plaintiffs’ attorney’s
fees of $225,000. This settlement was preliminarily approved by the court on February 2, 2016. The parties are proceeding with distributing
the claim forms and notices of settlement to the class members and ultimately will disburse settlement payments to those who opt in.
In connection with our acquisition of Little Big Burger, the sellers agreed that the 1,619,646 shares of the Company’s common stock
certain of the sellers received from the Company and an additional $200,000 in cash would be held in escrow until such time as the
litigation was fully resolved. The Company does not expect to have to expend any funds related to the settlement as certain of the Sellers
have agreed to retain the obligations and have set aside sufficient funds to cover the settlement. However, as the Company assumed all
liabilities of Little Big Burger in the acquisition and would be required to fulfill the settlement if the sellers were unable or otherwise failed
to fully fund the settlement, the Company has reflected the $675,000 settlement amount in accrued liabilities, with an offsetting asset in
other current assets, in the accompanying Consolidated Balance Sheets as of December 31, 2015.
From time to time, the Company may be involved in legal proceedings and claims that have arisen in the ordinary course of business.
These actions, when ultimately concluded and settled, will not, in the opinion of management, have a material adverse effect upon the
financial position, results of operations or cash flows of the company.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
21
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
PART II
Our common stock is listed on the NASDAQ Capital Market under the symbol “HOTR”.
The market high and low prices on the NASDAQ for the years ending December 31, 2015 and 2014 are as follows:
QUARTER ENDED
HIGH
LOW
December 31, 2015
September 30, 2015
June 30, 2015
March 31, 2015
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
$
$
$
$
$
$
$
$
1.32 $
2.73 $
4.18 $
3.07 $
2.54 $
2.84 $
3.77 $
5.33 $
0.75
1.03
2.17
1.65
1.40
1.85
1.86
3.35
Number of Shareholders and Total Outstanding Shares
As of March 25, 2016, there were 21,337,247 shares issued and outstanding, respectively, held by approximately 196 shareholders of
record.
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.
22
Recent Sales of Unregistered Securities
Sales of our common stock during the first three quarters of 2015 were reported in Item 2 of Part II of the Form 10-Q filed for each
quarter. Stock transactions in the fourth quarter of 2015 as follows.
In October, 2015, certain holders of the 8% convertible notes issued in January 2015 converted $100,000 principal into 100,000
shares of the Company’s common stock.
During October 2015, the Company issued 54,226 shares of common stock for consulting, acquisition and other services valued at
$47,505. The recorded value for common stock issued for services was based on the closing market prices for the Company’s common
stock.
The Company believes that the foregoing transactions were exempt from the registration requirements under Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended (the “1933 Act”) or Section 4(2) under the 1933 Act, based on the
following facts: in each case, there was no general solicitation, there was a limited number of investors, each of whom was an “accredited
investor” (within the meaning of Regulation D under the 1933 Act, as amended) and/or was (either alone or with his/her purchaser
representative) sophisticated about business and financial matters, each such investor had the opportunity to ask questions of our
management and to review our filings with the Securities and Exchange Commission, and all securities issued were subject to restrictions
on transfer, so as to take reasonable steps to assure that the purchasers were not underwriters within the meaning of Section 2(11) under the
1933 Act.
ITEM 6: SELECTED FINANCIAL DATA
Not applicable.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our results of operations and financial condition together with the Selected Financial
Data and our audited consolidated financial statements as of and for the year ended December 31, 2015 including the notes thereto,
included in this Report. The discussion below contains forward-looking statements and involves numerous risks and uncertainties,
including, but not limited to, those described in Item 1A. “Risk Factors”. Actual results may differ materially from those contained in any
forward-looking statements. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update or
revise such statements to reflect new circumstances or unanticipated events as they occur, and you are urged to review and consider
disclosures that we make in this and other reports that discuss factors germane to our business.
Management’s Analysis of Business
We are in the business of owning, operating and franchising fast casual and full service dining concepts in the United States and
internationally.
We own and operate fifteen Hooters full service restaurants in the United States, Australia, South Africa, Hungary and the United
Kingdom. Hooters restaurants are casual beach-themed establishments featuring music, sports on large flat screens, and a menu that
includes seafood, sandwiches, burgers, salads, and of course, Hooters original chicken wings and the “nearly world famous” Hooters Girls.
We own, operate and franchise a system-wide total of forty fast casual restaurants specializing the “Better Burger” category of
which twenty-seven are company-owned and thirteen are operated by franchisees under franchise agreements. American Burger Company
(“ABC”) is a fast casual dining chain consisting of nine locations in New York and the Carolinas, known for its diverse menu featuring,
customized burgers, milk shakes, sandwiches, fresh salads and beer and wine. BGR: The Burger Joint (“BGR”), consists of ten company-
owned locations in the United States and thirteen franchisee-operated locations in the United States and the Middle East. Little Big Burger
(“LBB”) consists of eight locations in Oregon.
23
We also own and operate Just Fresh, our healthier eating fast casual concept with eight company owned locations in Charlotte,
North Carolina. Just Fresh offers fresh-squeezed juices, gourmet coffee, fresh-baked goods and premium-quality, made-to-order
sandwiches, salads and soups.
As of December, 31, 2015, our system-wide store count totaled 62 locations, consisting of 49 company-owned locations and 13
franchisee-operated locations.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2015 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2014
Our results of operations are summarized below:
Years Ended December 31,
2015
2014
Amount
% of
Revenue*
Amount
% of
Revenue*
% Change
Restaurant sales, net
Gaming income, net
Management fees - non-affiliate
Franchise income
Total revenue
Expenses:
$ 41,010,680
472,752
553,953
359,424
42,396,809
$ 28,745,258
432,688
665,488
-
29,843,434
Restaurant cost of sales
Restaurant operating expenses
Restaurant pre-opening and closing expenses
General and administrative
Asset impairment charge
Depreciation and amortization
Total expenses
Loss from continuing operations
14,036,165
24,815,221
763,948
7,415,381
4,489,043
2,364,967
53,884,725
$ (11,487,916)
34.2%
60.5%
1.9%
17.5%
10.6%
5.6%
127.1%
9,934,532
17,363,743
524,739
5,976,870
-
1,587,858
35,387,742
$ (5,544,308)
34.6%
60.4%
1.8%
20.0%
0.0%
5.3%
118.6%
42.7%
9.3%
-16.8%
42.1%
41.3%
42.9%
45.6%
24.1%
-
48.9%
52.3%
107.2%
* Restaurant cost of sales, operating expenses and pre-opening and closing expense percentages are based on restaurant sales, net. Other
percentages are based on total revenue.
Revenue
Total revenue increased 42.1% to $42.4 million for the year ended December 31, 2015 from $29.8 million for the year ended
December 31, 2014.
24
Revenues by concept, revenue type and store count are summarized below for each period:
Years Ended December 31, 2015
Store Count, end of period
Revenue
Restaurant Gaming Franchise
Mgmt
Fee
Total
% of
Total
- $ 129,124 $21,931,096
51.7%
Company Franchise Total
15
15
-
Hooters Full Service $21,329,220 $472,752 $
Better Burgers Fast
Casual
Just Fresh Fast
Casual
Corporate and Other
Total Revenue
5,498,790
-
14,182,670
-
5,498,790
424,829
$41,010,680 $472,752 $ 359,424 $ 553,953 $42,396,809
-
424,829
-
-
-
-
13.0%
1.0%
100.0%
359,424
-
14,542,094
34.3%
27
7
-
49
13
-
-
13
40
7
-
62
Revenue
Restaurant Gaming Franchise
Management
Fee
Total
% of
Total
Company Franchise Total
Years Ended December 31, 2014
Store Count, end of period
Hooters Full
Service
Better Burgers Fast
Casual
Just Fresh Fast
Casual
Corporate and
Other
Total Revenue
$20,675,924 $432,688 $
- $
176,098 $21,284,710
71.3%
13
3,230,519
4,838,815
-
-
-
-
$28,745,258 $432,688 $
-
-
-
- $
- 3,230,519
10.8%
- 4,838,815
16.2%
489,390
489,390
665,488 $29,843,434
1.7%
100.0%
6
7
-
26
-
-
-
-
-
13
6
7
-
26
Restaurant revenues increased 42.7% to $41.0 million for the year ended December 31, 2015 from $28.7 million for the year
ended December 31, 2014. Revenue increased as growth in store count and favorable same store sales comparisons were partially offset by
the impact of a stronger US dollar on the translation of foreign currency results to US dollars.
Revenue from the Company’s Hooter’s restaurants increased 3.2% to $21.3 million for the year ended December 31, 2015 from
$20.7 million for the year ended December 31, 2014. Revenues grew in our US Hooters restaurants, but that growth was partially offset by
fluctuations in foreign currency rates on the translation of local currency results to US dollars for financial reporting. Revenue from our
Hooters Australia restaurants increased from prior year, however, this increase was mitigated by foreign currency translation combined with
the temporary absence of revenue during the July 2015 to October 2015 Administration period.
Revenue from the Company’s Better Burger Group increased 339% to $14.2 million for the year ended December 31, 2015 from
$3.2 million for the year ended December 31, 2014. The growth in our Better Burger Group was due to a combination of growth in store
count and increased revenues from our company store locations. Company-owned restaurants grew from six locations at the end of 2014 to
twenty-seven locations at the end of the current year. The majority of the growth resulted from the acquisitions of BGR: the Burger Joint,
BT’s Burger Joint and Little Big Burger. In addition, we opened one company store at BGR following the acquisition.
Revenue from the Company’s Just Fresh Group increased 13.6% to $5.5 million for the year ended December 31, 2015 from $4.8
million for the year ended December 31, 2014. Revenue growth resulted from increased same store sales and the timing of a new store
opening in late 2014.
Gaming revenue was essentially flat, increasing modestly primarily due to timing. Gaming revenue is derived from our Hooters
stores in the Pacific Northwest, which accounted for $0.4 million for the year ended December 31, 2015 and $0.3 million for the year
ended December 31, 2014. We also previously earned gaming revenues from our Australia operations, however, that revenue ceased in
connection with the Administration and is not expected to continue in future periods.
Management fee income decreased $0.1 million. The Company derives management fee income from three sources – serving as
general partner for its investment in HOA LLC, as compensation for the Company’s CEO serving on the board of HOA LLC, and from
managing non-controlled restaurant properties in Australia. In the current year, the Company received a cash distribution totaling $0.5
million on its 3% equity interest in HOA LLC, of which $0.3 million is reflected in management fee income and $0.2 million is reflected in
interest and other income. In the prior year period, the Company recognized $0.7 million in management fees from a combination of the
prior year HOA distribution, board fees and from its Australia operations. The Company ceased earning management fee income from
Australia in July 2015 in connection with the Australia administration process.
25
Franchise income was $0.4 million for the year ended December 31, 2015 compared with zero in the prior year. The Company
commenced its franchise operations in March 2015 with the acquisition of BGR.
Restaurant cost of sales
Restaurant cost of sales increased 41.3% to $14.0 million for the year ended December 31, 2015 from $9.9 million for the year
ended December 31, 2014. Restaurant revenues increased 42.7% over the same period.
Cost of Restaurant Sales
Hooters Full Service
Better Burgers Fast Casual
Just Fresh Fast Casual
Corporate and Other
Years Ended December 31,
2015
2014
Amount
$
7,319,155
4,770,460
1,946,550
-
$ 14,036,165
% of
Restaurant
Net Sales
34.3% $
33.6%
35.4%
-
34.2% $
% of
Restaurant
Net Sales
% Change
33.8%
38.2%
35.5%
-
34.6%
4.8%
286.8%
13.3%
-
41.3%
Amount
6,983,485
1,233,271
1,717,776
-
9,934,532
As a percentage of restaurant sales, net, restaurant cost of sales decreased to 34.2% for the year ended December 31, 2015 from
34.6% for the year ended December 31, 2014.
Cost of restaurant sales improved significantly for the Better Burger restaurants as the Company continued to focus on driving cost
of food, paper and other products lower by leveraging the increasing scale and purchasing volumes of the combined company. Cost of sales
for the Better Burger group improved from 38.2% to 33.6% while cost of sales at Just Fresh changed from 35.5% to 35.4%.
Cost of restaurant sales improved as a percent of revenues at the Hooter’s restaurants in the United States, South Africa and
Europe when compared with the prior year period. Those improvements, however, were more than offset by higher costs in Australia where
revenues and costs were temporarily impacted by the Administration process. Food and paper costs for Hooters Australia, and accordingly
for the Hooters group as a whole, are expected to improve in future periods as a result of initiatives to lower food and transportation costs
and to increase pricing where necessary to offset input cost increases.
Restaurant operating expenses
Restaurant operating expenses increased 42.9% to $24.8 million for the year ended December 31, 2015 from $17.4 million for the
year ended December 31, 2014 due to the increase in the number of store locations and related restaurant business volumes.
26
Our restaurant operating expenses as well as the percentage of cost of restaurant sales to restaurant revenues for each region of
operations is included in the following table:
Operating Expenses
Hooters Full Service
Better Burgers Fast Casual
Just Fresh Fast Casual
Years Ended December 31,
2015
2014
Amount
$ 13,567,725
8,272,412
2,975,084
$ 24,815,221
% of
Restaurant
Net Sales
% of
Restaurant
Net Sales
Amount
% Change
63.6% $ 12,283,416
2,470,691
58.3%
54.1%
2,609,636
60.5% $ 17,363,743
59.4%
76.5%
53.9%
60.4%
10.5%
234.8%
14.0%
42.9%
As a percent of restaurant revenue, operating expenses were relatively flat at 60.5% of restaurant net sales in the current year
compared with 60.4% in the prior year.
Operating expenses improved significantly in our Better Burger Business from 76.5% to 58.3% due to the combination of revenue
growth improving overall operating leverage and due to operational initiatives to improve store efficiencies.
Operating expenses for the Just Fresh business were essentially flat as a percent of revenue, while operating expenses increased as
a percent of revenue for our Hooters business. The increase in operating expenses in our Hooters business was directly attributable to
Hooters Australia where we incurred higher expenses and lower revenues than in historical periods as a result of the Administration
process. We expect revenues and operating expenses in Australia, and for the Hooters group as a whole, to improve in future periods.
Restaurant pre-opening and closing expenses
Restaurant pre-opening and closing expenses totaled $0.8 million for the year ended December 31, 2015 compared with $0.5
million for the year ended December 31, 2014. The increased expense was due primarily to the Company’s opening of the Townsville
Hooters location in Australia, the Port Elizabeth Hooters location in South Africa, and the closing of our ABC location in Columbia, South
Carolina.
General and Administrative Expense (“G&A”)
G&A increased 24.1% to $7.4 million for the year ended December 31, 2015 from $6.0 million for the year ended December 31,
2014. Significant components of G&A are summarized as follows:
General and Administrative Expenses
Professional fees
Salary and benefits
Consulting and acquisition-related fees
Travel and entertainment
Shareholder services and fees
Other G&A
Total G&A Expenses
27
Years Ended December 31,
2014
% Change
2015
$ 1,535,976 $ 1,088,020
1,969,048
1,601,913
297,906
121,733
898,250
$ 7,415,381 $ 5,976,870
2,685,349
1,651,049
353,151
85,960
1,103,896
41.2%
36.4%
3.1%
18.5%
-29.4%
22.9%
24.1%
As a percentage of total restaurant revenue, G&A decreased to 17.5% for the year ended December 31, 2015 from 20.0% for the
year ended December 31, 2014. The improvement in G&A as a percent of revenue is primarily due to the growth in revenues and store
locations, allowing us to scale our overhead costs over a larger business. G&A for the current year includes approximately $1.3 million of
legal, banking, consulting and other non-recurring professional fees related to acquisition transactions, capital transactions and Australia
administration process. Excluding those non-recurring expenses, G&A was approximately 14.5% of total revenue for the year ended
December 31, 2015.
We expect the G&A costs associated with restaurant operations and corporate overhead to continue to decline as a percent of
revenues in future periods through a combination of expense rationalization, the absence of non-recurring transaction-related expenses, and
increased revenue. For example, during the fourth quarter of 2015, the trend of declining G&A continued, with G&A coming in at 13.9%
of quarterly restaurant revenue.
Asset impairment charge
In connection with the reorganization of our Australian subsidiaries, the Company recognized a non-cash charge of $4.5 million
for the year ended December 31, 2015. The Company did not incur an asset impairment charge in 2014.
Depreciation and amortization
Depreciation and amortization expense increased 48.9% to $2.4 million for the year ended December 31, 2015 from $1.6 million
for the year ended December 31, 2014 due to increased depreciable property and equipment and franchise fees associated with acquired and
newly opened restaurants.
Other income (expense)
Other income (expense) consisted of the following:
Other Income (Expense)
Interest expense
Change in fair value of derivative liabilities
Loss on extinguishment of debt
Realized (loss) gains on securities
Equity in losses of investments
Other income
Total Other Income (Expense)
Years Ended December 31,
2014
% Change
2015
$ (3,470,451) $ (2,280,921)
1,227,600
-
101,472
(40,694)
334,477
(658,066)
868,592
(315,923)
(169,369)
-
253,642
$ (2,833,509) $
52.2%
-29.2%
-
-100.0%
-100.0%
-74.8%
330.6%
Total other income (expense) increased to $2.8 million for the year ended December 31, 2015 from $0.7 million for the year
ended December 31, 2014.
Interest expense increased 52.2% to $3.5 million for the year ended December 31, 2015 from $2.3 million for the year ended
December 31, 2014. The Company increased its debt obligations and related interest expenses in connection with the Company’s growth
strategy and recent business combinations, which included the assumption of $5 million in additional long-term debt for the acquisition of
the Australia entities. The year ended December 31, 2015 also included an accelerated non-cash amortization of debt discount of
approximately $0.6 million related to early conversion of a $1.0 million note payable.
The Company recognized changes in the fair value of derivative liabilities totaling $0.9 million for the year ended December 31,
2015 as compared to a $1.2 million in 2014. The liability is a non-cash income or expense associated with our convertible debt and is
adjusted quarterly based on the change in the fair value of the price of the Company’s common stock.
28
Loss on extinguishment of debt was $0.3 million for the year ended December 31, 2015. During 2015, several of the Company’s
convertible notes and one of the Company’s term debt instruments were converted by the holders into shares of the Company’s common
stock. In connection with the conversions, the Company recognized a loss on extinguishment of convertible debt, related accrued interest,
penalties and derivative liabilities. The Company did not have any debt conversions or loss on extinguishments in the prior year.
The Company sold a marketable security in 2014, realizing a gain of $101,472 for the year ended December 31, 2014. The
company did not sell any marketable securities in the current year.
Other income was $0.1 million for the year ended December 31, 2015 compared to income of $0.3 million for the prior year
period. In the current year, other income includes a realized loss on the sale of the Company’s Beacher’s investment of $0.2 million,
accounting for the majority of the change from the prior year period.
NET GAIN (LOSS) FROM DISCONTINUED OPERATIONS
Net gain (loss) from discontinued operations was a gain of $0.1 million for the year ended December 31, 2015 as compared to a
loss of $0.9 million in 2014. The Company discontinued the operations of its Spoon business in December 2014.
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
As of December 31, 2015, our cash balance was $1.5 million and improved by $1.3 million as compared with December 31, 2014.
The level of additional cash needed to fund operations and our ability to conduct business for the next twelve months will be influenced
primarily by the following factors:
● the pace of growth in our restaurant businesses and related investments in opening new stores;
● the level of investment in acquisition of new restaurant businesses and entering new markets;
● our ability to manage our operating expenses and maintain gross margins as we grow:
● our ability to access the capital and debt markets including our ability to refinance or extend maturities of current obligations.;
● popularity of and demand for our fast casual dining concepts; and
● general economic conditions and changes in consumer discretionary income.
We have typically funded our operating costs, acquisition activities, working capital investments and capital expenditures with
proceeds from the issuances of our common stock and other financing arrangements, including convertible debt, lines of credit, notes
payable and capital leases.
Our operating plans for the next twelve months contemplate moderate organic growth, opening 6-10 new stores within our current
markets and restaurant concepts. We have demonstrated the ability to raise capital to fund our growth initiatives, including but not limited
to the following:
● During the first quarter of 2015, we completed a rights offering raising net proceeds of approximately $7.1 million and
issued $2.2 million in convertible debt to fund the acquisition of BGR: The Burger Joint and for general corporate
purposes.
29
● During the second quarter of 2015, we completed an equity transaction raising net proceeds of approximately $1.9 million
to complete the acquisition of BT’s Burger Joints and for general corporate purposes.
● During the third quarter of 2015, we completed a rights offering raising net proceeds of approximately $6.0 million to fund
the acquisition of Little Big Burger, investments in Australia and general corporate purposes.
● In early 2016, we entered into a letter of intent directly with a US investor to fund the opening of up to 10 Little Big Burger
restaurants in the Seattle, Washington area. We are actively pursuing sites and anticipate opening our first store under that
arrangement by the end of 2016.
As we execute our growth plans throughout 2016, we intend to carefully monitor the impact of growth on our working capital
needs and cash balances relative to the availability of cost-effective debt and equity financing. We have a demonstrated track record of
being able to raise capital and close deals over the past 18 months. We have several non-equity capital financing transactions currently in
process, which we expect to further improve the Company’s financial position however, until such transactions are fully executed, we
cannot provide assurance as to the certainly of completion or the precise amounts, if any, that will be received by the Company.:
In the event that such capital is not available, we may then have to scale back or freeze our organic growth plans, reduce general
and administrative expenses, and/or curtail future acquisition plans to manage our liquidity and capital resources. We may also not be able
refinance or otherwise extend or repay our current obligations. In addition, our business is subject to additional risks and uncertainties,
including, but not limited to, those described in Item 1A. “Risk Factors”.
30
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-
02 “Leases”, which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 “Leases”. This update requires lessees to recognize a
lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update
also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning
after December 15, 2018 and interim periods within those fiscal years, with earlier adoption permitted. This update will be applied using a
modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements. The Company is currently evaluating the effect of this update on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes” which requires that deferred tax liabilities and assets be
classified as noncurrent in a classified balance sheet. Prior to the issuance of the standard, deferred tax liabilities and assets were required to
be separately classified into a current amount and a noncurrent amount in the balance sheet. The new accounting guidance represents a
change in accounting principle and the standard is required to be adopted in annual periods beginning after December 15, 2016. The
application of this guidance affects classification only, and is not expected to have a material effect on the Company’s consolidated
financial position or results of operations.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which
requires entities to measure inventory at the lower of cost and net realizable value (“NRV”). ASU 2015-11 defines NRV as the estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The ASU will
not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. The guidance in ASU
2015-11 is effective prospectively for fiscal years beginning after December 15, 2016, and interim periods therein. Early adoption is
permitted. Upon transition, entities must disclose the nature of and reason for the accounting change. The adoption of ASU 2015-11 is not
expected to have a material impact on our consolidated financial position or results of operations.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation: Amendments to the Consolidation Analysis.” This update
improves targeted areas of the consolidation guidance and reduces the number of consolidation models. This update is effective for annual
and interim periods in fiscal years beginning after December 15, 2015, with early adoption permitted. The adoption of ASU 2015-02 is not
expected to have a material impact on our consolidated financial position or results of operations.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40):
Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. The standard is intended to define management’s
responsibility to decide whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide
related footnote disclosures. The standard requires management to decide whether there are conditions or events that raise substantial doubt
about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The standard
provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and
content of disclosures that are commonly provided by organizations in their footnotes. The standard becomes effective in annual periods
ending after December 15, 2016, with early application permitted. The adoption of this pronouncement is not expected to have a material
impact on the consolidated financial statements. Management’s evaluations regarding the Company’s ability to continue as a going concern
have been disclosed in Note 1 of the accompanying consolidated financial statements.
In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting” (“ASU 2014-
17”). ASU 2014-17 provides with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event
in which an acquirer obtains control of the acquired entity. The acquired entity may elect the option to apply pushdown accounting in the
reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the
change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting
period as a change in accounting principle in accordance with ASC Topic 250, “Accounting Changes and Error Corrections”. If pushdown
accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 also requires an acquired entity
that elects the option to apply pushdown accounting in its separate financial statements to disclose information in the current reporting
period that enables users of financial statements to evaluate the effect of pushdown accounting. The Company has adopted the amendments
in ASU 2014-17, effective November 18, 2014, as the amendments in the update are effective upon issuance. The adoption did not have an
impact on the Company’s Consolidated Financial Statements.
31
There are several other new accounting pronouncements issued by FASB, which are not yet effective. Each of these pronouncements
has been or will be adopted, as applicable, by the Company. At December 31, 2015, none of these pronouncements are expected to have a
material effect on the financial position, results of operations or cash flows of the Company.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements requires management to use judgment and estimates. The level of uncertainty in
estimates and assumptions increases with the length of time until the underlying transactions are completed. Significant estimates include
the valuation of the investments in portfolio companies, deferred tax asset valuation allowances, valuing options and warrants, intangible
asset valuations and useful lives, depreciation and uncollectible accounts and reserves. Actual results could differ from those estimates. The
accounting policies that are most critical in the preparation of our consolidated financial statements are those that are both important to the
presentation of our financial condition and results of operations and require significant judgment and estimates on the part of management.
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. Our critical accounting policies are reviewed periodically with the Audit Committee of the Board of Directors.
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.
32
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.
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.
Intangible Assets
Goodwill
Generally accepted accounting principles in the United States require the Company to perform a goodwill impairment test annually and
more frequently when negative conditions or a triggering event arise. In September 2011, the FASB issued amended guidance that
simplified how entities test goodwill for impairment. After an assessment of certain qualitative factors, if it is determined to be more likely
than not that the fair value of a reporting unit is less than its carrying amount, entities must perform the quantitative analysis of the
goodwill impairment test. Otherwise, the quantitative test(s) become optional. As allowed under the amended guidance, the Company chose
not to assess the qualitative factors of its reporting units and, instead, performed the quantitative tests.
Trade Name/Trademark
The fair value of trade name/trademarks are estimated and compared to the carrying value. The Company estimates the fair value of
trademarks using the relief-from-royalty method, which requires assumptions related to projected sales from its annual long-range plan;
assumed royalty rates that could be payable if the Company did not own the trademarks; and a discount rate. The Company recognizes an
impairment loss when the estimated fair value of the trade name/trademarks is less than its carrying value. The Company finalized the
purchase price allocation for ABC and Just Fresh during its fourth quarter of 2013, the Company excluded the trade name/trademark
related to ABC and JF from its annual impairment test, however, the Company did perform a qualitative assessment of the ABC and JF’s
trade name/ trademark in accordance with ASC Topic 350, Intangibles - Goodwill and Other, and no indicators of impairment were
identified. However, if in the future there are declines in the Company’s market capitalization (reflected in our stock price) as well as in the
market capitalization of other companies in the restaurant industry, declines in sales at our restaurants, and significant adverse changes in
the operating environment for the restaurant industry may result in future impairment. The Company’s trade name/trademarks have been
determined to have a definite-lived life and is being amortized on a straight-line basis over estimated useful lives of 10 years. The
amortization expense of these definite-lived intangibles is included in depreciation and amortization in the Company’s consolidated
statement of operations.
Franchise Cost
Intangible assets are recorded for the initial franchise fees for our restaurants. The Company amortizes these amounts over a 20-year
period, which is the life of the franchise agreement.
33
COMMITMENTS AND CONTINGENCIES
The Company, through its subsidiaries, leases the land and buildings for our five restaurants in South Africa, one restaurant in
Nottingham, United Kingdom, thirty-five restaurants in the U.S., four restaurants in Australia, and one restaurant in Hungary.. The terms
for our restaurant leases vary from two to twenty years and have options to extend. We lease some of 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.
We also lease our corporate office space in Charlotte, North Carolina
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table presents a summary of our contractual operating lease obligations, long-term debt and other contractual
commitments as of December 31, 2015:
Contractual Obligations
Long-Term Debt Obligations
Convertible Debt Obligations
Operating Lease Obligations
Capital Lease Obligations
Purchase Obligations
Total
$
Total
6,481,643 $
2,810,276
27,516,096
55,272
-
Less than 1
year
5,383,002 $
2,516,659
4,426,175
39,303
-
1-3 years
3-5 years
910,234 $
75,285 $
-
7,918,198
15,969
-
-
6,338,998
-
-
$ 36,863,287 $
12,658,756 $
8,844,401 $
6,414,283 $
More than 5
years
113,122
-
8,832,725
-
-
8,945,847
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
34
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANTICLEER HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets at December 31, 2015 and 2014
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2015 and 2014
Consolidated Statements of Stockholders’ Equity at December 31, 2015 and 2014
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015 and 2014
Notes to Consolidated Financial Statements
35
Page
F-1
F-3
F-4
F-5
F-6
F-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the
Board of Directors and Shareholders
of Chanticleer Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Chanticleer Holdings, Inc. and Subsidiaries (the “Company”) as of
December 31, 2015 and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for
the year then ended. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Chanticleer Holdings, Inc. and Subsidiaries, as of December 31, 2015 and the results of their operations and their cash flows for the year
then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the Company incurred net losses during the year ended December 31, 2015 of
approximately $14.5 million and the Company has working capital deficit in excess of $12 million as of December 31, 2015. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these
matters are described in Note 1. The consolidated financial statements do not include any adjustments with respect to the possible future
effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of
this uncertainty.
/s/ Cherry Bekaert LLP
Charlotte. North Carolina
March 30, 2016
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the
Board of Directors and Shareholders
of Chanticleer Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Chanticleer Holdings, Inc. and Subsidiaries (the “Company”) as of
December 31, 2014, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for
the year then ended. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Chanticleer Holdings, Inc. and Subsidiaries, as of December 31, 2014 and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Marcum llp
Marcum LLP
New York, NY
April 14, 2015
F-2
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2015
December, 31, 2014
ASSETS
Current assets:
Cash
Accounts and other receivables
Inventories
Due from related parties
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
Property and equipment, net
Goodwill
Intangible assets, net
Investments at fair value
Other investments
Deposits and other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
Current maturities of long-term debt and notes payable
Current maturities of convertible notes payable, net of debt discount of $914,724
and $63,730, respectively
Current maturities of capital leases payable
Due to related parties
Deferred rent
Derivative liabilities
Liabilities of discontinued operations
$
$
$
TOTAL CURRENT LIABILITIES
Long-term debt, less current maturities, net of debt discount of $171,868 and
$343,733, respectively
Convertible notes payable, net of debt discount of $10 and $1,872,587, respectively
Capital leases payable, less current maturities
Deferred rent
Deferred tax liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 17)
Stockholders’ equity:
1,527,886 $
882,263
726,624
45,615
636,188
3,818,576
16,641,232
12,702,139
7,282,074
31,322
1,050,000
679,863
42,205,206 $
5,505,265 $
5,383,002
2,810,276
39,303
403,742
683,793
1,231,608
124,043
16,181,082
1,098,641
-
15,969
1,798,660
1,353,771
20,448,073
245,828
313,509
532,803
46,015
330,745
1,468,900
13,315,409
15,617,308
3,396,503
35,362
1,550,000
408,492
35,791,974
5,580,131
1,813,647
436,270
42,032
1,299,083
118,986
1,945,200
177,393
11,412,742
5,009,283
1,477,413
36,628
2,196,523
686,884
20,819,473
Preferred stock: no par value; authorized 5,000,000 shares; none issued and
outstanding
Common stock: $0.0001 par value; authorized 45,000,000 shares; issued and
outstanding 21,337,247 and 7,249,442 shares, respectively
Additional paid in capital
Accumulated other comprehensive loss
Non-controlling interest
Accumulated deficit
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
-
-
2,134
55,365,597
(987,695)
389,810
(33,012,713)
21,757,133
42,205,206 $
725
32,601,400
(1,657,908)
4,904,471
(20,876,187)
14,972,501
35,791,974
See accompanying notes to consolidated financial statements
F-3
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
Years Ended
December 31, 2015
December 31, 2014
$
41,010,680 $
472,752
553,953
359,424
42,396,809
Revenue:
Restaurant sales, net
Gaming income, net
Management fee income - non-affiliates
Franchise income
Total revenue
Expenses:
Restaurant cost of sales
Restaurant operating expenses
Restaurant pre-opening and closing expenses
General and administrative expenses
Asset impairment charge
Depreciation and amortization
Total expenses
Loss from continuing operations
Other (expense) income
Interest expense
Change in fair value of derivative liabilities
Loss on extinguishment of debt
Realized (loss) gains on securities
Equity in losses of investments
Other income (expense)
Total other (expense) income
Loss from continuing operations before income taxes
Income tax benefit (expense)
Loss from continuing operations
Gain (loss) from discontinued operations, net of taxes
Consolidated net loss
Less: Net loss attributable to non-controlling interest
Net loss attributable to Chanticleer Holdings, Inc.
Net loss attributable to Chanticleer Holdings, Inc.:
Loss from continuing operations
Gain (loss) from discontinued operations
Net loss attributable to Chanticleer Holdings, Inc.
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities (none applies to non-
controlling interest)
Foreign currency translation (loss) gain
Total other comprehensive loss
Comprehensive loss
Net loss attributable to Chanticleer Holdings, Inc. per common share, basic and
diluted:
Continuing operations attributable to common stockholders, basic and
diluted
Discontinued operations attributable to common stockholders, basic and
diluted
Weighted average shares outstanding, basic and diluted
$
$
$
$
$
$
$
28,745,258
432,688
665,488
-
29,843,434
9,934,532
17,363,743
524,739
5,976,870
-
1,587,858
35,387,742
(5,544,308)
(2,280,921)
1,227,600
-
101,472
(40,694)
334,477
(658,066)
(6,202,374)
476,501
(5,725,873)
(920,960)
(6,646,833)
243,462
(6,403,371)
(5,482,411)
(920,960)
(6,403,371)
(223,746)
(1,345,793)
(1,569,539)
(7,972,910)
14,036,165
24,815,221
763,948
7,415,381
4,489,043
2,364,967
53,884,725
(11,487,916)
(3,470,451)
868,592
(315,923)
(169,369)
-
253,642
(2,833,509)
(14,321,425)
(187,568)
(14,508,993)
53,350
(14,455,643)
2,319,117
(12,136,526) $
(12,189,876) $
53,350
(12,136,526) $
(4,039) $
(963,528)
(967,567)
(13,104,093) $
(0.86) $
0.00 $
14,245,437
(0.87)
(0.15)
6,332,843
See accompanying notes to consolidated financial statements
F-4
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Additional
Accumulated
Other
Non-
Paid-in Comprehensive Controlling Accumulated
Common Stock
Shares
Amount Capital
Loss
Interest
Deficit
Total
Balance, January 1, 2014
5,387,897 $
539 $25,404,994 $
(88,368) $
394,645 $ (14,472,816) $ 11,238,994
Common stock and warrants
issued for:
Cash proceeds, net
Business combinations
Interest
Consulting services
Warrant exercise
Warrants issued in connection
with convertible debt
Repurchase of shares and
warrants
Amortization of warrants
Foreign currency translation
Available-for-sale securities
Net loss
Balance, December 31, 2014
Common stock and warrants
issued for:
Cash proceeds, net
Business combinations
Consulting services
Convertible debt
Settlement of long-term debt
Warrants issued in connection
with convertible debt
Adjustment related to
discontinued operations
Amortization of warrants
Foreign currency translation
Available-for-sale securities
Reclassifications related to
Australia transactions
Non-Controlling interest
contribution
Net loss
469,101
1,021,900
155,307
225,465
174,772
47
857,155
102 5,401,639
161,798
711,868
349,527
16
23
17
-
-
- 4,753,288
-
-
-
-
-
-
857,202
-
- 10,155,029
161,814
-
711,891
-
349,544
-
-
-
70,969
-
-
-
70,969
(185,000)
-
-
-
-
7,249,442 $
(19)
-
-
-
-
(446,050)
89,500
-
-
-
725 $32,601,400 $
9,508,659
2,985,600
104,000
1,389,546
100,000
951 14,920,952
299 4,062,018
279,351
11
139 2,658,395
194,990
10
-
-
-
-
-
-
-
- 1,002,688
-
-
-
-
-
-
(376,572)
22,375
-
-
-
-
-
-
(1,345,794)
(223,746)
-
(446,069)
89,500
(1,345,794)
(223,746)
(6,646,833)
(1,657,908) $ 4,904,471 $ (20,876,187) $ 14,972,501
-
-
-
-
(6,403,371)
-
-
-
-
(243,462)
-
-
-
-
-
-
-
-
(963,528)
(4,039)
-
-
-
-
-
-
-
-
-
- 14,921,903
4,062,317
-
279,362
-
2,658,533
-
195,000
-
-
1,002,688
-
-
-
(376,572)
22,375
(963,528)
(4,039)
1,637,780 (2,543,653)
-
(905,873)
348,109
-
348,109
- (2,319,117) (12,136,526) (14,455,643)
-
389,810 $ (33,012,713) $ 21,757,133
-
(987,695) $
Balance, December 31, 2015
21,337,247 $ 2,134 $55,365,597 $
See accompanying notes to consolidated financial statements.
F-5
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended
December 31, 2015
December 31, 2014
Cash flows from operating activities:
Net loss
Net (income) loss from discontinued operations
Net loss from continuing operations
Adjustments to reconcile net loss to net cash used in operating activities:
$
(14,455,643) $
(53,350)
(14,508,993)
Depreciation and amortization
Equity in losses of investments
Asset impairment charge - Australia
Loss on extinguishment of debt
Loss on disposal of property and equipment
Loss (gain) on sales of investments
Common stock issued for services
Amortization of debt discount
Amortization of warrants
Common stock and warrants issued for interest
Warrants issued in connection with convertible debt
Change in assets and liabilities:
Accounts and other receivables
Prepaid and other assets
Inventory
Accounts payable and accrued liabilities
Change in amounts payable to non-controlling interest
Derivative liabilities
Deferred Rent
Deferred income taxes
Net cash (used in) provided by operating activities from continuing
operations
Net cash (used in) provided by operating activities from discontinued
operations
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Cash paid for acquisitions, net of cash acquired
Proceeds from sale of investments
Net cash used in investing activities from continuing operations
Cash flows from financing activities:
Proceeds from sale of common stock and warrants
Loan proceeds
Loan repayments
Proceeds from convertible debt
Capital lease payments
Contribution of non-controlling interest
Net cash provided by financing activities from continuing operations
Effect of exchange rate changes on cash
Net increase (decrease) in cash
Cash, beginning of period
Cash, end of period
$
2,364,967
-
4,489,043
315,923
514,571
169,639
279,362
2,379,951
22,375
-
-
(758,095)
221,683
(130,607)
1,166,376
(895,341)
(868,592)
(220,113)
94,527
(5,363,324)
(4,500)
(5,367,824)
(1,798,221)
(9,022,791)
330,361
(10,490,651)
14,921,903
663,074
(891,529)
2,150,000
(52,807)
348,109
17,138,750
1,783
1,282,058
245,828
1,527,886 $
See accompanying notes to consolidated financial statements
F-6
(6,646,833)
920,960
(5,725,873)
1,587,858
40,694
-
-
-
(101,472)
711,891
1,400,392
89,500
161,814
70,969
(49,553)
120,456
485,499
(368,475)
1,427,183
(200,800)
-
(653,828)
(1,003,745)
(23,195)
(1,026,940)
(1,970,173)
(322,473)
121,222
(2,171,424)
1,206,746
2,072,951
(202,456)
-
(47,602)
-
3,029,639
(28,141)
(196,866)
442,694
245,828
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows, continued
Years Ended
December 31, 2015
December 31, 2014
Supplemental cash flow information:
Cash paid for interest and income taxes:
Interest
Income taxes
Non-cash investing and financing activities:
Purchase of equipment using capital leases
Issuance of stock in connection with business combinations
Debt assumed in connection with business combinations
Debt discount for fair value of warrants and conversion feature issued in
connection with debt
Repurchase of shares and warrants in connection with discontinued operation
Convertible debt settled through issuance of common stock
Long-term debt settled through issuance of common stock
Purchases of businesses:
Current assets excluding cash
Property and equipment
Goodwill
Trade name/trademarks/franchise fees
Deposits and other assets
Liabilities assumed
Non-controlling interest
Chanticleer equity
Common stock issued
Assumption of debt
Cash acquired
Cash paid for acquistions
$
$
$
$
1,068,383 $
79,228
50,087 $
4,062,317
1,781,588
-
2,275,000
100,000
1,148,334 $
5,387,283
4,579,666
4,300,000
-
(2,330,175)
-
-
(4,062,317)
-
253,638
9,276,429 $
320,260
45,517
-
5,401,639
5,000,000
1,026,800
446,069
-
-
636,894
7,945,152
11,394,009
559,304
136,025
(4,165,235)
(4,753,288)
(1,028,749)
(5,401,639)
(5,000,000)
27,527
350,000
See accompanying notes to consolidated financial statements
F-7
Chanticleer Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. NATURE OF BUSINESS
ORGANIZATION
Chanticleer Holdings, Inc. (the “Company”) is in the business of owning, operating and franchising fast casual dining concepts
domestically and internationally. The Company was organized October 21, 1999, under its original name, Tulvine Systems, Inc., under the
laws of the State of Delaware. On April 25, 2005, Tulvine Systems, Inc. formed a wholly owned subsidiary, Chanticleer Holdings, Inc., and
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 presented below
(collectively referred to as the “Company”):
Jurisdiction of
Incorporation
Percent
Owned
Name
Jurisdiction of
Incorporation
Percent
Owned
Delaware, USA
Pacific Northwest Hooters
Delaware, USA
100%
Oregon Owl’s Nest, LLC Oregon, USA
Jantzen Beach Wings, LLC Oregon, USA
Name
CHANTICLEER
HOLDINGS, INC.
Burger Business
American Roadside
Burgers, Inc.
ARB Stores
American Roadside
McBee, LLC
American Burger
Morehead, LLC
American Roadside
Morrison, LLC
American Burger Ally,
LLC
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
BGR Acquisition, LLC
BGR Franchising,
LLC
Virginia, USA
BGR Operations, LLC Virginia, USA
BGR Old Town, LLC Maryland, USA
BGR Dupont, LLC
Virginia, USA
BGR Arlington, LLC Virginia, USA
BGR Old Keene Mill,
LLC
BGR Potomac, LLC Maryland, USA
BGR Cascades, LLC Virginia, USA
BGR Washingtonian,
LLC
Maryland, USA
Virginia, USA
BGR Tysons, LLC
BGR Springfield Mall,
LLC
Virginia, USA
Virginia, USA
Capitol Burger, LLC Maryland, USA
North Carolina,
USA
BT Burger Acquisition,
LLC
BT’s Burgerjoint
Biltmore, LLC
BT’s Burgerjoint
Promenade, LLC
BT’s Burgerjoint Sun
Valley, LLC
BT’s Burgerjoint
Rivergate LLC
LBB Acquisition, LLC
Cuarto LLC
Segundo LLC
Noveno LLC
Primero LLC
Septimo LLC
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
North Carolina,
USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
100%
Tacoma Wings, LLC
Washington, USA
100%
100% South African Hooters
100%
100%
100%
100%
100%
100%
100%
South Africa
South Africa
Hooters On The Buzz (Pty)
Ltd
Chanticleer South Africa
(Pty) Ltd.
Hooters Emperors Palace
South Africa
(Pty.) Ltd.
South Africa
Hooters PE (Pty) Ltd
Hooters Ruimsig (Pty) Ltd. South Africa
Hooters Umhlanga (Pty.)
Ltd.
Hooters SA (Pty) Ltd
Hooters Willows Crossing
(Pty) Ltd
South Africa
South Africa
South Africa
100%
100%
100% Australian Hooters
HOTR AUSTRALIA PTY
LTD
HOTR CAMPBELLTOWN
PTY LTD
HOTR GOLD COAST PTY
LTD
HOTR PARRAMATTA
PTY LTD
HOTR PENRITH PTY
LTD
Australia
Australia
Australia
Australia
Australia
HOTR TOWNSVILLE
PTY LTD
Australia
100%
100%
100%
100%
100%
100%
100%
100% European Hooters
100%
Chanticleer Holdings
Limited
100% West End Wings LTD
100%
Crown Restaurants Kft.
100%
100%
100%
100%
Inactive Entities
Hooters Brazil
DineOut SA Ltd.
Avenel Financial Services,
Jersey
United Kingdom
Hungary
Brazil
England
100%
100%
100%
95%
100%
88%
100%
100%
90%
78%
100%
80%
80%
80%
80%
80%
80%
100%
100%
80%
100%
89%
Quinto LLC
Octavo LLC
Sexto LLC
Oregon, USA
Oregon, USA
Oregon, USA
100%
100%
100%
Just Fresh
JF Franchising Systems,
LLC
JF Restaurants, LLC
North Carolina,
USA
North Carolina,
USA
Nevada, USA
LLC
Avenel Ventures, LLC
Nevada, USA
Chanticleer Advisors, LLC Nevada, USA
Chanticleer Investment
Partners, LLC
Dallas Spoon Beverage,
LLC
North Carolina,
USA
Texas, USA
56%
Dallas Spoon, LLC
Texas, USA
56%
Australia
Australia
Hoot Campbelltown Pty Ltd Australia
Chanticleer Holdings
Australia Pty, Ltd.
Hoot Australia Pty Ltd
TMIX Management
Australia Pty Ltd.
Hoot Parramatta Pty Ltd
Hoot Penrith Pty Ltd
Hoot Gold Coast Pty Ltd
Hoot Townsville Pty. Ltd
Hoot Surfers Paradise Pty.
Ltd.
MVLE DARLING
HARBOUR PTY LTD
MVLE GAMING PTY
LTD
American Roadside Cross
Hill, LLC
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
North Carolina,
USA
All significant inter-company balances and transactions have been eliminated in consolidation.
F-8
100%
100%
100%
100%
100%
100%
60%
100%
60%
60%
60%
60%
60%
60%
60%
50%
100%
100%
The Company operates on a calendar year-end. The accounts of two subsidiaries, Just Fresh and Hooters Nottingham (“WEW”),
are consolidated based on either a 52- or 53-week period ending on the Sunday closest to each December 31. No events occurred related to
the difference between the Company’s reporting calendar year end and the Company’s two subsidiaries year ends that materially affected
the company’s financial position, results of operations, or cash flows.
NET GAIN (LOSS) FROM DISCONTINUED OPERATIONS
Net gain (loss) from discontinued operations was a gain of $0.1 million for the year ended December 31, 2015 as compared to a
loss of $0.9 million in 2014. The Company discontinued the operations of its Spoon business in December 2014.
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
As of December 31, 2015, our cash balance was $1.5 million and improved by $1.3 million as compared with December 31, 2014.
The level of additional cash needed to fund operations and our ability to conduct business for the next twelve months will be influenced
primarily by the following factors:
● the pace of growth in our restaurant businesses and related investments in opening new stores;
● the level of investment in acquisition of new restaurant businesses and entering new markets;
● our ability to manage our operating expenses and maintain gross margins as we grow:
● our ability to access the capital and debt markets including our ability to refinance or extend maturities of current obligations.;
● popularity of and demand for our fast casual dining concepts; and
● general economic conditions and changes in consumer discretionary income.
We have typically funded our operating costs, acquisition activities, working capital investments and capital expenditures with
proceeds from the issuances of our common stock and other financing arrangements, including convertible debt, lines of credit, notes
payable and capital leases.
Our operating plans for the next twelve months contemplate moderate organic growth, opening 6-10 new stores within our current
markets and restaurant concepts. We have demonstrated the ability to raise capital to fund our growth initiatives, including but not limited
to the following:
● During the first quarter of 2015, we completed a rights offering raising net proceeds of approximately $7.1 million and
issued $2.2 million in convertible debt to fund the acquisition of BGR: The Burger Joint and for general corporate
purposes.
F-9
● During the second quarter of 2015, we completed an equity transaction raising net proceeds of approximately $1.9 million
to complete the acquisition of BT’s Burger Joints and for general corporate purposes.
● During the third quarter of 2015, we completed a rights offering raising net proceeds of approximately $6.0 million to fund
the acquisition of Little Big Burger, investments in Australia and general corporate purposes.
● In early 2016, we entered into a letter of intent directly with a US investor to fund the opening of up to 10 Little Big Burger
restaurants in the Seattle, Washington area. We are actively pursuing sites and anticipate opening our first store under that
arrangement by the end of 2016.
As we execute our growth plans throughout 2016, we intend to carefully monitor the impact of growth on our working capital
needs and cash balances relative to the availability of cost-effective debt and equity financing. We have a demonstrated track record of
being able to raise capital and close deals over the past 18 months. We have several non-equity capital financing transactions currently in
process, which we expect to further improve the Company’s financial position however, until such transactions are fully executed, we
cannot provide assurance as to the certainly of completion or the precise amounts, if any, that will be received by the Company.
In the event that such capital is not available, we may then have to scale back or freeze our organic growth plans, reduce general
and administrative expenses, and/or curtail future acquisition plans to manage our liquidity and capital resources. We may also not be able
refinance or otherwise extend or repay our current obligations. In addition, our business is subject to additional risks and uncertainties,
including, but not limited to, those described in Item 1A. “Risk Factors”.
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, deferred tax asset valuation
allowances, valuing options and warrants using the Binomial Lattice and Black Scholes models, intangible asset valuations and useful lives,
depreciation and uncollectible accounts and reserves. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized when all of the following criteria have been satisfied:
● Persuasive evidence of an arrangement exists;
● Delivery has occurred or services have been rendered;
● The seller’s price to the buyer is fixed or determinable; and
● Collectability is reasonably assured.
F-10
Restaurant Net Sales and Food and Beverage Costs
The Company records revenue from restaurant sales at the time of sale, net of discounts, coupons, employee meals, and
complimentary meals and gift cards. Sales, value added tax (“VAT”) and goods and services tax (“GST”) collected from customers and
remitted to governmental authorities are presented on a net basis within sales in our consolidated statements of operations. Restaurant 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 exclude depreciation and amortization. Vendor allowances received in connection with the purchase of a
vendor’s products are recognized as a reduction of the related food and beverage costs as earned.
Management Fee Income
The Company receives revenue from management fees from certain non-affiliated companies, including from managing its
investment in Hooters of America.
Gaming Income
The Company receives revenue from operating a gaming facility adjacent to its Hooters restaurant in Jantzen Beach, Oregon. The
Company also previously received gaming revenue from gaming machines located in Sydney, Australia. Revenue from gaming is
recognized as earned from gaming activities, net of taxes and other government fees.
Franchise Income
The Company accounts for initial franchisee fees in accordance with FASB ASC 952, Franchisors. The Company grants
franchises to operators in exchange for initial franchise license fees and continuing royalty payments. Franchise license fees are deferred
when received and recognized as revenue when the Company has performed substantially all initial services required by the franchise or
license agreement, which is generally upon the opening of a store. Continuing fees, which are based upon a percentage of franchisee
revenues, are recognized on the accrual basis as those sales occur.
BUSINESS COMBINATIONS
For business combinations, the assets acquired, the liabilities assumed, and any non-controlling interest are recognized at the
acquisition date, measured at their fair values as of that date. In a business combination achieved in stages, the identifiable assets and
liabilities, as well as the non-controlling interest in the acquiree, are recognized at the full amounts of their fair values. In a bargain
purchase in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration
transferred plus any non-controlling interest in the acquiree, that excess would be recognized in earnings as a gain attributable to the
Company.
LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with Accounting Standards Codification (“ASC”) 360, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (“ASC 360”), which requires that long-lived assets be evaluated for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed. Some of the
events or changes in circumstances that would trigger an impairment test include, but are not limited to;
● significant under-performance relative to expected and/or historical results (negative comparable sales growth or operating cash
flows for two consecutive years);
● significant negative industry or economic trends;
● knowledge of transactions involving the sale of similar property at amounts below the company’s carrying value; or
● the company’s expectation to dispose of long-lived assets before the end of their estimated useful lives, even though the assets do
not meet the criteria to be classified as “held for sale”.
F-11
Long-lived assets are grouped for recognition and measurement of impairment at the lowest level for which identifiable cash flows are
largely independent of the cash flows of other assets. The impairment test for long-lived assets requires us to assess the recoverability of
our long-lived assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with
and arising from the company’s use and eventual disposition of the assets. If the net carrying value of a group of long-lived assets exceeds
the sum of related undiscounted estimated future cash flows, the Company would be required to record an impairment charge equal to the
excess, if any, of net carrying value over fair value.
When assessing the recoverability of our long-lived assets, which include property and equipment and finite-lived intangible assets, the
company makes assumptions regarding estimated future cash flows and other factors. Some of these assumptions involve a high degree of
judgment and also bear a significant impact on the assessment conclusions. Included among these assumptions are estimating undiscounted
future cash flows, including the projection of comparable sales, operating expenses, capital requirements for maintaining property and
equipment and residual value of asset groups. The Company formulates estimates from historical experience and assumptions of future
performance, based on business plans and forecasts, recent economic and business trends, and competitive conditions. In the event that our
estimates or related assumptions change in the future, the company may be required to record an impairment charge.
The Company evaluates the remaining useful lives of long-lived assets and identifiable intangible assets whenever events or
circumstances indicate that a revision to the remaining period of amortization is warranted. Such events or circumstances may include (but
are not limited to): the effects of obsolescence, demand, competition, and/or other economic factors including the stability of the industry
in which the Company operates, known technological advances, legislative actions, or changes in the regulatory environment. If the
estimated remaining useful lives change, the remaining carrying amount of the long-lived assets and identifiable intangible assets would be
amortized prospectively over that revised remaining useful life.
RESTAURANT PRE-OPENING AND CLOSING EXPENSES
Restaurant pre-opening and closing expenses are non-capital expenditures, and are expensed as incurred. Restaurant pre-opening
expenses consist of the costs of hiring and training the initial hourly work force for each new restaurant, travel, the cost of food and supplies
used in training, grand opening promotional costs, the cost of the initial stocking of operating supplies and other direct costs related to the
opening of a restaurant, including rent during the construction and in-restaurant training period. Restaurant closing expenses consists of the
costs related to the closing of a restaurant location and include write-off of property and equipment, lease termination costs and other costs
directly related to the closure. Pre-opening and closing expenses are expensed as incurred.
LIQUOR LICENSES
The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are
expensed as incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of
authorized liquor licenses are capitalized as indefinite-lived intangible assets and included in other assets. Liquor licenses are reviewed for
impairment annually or when events or changes in circumstances indicate that the carrying amount may not be recoverable. Annual liquor
license renewal fees are expensed over the renewal term.
ACCOUNTS AND OTHER RECEIVABLES
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 and other
balances, where a risk of default has been identified, and also include a provision for non-customer specific defaults based upon historical
experience. The majority of the Company’s accounts are from customer credit card transactions with minimal historical credit risk. As of
December 31, 2015 and 2014, 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.
F-12
INVENTORIES
Inventories are recorded at the lower of cost (first-in, first-out method) or market, and consist primarily of restaurant food items,
supplies, beverages and merchandise.
LEASES
The Company leases certain property under operating leases. The Company also finances certain property using capital leases, with
the asset and obligation recorded at an amount equal to the present value of the minimum lease payments during the lease term.
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. The Company also may receive tenant improvement allowances in connection with its leases, which
are capitalized as leasehold improvements with a corresponding liability recorded in the deferred rent liability line in the consolidated
balance sheet. The tenant improvement allowance liability is amortized on a straight-line basis over the lease term. The rent
commencement date of the lease term is the earlier of the date when the Company becomes legally obligated for the rent payments or the
date when the Company takes access to the property or the grounds for build out. Certain leases contain percentage rent provisions where
additional rent may become due if the location exceeds certain sales thresholds. The Company recognizes expense related to percentage
rent obligations at such time as it becomes probable that the percent rent threshold will be met.
MARKETABLE EQUITY SECURITIES
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.
F-13
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.
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, other receivables, 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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization, which includes amortization
of assets held under capital leases, are recorded generally using the straight-line method over the estimated useful lives of the respective
assets or, if shorter, the term of the lease for certain assets held under a capital lease. Leasehold improvements are amortized over the lesser
of the expected lease term, or the estimated useful lives of the related assets using the straight-line method.
The estimated useful lives used to compute depreciation and amortization are as follow:
Leasehold improvements
Restaurant furnishings and equipment
Furniture and fixtures
Office and computer equipment
5-15 years
3-10 years
3-10 years
3-7 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, 2015 and 2014.
F-14
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.
GOODWILL
The Company reviews goodwill for impairment annually or more frequently if indicators of impairment exist. Goodwill is not subject
to amortization and has been assigned to reporting units for purposes of impairment testing. The reporting units are our restaurant brands
and/or geographic area.
A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include,
among others: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in our stock price and
market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for
recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have
a significant impact on the recoverability of these assets and could have a material impact on the Company’s consolidated financial
statements.
The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its
carrying value. The Company estimates fair value using the best information available, including market information and discounted cash
flow projections (also referred to as the income approach). The income approach uses a reporting unit’s projection of estimated operating
results and cash flows that is discounted using a weighted-average cost of capital that reflects current market conditions. The projection
uses management’s best estimates of economic and market conditions over the projected period including growth rates in sales, costs and
number of units, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and
assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital
requirements. The Company validates its estimates of fair value under the income approach by comparing the values to fair value estimates
using a market approach. A market approach estimates fair value by applying cash flow and sales multiples to the reporting unit’s operating
performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics
of the reporting units.
If the fair value of the reporting unit is higher than its carrying value, goodwill is deemed not to be impaired, and no further testing is
required. If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the
second step must be performed to measure the amount of impairment loss. The amount of impairment is determined by comparing the
implied fair value of reporting unit goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being
acquired in a business combination. Specifically, fair value is allocated to all of the assets and liabilities of the reporting unit, including any
unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value
of goodwill is less than the recorded goodwill, the Company would record an impairment loss for the difference.
INTANGIBLE ASSETS
Trade Name/Trademark
The fair value of trade name/trademarks are estimated and compared to the carrying value. The Company estimates the fair value of
trademarks using the relief-from-royalty method, which requires assumptions related to projected sales from its annual long-range plan;
assumed royalty rates that could be payable if the Company did not own the trademarks; and a discount rate. Certain of the Company’s
trade name/trademarks have been determined to have a definite-lived life and are being amortized on a straight-line basis over estimated
useful lives of 10 years. The amortization expense of these definite-lived intangibles is included in depreciation and amortization in the
Company’s consolidated statement of operations. Certain of the Company’s trade name/trademarks have been classified as indefinite-lived
intangible assets and are not amortized, but instead are reviewed for impairment at least annually or more frequently if indicators of
impairment exist.
F-15
Franchise Cost
Intangible assets are recorded for the initial franchise fees for our Hooter’s restaurants. The Company amortizes these amounts over a
20-year period, which is the life of the franchise agreement.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. If required, the Company compares the
estimated fair value determined by either the undiscounted future net cash flows or appraised value to the related asset’s carrying value to
determine whether there has been an impairment. If an asset is considered impaired, the asset is written down to fair value in the period in
which the impairment becomes known. The Company recognized impairment charges during the years ended December 31, 2015 and
December 31, 2014 related to the Company’s Discontinued Operations (See Note 5 “Discontinued Operations”) and the Australia
Administration ( See Note 19 “Australia Administration Transactions and Asset Impairment”).
DERIVATIVE LIABILITIES
In connection with the issuance of a secured convertible promissory note, the terms of the convertible note included an embedded
conversion feature; which provided for the settlement of the convertible promissory note into shares of common stock at a rate, which was
determined to be variable. The Company determined that the conversion feature was an embedded derivative instrument pursuant to ASC
815 “Derivatives and Hedging”.
The accounting treatment of derivative financial instruments requires that the Company record the conversion option and related
warrants at their fair values as of the inception date of the agreements and at fair value as of each subsequent balance sheet date. Any
change in fair value was recorded as a change in the fair value of derivative liabilities in the statement of operations. The Company
reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the contract is
reclassified as of the date of the event that caused the reclassification.
The fair value of an embedded conversion option that is convertible into a variable amount of shares are deemed to be a “down-round
protection” and therefore, do not meet the scope exception for treatment as a derivative under ASC 815. Since, “down-round protection” is
not an input into the calculation of the fair value of the conversion option and cannot be considered “indexed to the Company’s own stock”
which is a requirement for the scope exception as outlined under ASC 815. The Company determined the fair value of the Binomial Lattice
Model and the Black-Scholes Model to be materially the same. The Company’s outstanding warrants did not contain any down round
protection.
The Black-Scholes option valuation model is used to estimate the fair value of the warrants or options granted. The model includes
subjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating the fair
value of traded options or warrants. The expected volatility is estimated based on the most recent historical period of time equal to the
weighted average life of the warrants or options granted.
ACQUIRED ASSETS AND ASSUMED LIABILITIES
Pursuant to ASC No. 805-10-25, if the initial accounting for a business combination is incomplete by the end of the reporting period in
which the combination occurs, but during the allowed measurement period not to exceed one year from the acquisition date, the company
retrospectively adjusts the provisional amounts recognized at the acquisition date by means of adjusting the amount recognized for
goodwill.
F-16
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, 2015 and 2014 the Company had no accrued interest or penalties relating to any income 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.
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, 2015 and 2014, there were no options outstanding. See Note 14 regarding outstanding warrants.
LOSS PER COMMON SHARE
The Company is required to report both basic earnings per share, which is based on the weighted-average number of shares outstanding
and diluted earnings per share, which is based on the weighted-average number of common shares outstanding plus all diluted shares
outstanding.
The following table summarizes the number of common shares potentially issuable upon the exercise of certain warrants, convertible
notes payable and convertible interest as of December 31, 2015 and 2014, which have been excluded from the calculation of diluted net loss
per common share since the effect would be antidilutive.
Warrants
Convertible notes payable
Convertible interest
Total
ADVERTISING
December 31, 2015 December 31, 2014
8,715,804
2,626,900
42,306
11,385,010
9,506,304
3,757,188
123,526
13,387,018
Advertising costs are expensed as incurred. Advertising expenses which are included in restaurant operating expenses in the
accompanying consolidated statement of operations, totaled $0.7 million and $0.4 million for the years ended December 31, 2015 and
2014, respectively. Advertising expense primarily includes local advertising.
F-17
AMORTIZATION OF DEBT DISCOUNT
The Company has issued various debt with warrants and conversion features for which total proceeds were allocated to individual
instruments based on the relative fair value of the each instrument at the time of issuance. The value of the debt was recorded as discount
on debt and amortized over the term of the respective debt. For the year ended December 31, 2015 and 2014 amortization of debt discount
was $2.4 million and $1.4 million, respectively.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in local currency are translated to U.S. dollars using the exchange rates as in effect at the
balance sheet date. Results of operations are translated using average exchange rates prevailing throughout the period. Adjustments
resulting from the process of translating foreign currency financial statements from functional currency into U.S. dollars are included in
accumulated other comprehensive loss within stockholders’ equity. Foreign currency transaction gains and losses are included in current
earnings. The Company has determined that local currency is the functional currency for each of its foreign operations. Foreign currency
transaction gains and losses are included in current earnings.
COMPREHENSIVE INCOME (LOSS)
Standards for reporting and displaying comprehensive income (loss) 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 (loss) 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 (loss) by their nature in financial statements, and
(b) display the accumulated balance of other comprehensive income (loss) separately in the equity section of the balance sheet for all
periods presented. Other comprehensive income (loss) items include foreign currency translation adjustments, and the unrealized gains and
losses on our marketable securities classified as held for sale.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash with major financial institutions. Cash held in U.S. bank institutions is currently insured by the Federal
Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. No similar insurance or guarantee exists for cash held in
Australia, South Africa, Hungary or United Kingdom bank accounts. There were approximately $0.4 million and $0.1 million aggregate
uninsured cash balances at December 31, 2015 and 2014, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made in the financial statements at December 31, 2014 and for the period then ended to conform to
the December 31, 2015 presentation. The reclassifications had no effect on net loss.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-
02 “Leases”, which supersedes ASC 840 “Leases” and creates a new topic, ASC 842 “Leases”. This update requires lessees to recognize a
lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update
also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning
after December 15, 2018 and interim periods within those fiscal years, with earlier adoption permitted. This update will be applied using a
modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements. The Company is currently evaluating the effect of this update on its consolidated financial statements.
F-18
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes” which requires that deferred tax liabilities and assets be
classified as noncurrent in a classified balance sheet. Prior to the issuance of the standard, deferred tax liabilities and assets were required to
be separately classified into a current amount and a noncurrent amount in the balance sheet. The new accounting guidance represents a
change in accounting principle and the standard is required to be adopted in annual periods beginning after December 15, 2016. The
application of this guidance affects classification only, and is not expected to have a material effect on the Company’s consolidated
financial position or results of operations.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which
requires entities to measure inventory at the lower of cost and net realizable value (“NRV”). ASU 2015-11 defines NRV as the estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The ASU will
not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. The guidance in ASU
2015-11 is effective prospectively for fiscal years beginning after December 15, 2016, and interim periods therein. Early adoption is
permitted. Upon transition, entities must disclose the nature of and reason for the accounting change. The adoption of ASU 2015-11 is not
expected to have a material impact on our consolidated financial position or results of operations.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation: Amendments to the Consolidation Analysis.” This update
improves targeted areas of the consolidation guidance and reduces the number of consolidation models. This update is effective for annual
and interim periods in fiscal years beginning after December 15, 2015, with early adoption permitted. The adoption of ASU 2015-02 is not
expected to have a material impact on our consolidated financial position or results of operations.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40):
Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. The standard is intended to define management’s
responsibility to decide whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide
related footnote disclosures. The standard requires management to decide whether there are conditions or events that raise substantial doubt
about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The standard
provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and
content of disclosures that are commonly provided by organizations in their footnotes. The standard becomes effective in annual periods
ending after December 15, 2016, with early application permitted. The adoption of this pronouncement is not expected to have a material
impact on the consolidated financial statements. Management’s evaluations regarding the Company’s ability to continue as a going concern
have been disclosed in Note 1 of the accompanying consolidated financial statements.
In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting” (“ASU 2014-
17”). ASU 2014-17 provides with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event
in which an acquirer obtains control of the acquired entity. The acquired entity may elect the option to apply pushdown accounting in the
reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the
change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting
period as a change in accounting principle in accordance with ASC Topic 250, “Accounting Changes and Error Corrections”. If pushdown
accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 also requires an acquired entity
that elects the option to apply pushdown accounting in its separate financial statements to disclose information in the current reporting
period that enables users of financial statements to evaluate the effect of pushdown accounting. The Company has adopted the amendments
in ASU 2014-17, effective November 18, 2014, as the amendments in the update are effective upon issuance. The adoption did not have an
impact on the Company’s Consolidated Financial Statements.
There are several other new accounting pronouncements issued by FASB, which are not yet effective. Each of these pronouncements
has been or will be adopted, as applicable, by the Company. At December 31, 2015, none of these pronouncements are expected to have a
material effect on the financial position, results of operations or cash flows of the Company.
F-19
3. ACQUISITIONS
The Company’s acquisitions were accounted for using the purchase method of accounting in accordance with ASC 805 “Business
Combinations” and, accordingly, the condensed consolidated statements of operations include the results of these operations from the dates
of acquisition. The assets acquired and the liabilities assumed were recorded at estimated fair values based on information currently
available and based on certain assumptions as to future operations.
In connection with the acquisition of the restaurants, the Company analyzed each acquisition to determine the purchase price
allocation in consideration of all identifiable intangibles. Based on our evaluation, there were no marketing related assets, customer related
intangibles or contract based arrangements for which the purchase price would be required to be allocated. For marketing related assets, the
Company did not acquire any trademarks or trade names (for Hooters acquisitions) or enter into any non-compete agreements. The
Company is however required to pay royalties based on future sales. For acquisitions other than Hooters restaurants, the value of any
trademark/tradename, was calculated using a relief of royalty method considering future franchise opportunities, and the value was
determined to be de minimus. With respect to customer related intangibles, the Company did not acquire any customer lists or enter into
any customer contractual arrangements nor did the Company enter into any licensing or royalty arrangements requiring a further allocation
of the purchase price. The premium paid for the businesses represents the economic value that is not captured by other assets such as the
reputation of the businesses, the value of its human capital, its future growth potential and its professional management. The acquisition of
these businesses will help the Company expand its domestic operations and presence.
During the years ended December 31, 2015 and 2014, the Company acquired several businesses to complement and expand its
Hooters full service and its Better Burger fast casual restaurant businesses. In connection with these acquisitions, the Company acquired
strategic opportunities to expand its scale and presence in the geographic markets where it operates, to expand into new markets, and to
strengthen the Company’s full service and fast casual restaurant businesses.
2015 Acquisitions
During the year ended December 31, 2015, the Company acquired three businesses to complement and expand its current
operations in the Better Burger fast casual restaurant category. In connection with these acquisitions, the Company acquired strategic
opportunities to expand its scale and presence in the Better Burger category.
Acquisition of BGR: The Burger Joint
The Company completed the acquisition of BGR: The Burger Joint effective March 15, 2015. The Company allocated the
purchase price as of the date of acquisition based on appraisals and estimated the fair value of the acquired assets and assumed liabilities. In
consideration of the purchased assets, the Company paid a purchase price consisting of $4,000,000 in cash, 500,000 shares of the
Company’s common stock valued at $1.0 million, and a contractual working capital adjustment of $276,429. The fair value of the shares
was the closing stock market price on, the date the deal acquisition was consummated. No warrants were issued in connection with the
acquisition.
Acquisition of BT’s Burger Joint
On July 1, 2015, the Company completed the acquisition with BT’s Burgerjoint Management, LLC, a limited liability company
organized under the laws of North Carolina (“BT’s”), including the ownership interests of four operating restaurant subsidiaries engaged in
the fast casual hamburger restaurant business under the name “BT’s Burger Joint.” In consideration of the purchased assets, the Company
paid a purchase price consisting of $1.4 million in cash and 424,080 shares of the Company’s common stock valued at $1.0 million. The
fair value of the shares was the closing stock market price on, the date the deal acquisition was consummated. No warrants were issued in
connection with the acquisition.
F-20
Acquisition of Little Big Burger
On September 30, 2015, the Company completed the acquisition of various entities operating eight Little Big Burger restaurants in
Oregon. In consideration of the purchased assets, the Company paid a purchase price consisting of $3,600,000 in cash and 1,874,063 shares
of the Company’s common stock valued at $2.1 million. The fair value of the shares was the closing stock market price on, the date the
deal acquisition was consummated. No warrants were issued in connection with the acquisition.
2014 Acquisitions
Tacoma Wings, Jantzen Beach Wings and Oregon Owl’s Nest (“Hooters Pacific NW”)
On January 31, 2014, pursuant to an Agreement and Plan of Merger executed on December 31, 2013, the Company completed the
acquisition of all of the outstanding shares of each of Tacoma Wings, LLC, Jantzen Beach Wings, LLC and Oregon Owl’s Nest, LLC,
which owned and operated the Hooters restaurant locations in Tacoma, Washington and Portland, Oregon, respectively. These entities were
purchased for a total purchase price of 680,272 Company units, with each unit consisting of one share of the Company’s common stock and
one five-year warrant to purchase a share of the Company’s common stock. Half of the warrants are exercisable at $5.50 and half of the
warrants are exercisable at $7.00. As part of this transaction, the Hooters Sellers were granted registration rights with respect to the
Company’s common stock issued and underlying the warrants, and franchise rights and leasehold rights to the locations were transferred to
the Company.
Dallas Spoon and Dallas Spoon Beverage (“Spoon”)
Also on January 31, 2014, pursuant to an Agreement and Plan of Merger executed on January 14, 2014, the Company completed the
acquisition of all of the outstanding shares of Dallas Spoon, LLC and Dallas Spoon Beverage, LLC from Express Restaurant Holdings,
LLC and Express Restaurant Holdings Beverage, LLC. The purchase price of 195,000 Company units was paid to Express Working
Capital, LLC (“EWC”); the units consist of one share of the Company’s common stock and one five-year warrant to purchase a share of the
Company’s common stock. Half of the warrants are exercisable at $5.50 and half of the warrants are exercisable at $7.00. As part of this
transaction, EWC was granted registration rights with respect to the Company’s common stock issued and underlying the warrants, and all
leaseholds and other rights were transferred to the Company. (See Note 5 “Discontinued Operations”)
For the acquisitions of Hooters Pacific NW and Spoon, the fair value of the shares was the closing stock market price on January 31,
2014, the date the deal acquisition was consummated. The fair value of the warrants issued was determined using the Black-Scholes
model. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected stock price
volatility for the Company’s warrants was determined by the historical volatilities for industry peers and used an average of those
volatilities. The risk free interest rate was obtained from U.S. Treasury rates for the applicable periods. The contractual terms of the
agreement does not provide for and the Company does not expect to declare dividends in the near future. The assumptions were as follows:
Acquisitions of Hooters Pacific NW and Spoon:
Assumptions:
Risk-free interest rate
Expected life
Expected volatility
Dividends
F-21
0.79%
5 years
89.1%
0%
Campbelltown, Penrith, Parramatta, Surfers Paradise, and Townsville (“Hooters Australia”)
On April 1, 2014, the Company completed the step acquisition of Hooters Australia, increasing the Company’s ownership percentage from
49% to 60% in the Cambelltown, Surfers Paradise and Townsville Australia entities.. On July 1, 2014, the Company acquired 60% of the
two other Hooters restaurants in Australia, in Penrith and Parramatta, as well as a 60% interest in the related Australian management
company. These entities owned, operated and managed Australian Hooters restaurants and gaming operations. The purchase price was the
assumption of $5 million in debt and the issuance of 250,000 five-year warrants at an exercise price to be determined at the next public
offering or the end of twelve calendar months. The warrant prices were determined and set at $1.71 per share during 2015, at which time
the value of the warrants was reclassified from derivative liabilities to stockholders equity as the conditions previously giving rise to
liability treatment were eliminated at the time the strike price became fixed and determinable.. Also as part of the transaction, the
Company receive the rights to 100% of all gaming revenue until the debt is repaid, and thereafter the Company will receive 60% of such
revenue for the remainder of the lifetime of the gaming machines. (See Note 19 “Australia Administration Transactions and Asset
Impairment”)
The fair value of the warrants issued was determined using the Black-Scholes model. The model includes subjective input assumptions
that can materially affect the fair value estimates. The expected stock price volatility for the Company’s warrants was determined by the
historical volatilities for industry peers and used an average of those volatilities. The risk free interest rate was obtained from U.S. Treasury
rates for the applicable periods. The contractual terms of the agreement does not provide for and the Company does not expect to declare
dividends in the near future. The assumptions were as follows:
Acquisitions of Hooters Australia:
Assumptions:
Risk-free interest rate
Expected life
Expected volatility
Dividends
The Burger Company
1.62%
5 years
109.1%
0%
On September 9, 2014, the Company purchased 100% of the net assets of The Burger Company located in Charlotte, North Carolina, a
similar concept to our ABC restaurants, for a purchase price of $550,000, which consisted of $250,000 in cash and $300,000 in the
Company’s common stock.
In connection with each of the acquisitions described above, the Company determined the purchase price allocation in
consideration of all identifiable intangibles. Based on our evaluation, there were no marketing related assets, customer related intangibles
or contract based arrangements for which the purchase price would be required to be allocated. The value of acquired trademark/tradename
was calculated using a relief of royalty method considering future franchise opportunities. With respect to customer related intangibles, the
Company did not acquire any customer lists or enter into any customer contractual arrangements nor did the Company enter into any
licensing or royalty arrangements requiring a further allocation of the purchase price.
The premium paid for the businesses represents the economic value that is not captured by other assets such as the reputation of
the businesses, the value of its human capital, its future growth potential and its professional management. The acquisition of these
businesses will help the Company expand its domestic operations and presence in the Better Burger categoryof the Fast Casual dining
market.
F-22
Summary of 2014 and 2015 Acquisitions
The acquisitions were accounted for using the purchase method of accounting in accordance with ASC 805 “Business Combinations”
and, accordingly, the condensed consolidated statements of operations include the results of these operations from the dates of acquisition.
The assets acquired and the liabilities assumed were recorded at estimated fair values based on information currently available and based on
certain assumptions as to future operations as follows:
Consideration paid:
Common stock
Cash
Total consideration paid
2015 Acquisitions
BGR:
The Burger
Joint
BT’s Burger
Joint
Little Big
Burger
Total
$
$
1,000,000 $
4,276,429
5,276,429 $
1,000,848 $
1,400,000
2,400,848 $
2,061,469 $
3,600,000
5,661,469 $
4,062,317
9,276,429
13,338,746
Cash acquired
Property and equipment
Goodwill
Trademark/trade name/franchise fee
Inventory, deposits and other assets
Amounts held in escrow to satisfy acquired
liabilities
Total assets acquired, less cash
Liabilities assumed
Deferred tax liabilities
11,000
2,164,023
663,037
2,750,000
296,104
-
5,884,164
(607,735)
-
8,000
1,511,270
978,350
-
103,451
-
2,601,071
(200,223)
-
Total consideration paid
$
5,276,429 $
2,400,848 $
234,638
1,711,990
2,938,279
1,550,000
73,780
253,638
5,387,283
4,579,666
4,300,000
473,334
675,000
7,183,686
(949,857)
(572,360)
5,661,469 $
675,000
15,668,921
(1,757,815)
(572,360)
13,338,746
Consideration paid:
Common stock
Warrants
Assumption of debt
Cash
Total consideration paid
Cash acquired
Current assets, excluding cash
Property and equipment
Goodwill
Trademark/trade name/franchise fee
Deposits and other assets
Total assets acquired, less cash
Liabilities assumed
Non-controlling interest
Chanticleer equity
Total consideration paid
Hooters
Pacific
NW
Spoon
2014 Acquisitions
Hooters Australia
April 1,
2014
July 1,
2014
The
Burger
Co.
Total
$ 2,891,156 $ 828,750 $
280,400
978,000
-
-
-
-
3,869,156 1,109,150
- $
123,333
-
- 5,000,000
100,000
-
100,000 5,123,333
- $ 300,000 $ 4,019,906
- 1,381,733
- 5,000,000
250,000
350,000
550,000 10,751,639
$
- $
9,926
2,274 $
112,078
2,731,031
1,951,909
60,937
20,275
- $
3,617 $
21,636 $
89,817
47,777
377,296
391,462 2,934,307 1,603,557
- 8,487,138
698,583
220,500
-
20,186
5,193
4,878,504 1,206,691 3,683,458 10,379,158
(97,541) (1,560,710) (1,496,536)
(1,009,348)
(993,999) (3,759,289)
-
-
-
$ 3,869,156 $1,109,150 $
27,527
636,894
284,795 7,945,152
256,379 11,394,009
559,304
136,025
551,100 20,698,911
(1,100) (4,165,235)
- (4,753,288)
- (1,028,749)
100,000 $ 5,123,333 $ 550,000 $10,751,639
-
- (1,028,749)
277,867
90,371
-
-
Unaudited pro forma results of operations for the years ended December 31, 2015 and 2014 as if the Company had acquired majority
ownership of the operation on January 1 of each year 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.
F-23
Total revenues
Loss from continuing operations
Gain (loss) frorm discontinued operations
Loss attributable to non-controlling interest
Net loss
Net loss per share, basic and diluted
Weighted average shares outstanding, basic and diluted
Years Ended December 31,
2015
2014
$
$
$
51,194,287 $
(16,039,046)
53,350
2,319,117
(13,666,579) $
(0.96) $
14,245,437
53,738,800
(5,147,010)
(920,960)
263,307
(5,804,663)
(0.92)
6,332,843
The following table includes information from the Company’s 2015 acquisitions, the results of which are included in the
accompanying Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2015:
BGR: The
Burger Joint
BT’s Burger
Joint
Little Big
Burger
Total
2015 Acquisitions
Revenues
Cost of sales
Other expenses
Operating income (loss)
$
$
7,028,700 $
2,254,100
4,994,400
(219,800) $
1,845,400 $
550,600
1,136,600
158,200 $
1,346,400 $
483,100
648,700
214,600 $
10,220,500
3,287,800
6,779,700
153,000
The following table includes information from the Company’s 2014 acquisitions, the results of which are included in the
accompanying Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2014:
Hooters Pacific
NW
Spoon
2014 Acquisitions
Hooters
Australia
The Burger
Co.
Total
Revenues
$
4,382,492 $
1,207,688 $
5,613,381 $
81,539 $
11,285,100
Cost of sales
Other expenses
1,239,726
3,340,963
529,974
915,661
1,564,198
4,330,224
33,305
30,847
3,367,203
8,617,695
Operating income (loss)
$
(198,197) $
(237,947) $
(281,041) $
17,387 $
(699,798)
Income from operations of unconsolidated affiliates
On April 1, 2014, the Company increased its ownership in the Australian Hooters entities, Hoot Campbelltown Pty. Ltd.,
Hoot Surfers Paradise Pty. Ltd. and Hoot Townsville Pty. Ltd., from 49% to 60%. On July 1, 2014, we purchased 60% of Hoot Parramatta
Pty Ltd, Hoot Australia Pty Ltd, Hoot Penrith Pty Ltd, and TMIX Management Australia Pty Ltd.
F-24
Prior to April 1, 2014, the Company accounted for its 49% ownership using the equity method of accounting and our share of
earnings and losses was recorded in equity in losses from investments in our Consolidated Statements of Operations and Comprehensive
Loss.
4.
INVESTMENTS
Investments at fair value consist of the following at December 31, 2015 and 2014.
December 31, 2015
Appalachian Mountain Brewery
KSIX Media Holdings, Inc.
December 31, 2014
Appalachian Mountain Brewery
KSIX Media Holdings, Inc.
Unrecognized
Holding
Fair
Gains (Losses) Value
Realized
Holding
Loss
Gain
on
Sale
Cost
$
1,500 $
261,831
$ 263,331 $
16,046 $ 17,546 $
(248,055)
(232,009) $ 31,322 $
13,776
$
1,500 $
261,831
$ 263,331 $
23,300 $ 24,800 $
(251,269)
(227,969) $ 35,362 $
10,562
- $
-
- $
-
-
-
- $ 46,292
-
-
- $ 46,292
Available-for-sale investments at fair value
Total
Available-for-sale securities
Activity in our available-for-sale securities may be summarized as follows:
Cost
Unrealized loss
Total
Our available-for-sale securities consist of the following:
2015
2014
$
$
31,322 $
31,322 $
35,362
35,362
2015
2014
$
$
263,331 $
(232,009)
31,322 $
263,331
(227,969)
35,362
Appalachian Mountain Brewery (“AMB”), formerly North Carolina Natural Energy, Inc. (“NCNE”) – AMB is a successor to
NCNE and its common stock is currently traded on the OTC market under the ticker HOPS. AMB began trading under this symbol on
January 7, 2014; previously it was traded under ticker NCNE on the OTC stock market. As of December 31, 2015 and 2014, the Company
held 6,200 shares of AMB with a closing price of $2.83 and $4.01 per share. AMB makes craft beer with plans to expand its distribution
network. AMB expects to have a food service line in addition to its beer products. NCNE was a successor to Remodel Auction Incorporated
whose business was discontinued. The Company originally received 100,000,000 shares of NCNE (less than 1% on a fully diluted basis)
for management services during 2011, valued at $1,500.
F-25
We recognized a realized gain of $46,492 in 2014 in connection with the sale of a portion of our investment in Appalachian Mountain
Brewery.
KSIX Media Holdings, Inc. (“KSIX”), formerly 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 OTC market on the date of the trade. NAEY is currently traded
on the OTC market under the symbol NAEYD. 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. 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.
During 2015, NAEY authorized and approved a reverse stock split of one for twenty-three (1:23) of the Corporation’s total issued and
outstanding shares of common stock and subsequently entered into a merger agreement to acquire KSIX. Later in 2015, NAEY changed its
name to KSIX and its shares are currently traded on the OTC market under the symbol KSIX. KSIX shares have traded on the OTC market
at prices ranging from $0.05 to $0.75 per share over the past 52 weeks.
At December 31, 2015 and 2014 shares of KSIX closed at $0.12 and $0.09 per share, respectively, and the Company recognized an
unrealized loss of $248,055 as of December 31, 2015 and $251,269 as of December 31, 2014.
Investments accounted for using the cost method
Investments at cost consist of the following at December 31, 2015 and 2014:
Chanticleer Investors, LLC
Beacher’s Madhouse
Edison Nation LLC (FKA Bouncing Brain Productions)
A summary of the activity in investments accounted for using the cost method follows.
Investments at cost:
Balance, beginning of year
Impairment
New investments
Sales
Total
2015
2014
$
$
800,000 $
-
250,000
1,050,000 $
800,000
500,000
250,000
1,550,000
2015
2014
$
$
1,550,000 $
-
-
(500,000)
1,050,000 $
1,550,000
-
-
-
1,550,000
Chanticleer Investors LLC - On January 24, 2011, Investors LLC and its three partners combined to form HOA Holdings, LLC
(“HOA LLC”) and completed the acquisition of 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 was 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. In July 2012, the
Company acquired an additional interest of $300,000, at cost, from one of the partners for cash, which increased our ownership to
approximately 22% of Investors LLC as of December 31, 2013.
F-26
In November 2015, the Company received a cash distribution totaling $543,130 on its 3% equity interest in HOA LLC, of which
$324,054 is reflected in management fee income and $219,076 is reflected in other income in the accompanying Consolidated Statements
of Operations. In August 2014, the Company received a cash distribution totaling $830,421 on its 3% equity interest in HOA LLC, of
which $392,842 is reflected in management fee income and $437,579 is reflected in other income in the accompanying Consolidated
Statements of Operations.
Based on the current status of this investment, the Company does not consider the investment to be impaired.
Beacher’s Madhouse – The Company acquired a 5% minority interest for $500,000 in Beacher’s, a variety show and nightclub
experience. Beacher’s opened in late 2013 at an 8,500 square-foot performance theater located in the MGM Grand Hotel & Casino located
on the strip in Las Vegas. The Company sold this investment in 2015 for cash proceeds of $330,361, and recognized a realized loss of
$169,639.
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. Based on the current status of this investment, the Company does not consider the investment
to be impaired.
Investments accounted for using the equity method
Effective April 1, 2014, the Company increased its ownership stake in Hooters restaurant in Campbelltown, Australia from
49% to 60%. In addition, the Company increased its ownership stake to 60% in the two new stores recently completed or under
construction in Surfers Paradise (which opened on July 4, 2014), Australia and Townsville, Australia, which we expect to open in 2015.
Prior to April 1, 2014, the Company accounted for its 49% ownership using the equity method of accounting. Subsequent to April 1, 2014,
the accounts of the Australia entities are consolidated in the Company’s consolidated financial statements.
Also on July 1, 2014, the Company acquired 60% of the two other Hooters restaurants in Australia, in Penrith and Parramatta, suburbs of
Sydney, as well as 60% interest in the related Australian management company. These entities own, operate, and manage Australian
Hooters restaurants and gaming operations. The purchase price was the assumption of $5 million in debt. Also as part of the transaction,
the Company will receive 100% of all gaming revenue until the debt is repaid, and thereafter the Company will receive 60% of such
revenue for the remainder of the lifetime of the gaming machines. (See Note 19 “Australia Administration Transactions and Asset
Impairment”).
Activity in investments accounted for using the equity method is summarized as follows:
Balance, beginning of year
Equity in loss
New investments
Reclassification of investments
Balance, end of year
F-27
2014
941,963
(40,694)
100,000
(1,001,269)
-
$
$
5. DISCONTINUED OPERATIONS
On December 31, 2014, management concluded it was in the best interest of the Company to exit the acquired Spoon restaurant in
Dallas, Texas. The Company executed an agreement to sell the assets of Spoon Bar & Kitchen back to the original owner. In connection
with this transaction, the Company reacquired 185,000 Stock Units that had been issued at acquisition in exchange for the asset transferred
pursuant to the Asset Purchase Agreement. The stock was valued at $446,050 and the net assets were valued at $1,109,062, resulting in a
loss of $683,012.
The results of operations and related non-recurring costs associated with Spoon have been presented as discontinued operations.
Additionally, the assets and liabilities of the discontinued operations have been segregated in the accompanying consolidated balance
sheets.
The operating results from the discontinued operations for the years ended December 31, 2015 and 2014 consisted of the
following:
Total revenue
Total operating income (expenses)
Non-cash charge on disposal of Spoon
2015
2014
$
- $
1,207,688
53,350
(1,445,636)
-
(683,012)
Net gain (loss) from discontinued operations
$
53,350 $
(920,960)
As of December 31, 2015 and 2014, liabilities from discontinued operations totaled $124,043 and $177,393, respectively. The Company is
continuing to monitor vendor and other claims related to resolution of the discontinued operations. The Company did not retain any assets
or ongoing operating activities related to the discontinued operation.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2015 and 2014:
Leasehold improvements
Restaurant furniture and equipment
Construction in progress
Office and computer equipment
Land and buildings
Office furniture and fixtures
Accumulated depreciation and amortization
December 31, 2015
11,988,993 $
10,622,806
-
10,643
708,020
104,450
23,434,912
(6,793,680)
16,641,232 $
December 31, 2014
9,940,517
7,827,925
727,934
51,746
437,223
60,302
19,045,647
(5,730,238)
13,315,409
$
$
F-28
Restaurant furnishings and equipment includes assets under capital leases from our South African restaurants $196,100 and $179,320,
net book value of $53,497 and $59,261 as of December 31, 2015 and December 31, 2014, respectively. Depreciation and amortization
expense $53,424 and $74,204 for capital lease assets for the year ended December 31, 2015 and 2014, respectively.
7.
INTANGIBLE ASSETS, NET
GOODWILL
Goodwill is summarized by location as follows:
American Burger Company
BGR: The Burger Joint
Little Big Burger
BT’s Burger Joint
Just Fresh
Hooters South Africa
Hooters Australia
West End Wings UK
Hooters Pacific NW
Total
December 31, 2015
2,806,990 $
663,037
2,938,279
978,350
425,151
206,503
-
2,733,001
1,950,828
12,702,139 $
December 31, 2014
2,806,990
-
-
-
425,151
273,737
7,291,329
2,868,192
1,951,909
15,617,308
$
$
The changes in the carrying amount of goodwill are summarized as follows:
Beginning Balance
Acquisitions
Divestures
Impairment
Adjustments
Foreign currency translation (loss) gain
Ending Balance
Years Ended
December 31, 2015
$
$
15,617,308 $
4,579,666
-
(6,803,537)
(1,081)
(690,217)
12,702,139 $
December 31, 2014
6,496,756
11,394,009
(698,583)
-
(169,000)
(1,405,874)
15,617,308
An evaluation was completed effective December 31, 2015 at which time the Company determined that no impairment (other than
impairment related to the Australia operations which was reflected as of September 30, 2015 and discussed further in Note 19. Australia
Administration Transactions And Asset Impairment) was necessary for any of the Company’s goodwill balances.
OTHER INTANGIBLE ASSETS
Franchise and trademark/tradename intangible assets consist of the following at December 31, 2015 and December 31, 2014.
F-29
Intangible assets
Trademark, Tradenames:
Just Fresh
American Roadside Burger
BGR: The Burger Joint
Little Big Burger
Franchise fees:
South Africa
Europe
Australia
Hooters Pacific NW
BGR: The Burger Joint
Chanticleer Holdings *
Total Intangibles at cost
Accumulated amortization
Intangible assets, net
Estimated
Useful
Life
10 years
10 years
Indefinite
Indefinite
20 years
20 years
20 years
20 years
Indefinite
20 years
December 31, 2015 December 31, 2014
$
$
1,010,000 $
1,786,930
1,430,000
1,550,000
5,776,930
286,732
57,566
353,775
90,000
1,320,000
135,000
2,243,073
8,020,003
(737,928)
7,282,074 $
1,010,000
1,783,954
-
-
2,793,954
290,986
106,506
383,529
90,000
-
135,000
1,006,021
3,799,975
(403,472)
3,396,503
* Amortization of the Chanticleer Holdings franchise cost (related to Brazil franchise rights) will begin with the opening of a restaurant
pursuant to that franchise right.
Amortization for franchise costs and trade name/trademarks are as follows:
December 31,
2016
2017
2018
2019
2020
Thereafter
Total
Franchise fees
Trademark /
Tradenames
Total
61,590 $
61,590
61,590
61,590
61,590
307,195
615,145 $
279,693 $
279,693
279,693
279,693
279,693
968,464
2,366,929 $
341,283
341,283
341,283
341,283
341,283
1,275,659
2,982,074
$
$
F-30
8. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable are summarized as follows.
Note Payable, due January 2017, net of discount of $171,868 and
$343,733, respectively
Note Payable, due June 2019
Note Payable, due January 2017
Note Payable, due October 2018
Mortgage Note, South Africa, due July 2024
Bank overdraft facilities, South Africa, annual renewal
Equipment financing arrangements, South Africa
Bank line of Credit, expired in 2015
Loans, paid in full in 2015
Total long-term debt
Current portion of long-term debt
Long-term debt, less current portion
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
December 31, 2015
December 31, 2014
$
4,828,132 $
4,656,267
-
942,918
132,596
208,131
180,377
189,489
-
-
$
$
6,481,643 $
5,383,002
1,098,641 $
500,000
-
176,731
294,362
151,868
343,702
500,000
200,000
6,822,930
1,813,647
5,009,283
(a) On July 1, 2014, the Company completed the acquisition of a sixty percent (60%) ownership interest in Hoot Parramatta Pty Ltd,
Hoot Australia Pty Ltd, Hoot Penrith Pty Ltd, and TMIX Management Australia Pty Ltd (collectively, the “Australian Entities”) in
exchange for the assumption of a five million dollar ($5,000,000) note bearing interest at 12% annually and issuing two hundred fifty
thousand (250,000) warrants to purchase shares of our common stock.
(b) During February 2014, the Company entered into a $500,000 note with Paragon Commercial Bank (“Paragon”) due June 10, 2019.
The note bears interest at a 5.0% annual rate, with principal and interest payable monthly. This note was paid in full in 2015 using proceeds
from a new note with Paragon (refer to item (c) below).
(c) and (h) On April 11, 2013, the Company and entered into a credit agreement with Paragon which provided for a $500,000 revolving
credit facility. The original credit agreement (h) expired on May 10, 2015 and was subsequently converted to a new$1 million term note (c)
payable in monthly installments of $8,500 with a $399,078 balloon payment due at maturity, bearing interest at 5.0%; collateralized by
substantially all of the Company’s assets and guaranteed by an officer of the Company.
(d) Note with Paragon, due on October 10, 2018, bearing interest at a 5% annual rate, with principal and interest monthly payments of
$11,532. Borrowings under the Note Payable are secured by a lien on all of the Company’s assets. Obligations under the Credit Agreement
are guaranteed by an officer of the Company.
(e) In April 2014, our South African subsidiary entered into a mortgage note with a South African bank for the purchase of the building
in Port Elizabeth for our Hooters location. The 10-year note is for $330,220 with an annual interest rate of 2.6% above the South African
prime rate (prime currently 9.25%). Monthly principal and interest payments of approximately $4,600 commenced in August, 2014. The
mortgage note is personally guaranteed by our CEO and South African COO and secured by the assets of the Port Elizabeth building.
(f) The Company’s South African subsidiary has local bank financing in the form of term and overdraft facilities, which are payable on
demand and renew annually.
F-31
(g) The Company’s South African subsidiary has three local equipment financing arrangements in the form of term loans. These
arrangements call for 1) monthly payments of 45 thousand Rand, including interest at South African Prime +1.0%, maturing on June 14,
2016, 2) monthly payments of 44 thousand Rand, including interest South African Prime +3.0%, maturing on November 15, 2019 and 3)
monthly payments of 34 thousand Rand, including interest at South African Prime + 3.0% maturing on December 1, 2018.
(i) On December 23, 2013, the Company entered into a loan agreement with an outside company for $150,000. During 2014, made
payments totaling $50,000 and repaid the loan in full during 2015. On June 20, 2014, the Company entered into a loan agreement with an
outside company for $100,000. During 2015, the Company issued 100,000 shares of its common stock to repay the loan, accrued interest
and penalties in full. The Company recognized a loss on extinguishment of debt of $45,000 representing the difference between the fair
value of the shares issued and the carrying value of the outstanding debt and accrued interest.
9. CONVERTIBLE NOTES PAYABLE
December 31, 2015
December 31, 2014
6% Convertible notes payable issued in August 2013
Discounts on above convertible note
15% Convertible notes payable issued in March 2014
Discounts on above convertible note
8% Convertible notes payable issued in Nov/Dec 2014
Discounts on above convertible note
8% Convertible notes payable issued in January 2015
Discounts on above convertible note
8% Convertible notes payable issued in January 2015
Discounts on above convertible note
(a)
$
(b)
(c)
(d)
(e)
Current portion of convertible notes payable
Convertible notes payable, less current portion
$
3,000,000 $
(583,341)
-
-
100,000
-
150,000
(93,231)
475,000
(238,152)
2,810,276
(2,810,276)
- $
3,000,000
(1,583,333)
500,000
(63,730)
350,000
(289,254)
-
-
-
-
1,913,683
(436,270)
1,477,413
(a) On August 2, 2013, the Company entered into an agreement with seven individual accredited investors, whereby the Company
issued separate 6% Secured Subordinate Convertible Notes for a total of $3,000,000 in a private offering and is collateralized by the assets
of the Hooters Nottingham restaurant. The funding from the private offering was used exclusively for the acquisition of the Nottingham,
England Hooters restaurant location. The Notes have the following principal terms:
● the principal amount of the Note shall be repaid within 36 months of the issuance date at a non-compounded 6% interest rate
per annum;
● the Note holders shall receive 10%, pro rata, of the net profit of the Nottingham, England Hooters restaurant, paid quarterly
for the life of the location, and 10% of the net proceeds should the location be sold;
● the consortium of investors received a total of 300,000 three-year warrants, exercisable at $3.00 per share;
F-32
● the Note holder may convert his or her Note into shares of the Company’s common stock (at 90% of the average closing price
ten days prior to conversion, unless a public offering is pending at the time of the conversion notice, which would result in the
conversion price being the same price as the offering). The conversion price is subject to a floor of $1.00 per share;
● the Note holder has the right to redeem the Note for a period of sixty days following the eighteen-month anniversary of the
issuance of the Note, unless a capital raise is conducted within eighteen months after the issuance of the Note. In connection
with the issuance of the Note, the Company also issued warrants for the purchase of 300,000 shares of the Company’s
common stock at an exercise price of $3.00 per share through August 2, 2016.
The fair value of the embedded conversion feature and the warrants was $2,265,600 and $884,600, respectively, for an aggregate
total of $3,150,200, which exceeded the face value of the note. Consequently, upon issuance of the Note, a debt discount of $3,000,000
was recorded and $150,200, representing the fair value of the conversion feature and the warrants in excess of the debt discount, was
immediately charged to interest expense. The debt discount is being amortized over the earlier of (i) the term of the debt or (ii) conversion
of the debt, using the straight-line method which approximates the interest method. The amortization of debt discount is included as a
component of interest expense in the condensed consolidated statements of operations and comprehensive loss.
The conversion price of the note is the 90% average price for the last 10 days of trading activity. As of the inception date of the
note the shares issuable under the terms of the note were 804,764 shares or an effective conversion price of approximately $3.73 per share.
The fair value of the shares as of August 2, 2013 using the Black-Scholes option pricing model was approximately $2.82 per share. The
expected stock price volatility for the Company’s stock options was determined by the historical volatilities of comparable companies. Risk
free interest rates were obtained from U.S. Treasury rates for the applicable periods.
(b) In March 2014, the Company entered into an agreement whereby the Company issued a convertible promissory note for a total
of $500,000. The note accrued monthly interest of 1.25% until the date the note was converted. In connection with the issuance of the
March 2014 convertible promissory note, the Company also issued to the investors warrants to purchase up to 30% of the number of shares
of common stock issued upon conversion of the 2014 note, exercisable at $5.25 per share for a period of up to 5 years from the note’s
original issuance date. In January 2015, the holder converted the $500,000 of principal plus accrued interest into 373,333 shares of the
Company’s common stock. In connection with the conversion, the Company recognized a loss on extinguishment of convertible debt,
related accrued interest, penalties and derivative liabilities totaling $36,374.
(c) During November and December 2014, the Company entered into agreements whereby the Company issued 3-year convertible
notes in the amounts of $250,000 and $100,000, respectively. The notes accrue annualized interest of 8% until the date the notes are
converted. The note is convertible into the Company’s common stock (at 85% of lowest three (3) trading prices for the common stock
during the ten (10) trading day period ending on the last complete Trading Day prior to the Conversion Date. The Company also issued 5
year warrants of 62,500 and 25,000, respectively, with an exercise price of $2.50 per share. In March 2015, the debt holder converted
$250,000 principal plus accrued interest into 168,713 shares of the Company’s common stock. In connection with the conversion, the
Company recognized a loss on extinguishment of convertible debt, related accrued interest, penalties and derivative liabilities totaling
$88,724.
(d) In January 2015, the Company issued a convertible promissory note for a total of $150,000. The note accrues interest at 8% per
annum until the date the notes are converted. The notes are convertible into the Company’s common stock at 85% of the average of the
lowest three closing trading prices over ten days prior the conversion date. The conversion price is subject to a floor of $1.00 per share and
a ceiling of $2.00. If not converted, the note matures three years from the issuance date. The Company also issued warrants to purchase
37,500 shares of common stock, exercisable at $2.50 per share for a period of up to 5 years from the note’s original issuance date. The fair
value of the embedded conversion feature and the warrants is $108,600 and $30,314, respectively. The resulting debt discount is being
amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the straight-line method which approximates the
interest method. The amortization of debt discount is included as a component of interest expense in the condensed consolidated statements
of operations and comprehensive loss. The embedded conversion feature is accounted for as a derivative liability in the accompanying
condensed consolidated balance sheet, with its carrying value marked to market at each balance sheet date.
F-33
(e) In January 2015, the Company issued convertible promissory notes for $1,000,000. The notes accrue interest at 8% per annum
until the date the notes are converted. The notes are convertible into the Company’s common stock at 85% of the average of the lowest
three closing trading prices over ten days prior the conversion date. The conversion price is subject to a floor of $1.00 per share and a
ceiling of $2.00. If not converted, the notes mature three years from the issuance date. The holder could demand payment in full after one
year from the issuance date. The Company also issued warrants to purchase 250,000 shares of common stock, exercisable at $2.50 per
share for a period of up to 5 years from the note’s original issuance date. The fair value of the embedded conversion feature and the
warrants is $670,300 and $202,358, respectively. The resulting debt discount is being amortized over the earlier of (i) the term of the debt
or (ii) conversion of the debt, using the straight-line method which approximates the interest method. The amortization of debt discount is
included as a component of interest expense in the condensed consolidated statements of operations and comprehensive loss. The
embedded conversion feature is accounted for as a derivative liability in the accompanying condensed consolidated balance sheet, with its
carrying value marked to market at each balance sheet date. $525,000 of the $1,000,000 note has been converted into common stock during
2015. In connection with the conversions, the Company recognized a loss on extinguishment of convertible debt, related accrued interest,
penalties and derivative liabilities totaling $145,833 during 2015.
In addition, in March 2015, the Company issued a convertible promissory note for $1,000,000, which was subsequently converted
to common stock in June 2015. The note accrued interest at 9% per annum until the date the note was converted. The note was convertible
into the Company’s common stock at $2.00 per share. If not converted, the note matured two years from the issuance date. The Company
also issued warrants to purchase 320,000 shares of common stock, exercisable at $2.50 per share for a period of up to 5 years from the
note’s original issuance date. The fair value of the embedded conversion feature and the warrants on the date of issuance was $455,008 and
$315,008, respectively. The resulting debt discount was being amortized over the earlier of (i) the term of the debt or (ii) conversion of the
debt, using the straight-line method which approximates the interest method. The amortization of debt discount is included as a component
of interest expense in the condensed consolidated statements of operations and comprehensive loss. The embedded conversion feature is
accounted for as a component of additional paid-in capital in the accompanying condensed consolidated balance sheet. During June 2015,
this $1,000,000 million note was converted into 500,000 shares of common stock at the $2.00 per share contractual conversion price. On
the date of conversion, $643,371 of unamortized debt discount was accelerated and recognized as interest expense in the accompanying
condensed consolidated statement of operations and comprehensive loss.
The Company accounted for the issuance of the convertible promissory notes and the warrants attached to the notes in accordance
with ASC 815 “Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of certain convertible notes are
recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period.
The debt discount is charged back to interest expense ratably over the term of the convertible note. The convertible notes were classified as
current liabilities on the accompanying consolidated Balance Sheet as of December 31, 2015 due to certain technical defaults pursuant to
the Convertible note agreements.
F-34
The fair value of the embedded conversion feature and the warrants were estimated using the Black-Scholes option-pricing model.
The model includes subjective input assumptions that can materially affect the fair value estimates. The expected stock price volatility was
determined by the historical volatilities for industry peers and used an average of those volatilities. The risk free interest rate was obtained
from U.S. Treasury rates for the applicable periods. The contractual terms of the agreement does not provide for and the Company does not
expect to declare dividends in the near future. Key assumptions used to apply this pricing model as of the date of issuance, December 31,
2014 and December 31, 2015 are presented in the table below:
6% Note
Issued on
August 2,
2013
15% Note
Issued on
March 19,
2014
8% Note
Issued on
November 19,
2014
8% Note
Issued on
December 16,
2014
8% Notes
Issued on
January 5,
2015
8% Notes
Issued on
January 5,
2015
Common stock closing price $
$
Conversion per share price
Conversion shares
Expected life (in years)
Expected volatility
Call option value
Risk-free interest rate
Dividends
$
$
$
4.15
3.73
804,764
3.0
110%
$
2.82
0.59%
0.00%
$
$
3.87
3.29
151,999
1.0
62%
$
1.19
0.15%
0.00%
$
$
1.70
1.45
172,672
3.0
74%
$
0.90
1.10%
0.00%
$
$
1.53
1.30
77,061
3.0
74%
$
0.81
1.10%
0.00%
$
$
1.75
1.33
112,402
3.0
73%
$
0.97
0.90%
0.00%
1.75
1.33
749,344
3.0
73%
0.97
0.90%
0.00%
December 31,
2014
December 31,
2014
December 31,
2014
December 31,
2014
December 31,
2014
December 31,
2014
$
Common stock
closing price
Conversion per
share price
$
Conversion shares
Expected life (in
years)
Expected volatility
Call option value $
Risk-free interest
rate
Dividends
$
Common stock
closing price
Conversion per
$
share price
Conversion shares
Expected life (in
years)
Expected volatility
Call option value $
Risk-free interest
rate
Dividends
1.73
$
1.73
$
1.73
$
1.49
2,008,032
$
1.47
340,020
$
1.26
199,177
$
1.6
64%
$
0.64
0.67%
0.00%
0.2
66%
$
0.35
0.40%
0.00%
2.9
74%
$
0.77
1.10%
0.00%
1.73
1.26
77,061
3.0
74%
0.78
1.10%
0.00%
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
December 31,
2015
December 31,
2015
December 31,
2015
December 31,
2015
December 31,
2015
December 31,
2015
1.00
1.00
3,000,000
0.6
85%
0.26
0.65%
0.00%
NA
NA
NA
NA
NA
NA
NA
NA
$
$
$
NA
NA
NA
NA
NA
NA
NA
NA
1.00
$
1.00
$
1.00
0.76
132,188
$
1.00
150,000
$
1.00
475,000
2.0
75%
$
0.49
0.98%
0.00%
2.0
75%
$
0.41
0.98%
0.00%
2.0
75%
0.41
0.98%
0.00%
10. CAPITAL LEASES PAYABLE
Capital leases payable at December 31, 2015 and 2014 is associated with the South African operations and consists of the
following:
Capital lease payable, bearing interest at 10%, through August 2017
$
5,231 $
10,502
December 31, 2015
December 31, 2014
Capital lease payable, bearing interest at 11.5%, through December
2017
Capital lease payable, bearing interest at 11.5%, through July 2016
Capital lease payable, bearing interest at 11.5%, through November
2016
Capital lease payable, bearing interest at 10%, through March 2015
Total capital leases payable
26,869
7,786
15,386
-
55,272
-
26,489
40,336
1,333
78,660
Current maturities
Capital leases payable, less current maturities
$
F-35
39,303
15,969 $
42,032
36,628
The current capital leases cover point of sale and other equipment for five of the South African restaurants. Annual requirements for
capital lease obligations are as follows:
December 31,
2016
2017
Total minimum lease payments
Less: amount representing interest
Present Value of Net Minimum Lease Payments
Amount
$
$
43,385
17,508
60,893
5,621
55,272
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
Accounts payable
Accrued taxes (VAT, GST, Sales, Payroll)
Accrued income taxes
Accrued interest
12. INCOME TAXES
December 31, 2015
December 31, 2014
$
$
4,086,566 $
1,010,584
27,709
380,406
5,505,265 $
3,382,818
1,604,829
92,618
499,866
5,580,131
The breakout of the loss from continuing operations before income taxes between domestic and foreign operations is below:
Loss from continuing operations before income taxes
United States
Foreign
The Income Tax (benefit) provision consists of the following:
2015
2014
$
$
12,702,520 $
1,618,905
14,321,425 $
5,442,499
759,875
6,202,374
Foreign
Current
Deferred
U.S. Federal
Current
Deferred
State & Local
Current
Deferred
Change in Valuation Allowance
$
93,037 $
103,461
55,486
(267,960)
-
(4,502,404)
318
(1,266,980)
-
(529,695)
5,023,169
$
187,568 $
-
(149,056)
1,151,691
(476,501)
F-36
The (benefit) provision for income tax using statutory U.S. federal tax rate is reconciled to the company’s effective tax rate as follows:
Computed “expected” income tax benefit
State income taxes, net of federal benefit
Foreign rate differential
Australia loss
Prior year true-ups other deferred tax balances
Travel, entertainment, and other
Capital loss expiration
Convertible Debt Issuances and conversions
Foreign Tax Expense
Fixed asset DTL true-up
Noncontrolling interest
Other
Change in valuation allowance
Total
2015
(4,869,285) $
(572,857)
143,646
(1,821,463)
323,485
82,956
333,837
482,018
93,037
27,384
881,264
60,376
5,023,169
187,568 $
2014
(2,093,584)
(205,177)
45,883
-
106,236
91,045
-
-
-
305,796
-
121,609
1,151,691
(476,501)
$
$
The Company has significant permanent book tax differences related to derivative liabilities with a convertible debt feature.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting and the amounts used for tax purposes. Major components of deferred tax assets at December 31, 2015 and 2014 were:
Net operating loss carryovers
Capital loss carryforwards
Section 1231 loss carryovers
Charitable contribution carryforwards
Derivative liability
Unremitted foreign earnings
Restaurant startup costs
Accrued Expenses
Australian equity investment
Deferred occupancy liabilities
Total deferred Tax Assets
Property and equipment
Convertible debt
Investments
Intangibles
Goodwill
Total deferred tax liabilities
Net deferred tax assets
Valuation Allowance
$
2015
11,846,236 $
154,700
15,080
16,815
468,011
190,552
137,893
36,182
-
290,500
13,155,969
(978,585)
(811,177)
(90,200)
(1,068,534)
785,987
(2,162,509)
10,993,460
(12,347,231)
(1,353,771) $
$
2014
6,773,713
488,500
-
-
372,931
-
-
-
(26,417)
388,114
7,996,841
(469,986)
(372,931)
(84,384)
(957,229)
(47,492)
(1,932,022)
6,064,819
(6,751,703)
(686,884)
As of December 31, 2015 and 2014, the company has U.S. federal and state net operating loss carryovers of approximately $29,635,000 and
$15,660,000 respectively, which will expire at various dates beginning in 2031 through 2036, if not utilized. As of December 31, 2015 and
2014 the company has foreign net operating loss carryovers of $2,284,000 ($701,000 for Hungary, $1,175,000 for South Africa,
respectively, and $408,000 for Australia) and $1,790,000 ($588,000 for Hungary, $281,000 and $921,000 for South Africa) respectively.
Depending on the jurisdiction, some of these net operating loss carryovers will begin to expire within 5 years, while other net operating
losses can be carried forward indefinitely as long as the company is trading. The company has a capital loss carryforward of $407,000
which expires between 2016 and 2017 if not utilized. In accordance with Section 382 of the internal revenue code, deductibility of the
company’s U.S. net operating loss carryovers may be subject to an annual limitation in the event of a change of control as defined under the
Section 382 regulations. Quarterly ownership changes for the past 3 years were analyzed and it was determined that there was no change of
control as of December 31, 2015.
F-37
In assessing the realization of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of
the information available, Management believes that significant uncertainty exists with respect to future realization of the deferred tax
assets and has therefore established a full valuation allowance. For the year ended December 31, 2015 and December 31, 2014 the change
in valuation allowance was approximately $5,023,169 and $1,151,691, respectively.
The company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in their financial
statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that
the company has taken or expects to take in its return. For those benefits to be recognized, a tax position must be more-likely-than- not to be
sustained upon examination by taxing authorities. Differences between two positions taken or expected to be taken in a tax return and the
benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized for an
unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing-authority for a tax position that was
not recognized as a result of applying the provisions of ASC 740.
The company’s uncertain tax positions for December 31, 2015 and 2014 are as follows:
Unrecognized
Tax Benefit
Interest and
Penalties
Balance at December 31, 2014
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Settlements during the period
Lapse of statute of limitations
Balance at December 31, 2015
$
$
419,301 $
-
(419,301)
-
-
-
- $
- $
-
-
-
-
-
- $
Total
419,301
-
(419,301)
-
-
-
-
Interest related to uncertain tax positions are required to be calculated, if applicable, and would be classified as “interest expense” in
the two statements of operations. Penalties would be recognized as a component of “general and administrative expenses”. As of December
31, 2015 and 2014 no interest or penalties were required to be reported.
No provision was made for U.S. or foreign taxes on approximately $1,100,000 of undistributed earnings of the Company as such
earnings are considered to be permanently reinvested. Such earnings have been, and will continue to be, reinvested, but could become
subject to additional tax if they were remitted as dividends, loaned to the Company, or if the Company should sell its interests in the
foreign entities. It is not practicable to determine the amount of additional tax, if any, that might be payable on the undistributed earnings or
on any book- tax basis differences. Earnings from the U.K. subsidiary are no longer considered to be permanently reinvested. Therefore, for
deferred tax purposes only, $501,000 has been deemed to be repatriated to the parent company as a dividend. This deemed dividend is fully
offset by the company’s net operating losses, so there is no deferred tax expense on the deemed repatriation. The resulting reduction in net
operating losses has been considered in deferred tax expense.
F-38
13. STOCKHOLDERS’ EQUITY
On February 3, 2014, the Company amended its certificate of incorporation to increase the number of its authorized shares of common
stock from 20,000,000 shares to 45,000,000 shares.
The Company’s shareholders have approved the Chanticleer Holdings, Inc. 2014 Stock Incentive Plan (the “2014 Plan”),
authorizing the issuance of options, stock appreciation rights, restricted stock awards and units, performance shares and units, phantom
stock and other stock-based and dividend equivalent awards. Pursuant to the approved 2014 Plan, 4,000,000 shares remained available for
future grant as of December 31, 2015.
2015 Transactions:
In January 2015, a convertible debt holder converted $500,000 principal plus accrued interest into 373,333 shares of the
Company’s common stock. In addition, another convertible debt holder converted $250,000 principal plus accrued interest into 168,713
shares of the Company’s common stock. In March 2015, the Company issued 100,000 shares of its common stock to repay $100,000 of
long term debt and related accrued interest and penalties. (See Note 9 – Long Term Debt and Notes Payable and Note 10 – Convertible
Notes Payable).
On March 16, 2015, the Company completed a rights offering, receiving subscriptions (including both basic and
oversubscriptions) for 3,899,742 shares of its common stock for net proceeds of $7,062,325.
Effective March 15, 2015, the Company closed the purchase of BGR Holdings, LLC. In consideration of the purchased assets, the
Company issued 500,000 shares of the Company’s common stock as a component of the total purchase price (See Note 3- Acquisitions).
In June 2015, a convertible debt holder converted $1,000,000 principal into 500,000 shares of the Company’s common stock.
On July 1, 2015, the Company closed the acquisition of BT’s. In consideration for the purchased assets, the Company issued
424,080 shares of the Company’s common stock as a component of the total purchase price (See Note 3 - Acquisitions).
On June 19, 2015, the Company entered into an agreement with an institutional investor and accredited investors for a registered
direct placement of 860,000 shares of common stock at $2.50 per share. The agreement also provides an overallotment right for the
investor(s) to purchase up to 860,000 additional shares of common stock at $2.50 per share during the 75 days following the initial closing.
On September 22, 2015, the Company completed a rights offering, receiving subscriptions (including both basic and
oversubscriptions) for 4,894,692 shares of its common stock for net proceeds of $6.0 million.
On September 30, 2015, the Company closed the acquisition of Little Big Burger. In consideration for the purchased assets, the
Company issued 1,874,063 shares of the Company’s common stock as a component of the total purchase price (See Note 3 - Acquisitions).
In separate transactions occurring from July through October, 2015, holders of the 8% convertible notes issued in January 2015
converted an aggregate of $525,000 principal into 389,176 shares of the Company’s common stock.
During 2015, the Company issued 104,000 shares of common stock and warrants for consulting, acquisition and other services
valued at an aggregate of $279,362. The recorded value for common stock issued for services was based on the closing market prices for
the Company’s common stock. The recorded value of warrants issued for services valued utilizing the Black-Scholes model.
2014 Transactions:
During December 2014, the Company issued the following common stock shares and warrants:
11,101 shares of the Company’s common stock at $2.00 and 3,330 common stock warrants at an exercise price of $3.50 for $22,202;
20,750 shares of the Company’s common stock at $2.00 and 6,225 common stock warrants at an exercise price of $3.50 for payment of
accounts payable for consulting services totaling $41,500;
54,837 shares of the Company’s common stock for payment of accounts payable for consulting services totaling $$108,855 at prices
ranging from $1.79 to $2.07;
36,667 shares of the Company’s common stock at $1.80 for payment of Board of Directors fees totaling $66,000;
F-39
67,807 shares of the Company’s common stock at $2.00 per share for accrued interest totaling $135,614;
14,451 shares of the Company’s common stock at $1.73 for payment of an employee contractual bonus totaling $25,000.
During November 2014, the Company issued $175,000 of the Company’s common stock (87,500 shares at $2.00 per share) in
satisfaction of past-due interest and 26,250 common stock warrants at $3.50 per share exercise price in consideration for the debt
restructuring related to Hooters Australia.
During October 2014, the Company re-priced certain warrants with an original exercise price of $5.50 and $7.00 to $2.00, subject
to immediate cash exercise. The Company received $349,544 of funds related to this transaction.
During the three months ended September 30, 2014, the Company raised from private investors $641,000 for the sale of 320,500
shares of common stock, and accompanying sales of 96,150 5-year common stock warrants exercisable at $3.50 per share.
On September 9, 2014, the Company purchased 100% of the net assets of The Burger Company located in Charlotte, North
Carolina, a similar concept to our ABC restaurants, for a purchase price of $550,000, which consisted of $250,000 in cash and $300,000
(146,628 shares) in the Company’s common stock.
During the six months ended June 30, 2014, the Company issued an aggregate of 40,000 and 98,764 shares of the Company’s
common stock, valued at $101,900 and $330,757 to several investor relations firms in exchange for investor relations services provided to
the Company.
During the six months ended June 30, 2014, the Company raised from private investors $200,000 for 137,500 shares of common
stock and 15,000 five-year common stock warrants exercisable at $3.50 per share.
On March 19, 2014, the Company received $500,000 from the issuance of convertible debt to one investor, and the proceeds were
used for continuing the Company’s growth and for working capital purposes. The Company issued 15% Secured Subordinate Convertible
Notes and five-year warrants, at a price of $5.25 per share, to purchase up to 30% of the number of shares of Company common stock
issuable upon conversion of the 2014 note.
During the first three months of 2014, the Company issued an aggregate of 58,764 shares of the Company’s common stock, valued
at $228,857 to several investor relations firms in exchange for investor relations services provided to the Company.
On January 31, 2014, we issued 680,272 Company units in connection with the acquisitions of Pacific NW. Each unit consisted of
one share of our common stock and one five-year warrant to purchase a share of our common stock. Half (340,136) of the warrants are
exercisable at $5.50 and half (340,136) of the warrants are exercisable at $7.00. As part of this transaction, the Hooters Sellers were
granted registration rights with respect to our common stock issued and underlying the warrants, and franchise rights and leasehold rights to
the locations were transferred to the Company.
On January 31, 2014, we issued 195,000 Company units in connection with the acquisition of Spoon. Each unit consisted of one
share of the Company’s common stock and one five-year warrant to purchase a share of the Company’s common stock. Half (97,500) of the
warrants are exercisable at $5.50 and half (97,500) of the warrants are exercisable at $7.00. As part of this transaction, EWC was granted
registration rights with respect to our common stock issued and underlying the warrants, and all leaseholds and other rights were transferred
to the Company. (See Note 5 “Discontinued Operations”).
Options and Warrants
There are no options outstanding as of December 31, 2015 and 2014 or for the years then ended.
F-40
Fair value of any warrant issuances are valued utilizing the Black-Scholes mode. The model includes subjective input assumptions that
can materially affect the fair value estimates. The expected stock price volatility for the Company’s warrants was determined by the
historical volatilities for industry peers and used an average of those volatilities.
A summary of the warrant activity during the years ended December 31, 2015 and 2014 is presented below:
Outstanding December 31, 2014
Granted
Exercised
Forfeited
Outstanding December 31, 2015
Exercisable December 31, 2015
Number of
Warrants
Weighted
Average Exercise
Price
Weighted
Average
Remaining Life
8,715,804 $
840,500
-
(50,000)
9,506,304 $
9,506,304 $
5.49
2.55
-
6.25
4.93
4.93
3.0
2.0
2.0
The following table presents information related to stock warrants as of December 31, 2015:
Exercise Price
>$5.00
$4.00-$4.99
$3.00-$3.99
$2.00-$2.99
$1.00-$1.99
Outstanding
Number of
Warrants
Weighted
Average
Remaining Life
in Years
Exerciseable
Number of
Warrants
7,439,631
-
799,901
954,272
312,500
9,506,304
1.9
-
2.6
3.6
4.0
7,439,631
-
799,901
954,272
312,500
9,506,304
Amortization of debt discounts arising from warrants and convertible debt are summarized as follows at December 31, 2015 and 2014
and for the years then ended:
Interest expense
Consulting expense
Years Ended
December 31, 2015 December 31, 2014
2,379,951 $
22,375
2,402,326 $
336,798
771,095
1,107,893
$
$
F-41
14. 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, 2015 and 2014 are as follows:
Hoot SA I, LLC
Hooters Australia- Current Partner
Hooters Australia - Former Partner
Chanticleer Investors, LLC
Due from related parties
December 31, 2015 December 31, 2014
$
$
12,963 $
390,779
-
-
403,742 $
12,196
-
1,087,451
199,436
1,299,083
The Company has earned income from and made advances to related parties. The amounts owed to the Company at December 31,
2015 and 2014 is as follows:
Hoot SA II, III, IV LLC
15. SEGMENTS OF BUSINESS
December 31, 2015 December 31, 2014
$
$
45,615 $
45,615 $
46,015
46,015
The Company is in the business of operating restaurants and its operations are organized by geographic region and by brand within
each region. Further each restaurant location produces monthly financial statements at the individual store level. The Company’s chief
operating decision maker reviews revenues and profitability at the individual restaurant location level, as well as for Full Service Hooters,
Better Burger Fast Casual and Just Fresh Fast Casual level, and corporate as a group.
The following are revenues and operating income (loss) from continuing operations by segment as of and for the years ended
December 31, 2015 and 2014. The Company does not aggregate or review non-current assets at the segment level.
F-42
Revenue:
Hooters Full Service
Better Burgers Fast Casual
Just Fresh Fast Casual
Corporate and Other
Operating Income (Loss):
Hooters Full Service *
Better Burgers Fast Casual
Just Fresh Fast Casual
Corporate and Other
Years Ended
December 31, 2015 December 31, 2014
$
$
$
$
21,931,096 $
14,542,094
5,498,790
424,829
42,396,809 $
(6,602,559) $
(1,357,055)
(33,248)
(3,495,054)
(11,487,916) $
21,284,710
3,230,519
4,838,815
489,390
29,843,434
(773,447)
(1,641,363)
(62,854)
(3,066,644)
(5,544,308)
* Includes $4.9 million non-cash asset impairment charge in 2015
The following are revenues, operating loss, and long-lived assets by geographic area as of and for the years ended December 31, 2015
and 2014.
Revenue:
United States
South Africa
Australia
Europe
Operating Income (Loss):
United States
South Africa
Australia *
Europe
Years Ended
December 31, 2015 December 31, 2014
$
$
$
$
25,528,467 $
6,430,524
6,453,377
3,984,441
42,396,809 $
(5,114,687) $
(162,228)
(6,266,695)
55,694
(11,487,916) $
12,941,648
6,632,024
5,613,381
4,656,381
29,843,434
(4,886,279)
(373,558)
(277,557)
(6,914)
(5,544,308)
* Includes $4.9 million non-cash asset impairment charge in 2015
F-43
Non-current Assets:
United States
South Africa
Australia
Europe
December 31, 2015 December 31, 2014
$
27,956,486 $
2,393,147
4,781,020
3,255,977
15,434,108
2,172,528
13,068,305
3,648,133
$
38,386,630 $
34,323,074
16. COMMITMENTS AND CONTINGENCIES
The Company, through its subsidiaries, leases the land and buildings for our five restaurants in South Africa, one restaurant in
Nottingham, United Kingdom, thirty-five restaurants in the U.S., four restaurants in Australia, and one restaurant in Hungary. The South
Africa leases are for five-year terms and the Hungary lease is for a ten-year term, and all of these leases include options to extend the
terms. The terms for our U.S. restaurant leases vary from two to ten years and have options to extend. We lease some of 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. We also lease our corporate office space in Charlotte, North
Carolina.
Rent obligations for are presented below:
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
thereafter
$
Total
4,426,175
4,055,189
3,863,009
3,499,583
2,839,415
8,832,725
$ 27,516,096
Rent expense for the years ended December 31, 2015 and December 31, 2014 was $4.1 million and $2.7 million respectively. Rent
expense for the years ended December 31, 2015 and 2014 for the Company’s restaurants was $4.1 million and $2.6 million, respectively,
and is included in the “Restaurant operating expenses” of the Consolidated Statement of Operations. Rent expense for the years ended
December 31, 2015 and 2014 for the non-restaurants was $34 thousand and $26 thousand, and is included in the “General and
administrative expense” of the Consolidated Statement of Operations.
On March 26, 2013, our South African operations received Notice of Motion filed in the Kwazulu-Natal High Court, Durban, Republic
of South Africa, filed against Rolalor (PTY) LTD (“Rolalor”) and Labyrinth Trading 18 (PTY) LTD (“Labyrinth”) by Jennifer Catherine
Mary Shaw (“Shaw”). Rolalor and Labyrinth were the original entities formed to operate the Johannesburg and Durban locations,
respectively. On September 9, 2011, the assets and the then-disclosed liabilities of these entities were transferred to Tundraspex (PTY)
LTD (“Tundraspex”) and Dimaflo (PTY) LTD (“Dimaflo”), respectively. The current entities, Tundraspex and Dimaflo are not parties in
the lawsuit. Shaw is requesting that the Respondents, Rolalor and Labyrinth, be wound up in satisfaction of an alleged debt owed in the
total amount of R4,082,636 (approximately $480,000). The two Notices were defended and argued in the High Court of South Africa
(Durban) on January 31, 2014. Madam Justice Steryi dismissed the action with costs on May 5, 2014. Ms. Shaw has appealed this decision
no liability has been reflected in the accompanying consolidated balance sheet as of December 31, 2015.
F-44
On January 28, 2016, our Just Fresh subsidiary was notified that it had been served with a copyright infringement complaint, Kevin
Chelko Photography, Inc. f. JF Restaurants, LLC, Case No. 3:13-CV-60-GCM (W.D. N.C.). The claim was filed in the United States
District Court for the Western District of North Carolina Charlotte Division and seeks unspecified damages related to the use of certain
photographic assets allegedly in violation of the United States copyright laws. The Company has asserted numerous defenses in answer to
the complaint and intends to defend itself fully and vigorously no liability has been reflected in the accompanying consolidated balance
sheet as of December 31, 2015.
Prior to the Company’s acquisition of Little Big Burger, a class action lawsuit was filed in Oregon by certain current and former
employees of Little Big Burger asserting that the former owners of Little Big Burger failed to compensate employees for overtime hours
and also that an employee had been wrongfully terminated. The plaintiffs and defendants agreed to enter into a settlement agreement
pursuant to which the former owners of Little Big Burger will pay a gross settlement of up to $675,000, inclusive of plaintiffs’ attorney’s
fees of $225,000. This settlement was preliminarily approved by the court on February 2, 2016. The parties are proceeding with distributing
the claim forms and notices of settlement to the class members and ultimately will disburse settlement payments to those who opt in.
In connection with our acquisition of Little Big Burger, the sellers agreed that the 1,619,646 shares of the Company’s common stock
certain of the sellers received from the Company and an additional $200,000 in cash would be held in escrow until such time as the
litigation was fully resolved. The Company does not expect to have to expend any funds related to the settlement as certain of the Sellers
have agreed to retain the obligations and have set aside sufficient funds to cover the settlement. However, as the Company assumed all
liabilities of Little Big Burger in the acquisition and would be required to fulfill the settlement if the sellers were unable or otherwise failed
to fully fund the settlement, the Company has reflected the $675,000 settlement amount in accrued liabilities, with an offsetting asset in
other current assets, in the accompanying Consolidated Balance Sheets as of December 31, 2015.
From time to time, the Company may be involved in legal proceedings and claims that have arisen in the ordinary course of business.
These actions, when ultimately concluded and settled, will not, in the opinion of management, have a material adverse effect upon the
financial position, results of operations or cash flows of the company.
17. 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)
Recorded
value
Significant
other
observable
inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31, 2015
Assets:
Available-for-sale securities
$
31,322 $
31,322 $
Liabilities:
Embedded conversion feature
Warrants
December 31, 2014
Assets:
$ 1,094,000 $
$
137,608
- $
Available-for-sale securities
$
35,362 $
35,362 $
Liabilities:
Embedded conversion feature
Warrants
$ 1,610,900 $
334,300 $
$
- $
- $
F-45
- $
- $
$
- $
- $
- $
-
1,094,000
137,608
-
1,610,900
334,300
At December 31, 2015 and 2014, 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 the Black Scholes option pricing model which involves the use of
various inputs or corroborated by observable market data for substantially the full term of the assets.
The derivative liabilities are measured at fair value using quoted market prices for the Company’s shares and estimated volatility
factors based on historical quoted market prices for the Company’s common stock and are classified within Level 3 of the valuation
hierarchy.
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.
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets
measured at fair value on a recurring basis using significant unobservable inputs during the year ended December 31, 2015 and 2014.
Warrants
Conversion
Feature
Total
Balance at January 1, 2014
Change in fair value of derivative liability
Amount included in debt discounts
Balance at December 31, 2014
$
$
Change in fair value of derivative liability
Amounts included in debt discount
Reclassification in connection with conversion
Balance at December 31, 2015
$
- $
2,146,000 $
2,146,000
(292,600)
626,900
334,300 $
(196,992)
-
-
137,308 $
(935,000)
399,900
1,610,900 $
(671,600)
778,900
(623,900)
1,094,300 $
(1,227,600)
1,026,800
1,945,200
(868,592)
778,900
(623,900)
1,231,608
18. AUSTRALIA ADMINISTRATION TRANSACTIONS AND ASSET IMPAIRMENT
On July 14, 2015, voluntary administrators were appointed to review the affairs and assess the financial condition of the Hooters
Australia stores. The initiation of voluntary administration followed the request of the Company because the Company believed its
operating partner had been mismanaging the business. The Company believed that the Administration process would be the most effective
means to objectively evaluate the state of the business and enhance the Company’s position and ability to restore the Hooters Australia
stores to their prior operational and financial performance levels.
From July 14, 2015 through the end of September, the Hooters Australia stores operated under the management of administrators
that were appointed by the directors of the Australia entities to facilitate the Administration process. In August, 2015, the Company entered
into definitive agreements to invest additional consideration into the Australia business to increase its ownership in the Australia Hooters
stores from 60% to 80% and to obtain the assets of those stores free of any prior liabilities or liens. In addition, the Company agreed to
purchase the Margaritaville property, but ultimately did not complete the Margaritaville transaction as the administrator was unable to
provide an acceptable lease transfer for the property
F-46
The Company and a new local partner, PCS Investments, Pty (“PCS”) closed on the purchase of the five Hooters Australia stores
in early October 2015, with the Company contributing $1.0 million in additional capital for 80% ownership and PCS investing $0.3 million
for 20% ownership in the five Hooters stores. During the Administration period from July 14, 2015 through early October, 2015, the
Company’s control was temporarily restricted and management did not recognize revenue or expenses related to the operation of the stores
during this brief period. Effective with the resumption of control in early October, 2015, the Company resumed normal operations and
recognition of revenue and expenses.
In connection with the Administration process, the Company evaluated its long-lived assets for impairment and evaluated the
carrying value of all other assets and liabilities related to the Australia stores to their net realizable value. As a result of that analysis,
management concluded that the goodwill balance had been impaired and that certain other balances were no longer valid or realizable as a
consequence of the Administration process. As a result, the Company recorded a net asset impairment charge of $4.5 million during 2015,
which is reflected as a component of income from continuing operations in the accompanying Statements of Operations.
19. SUBSEQUENT EVENTS
In early 2016, we entered into a letter of intent with a UK investment bank for an up to £10 million bond offering in the United
Kingdom. The bond offering proceeds would be used to refinance certain of our existing higher interest rate notes payable and convertible
debts, as well as to provide additional working capital for the opening of new restaurant locations and for general corporate purposes. The
bonds are expected to be listed on the ISDX exchange in London, bear annual interest at 7.5%, with interest payments due semi-annually
and principal due as a balloon payment in March 2021. We are nearing completion of the documentation and investor marketing process
and have received strong indications of interest and investor commitments. We expect the bond transaction to close during the second
calendar quarter of 2016. Until the transaction is fully completed, however, we cannot provide assurance as to the certainty of completion
or the precise amounts, if any, that will be received by the Company.
Also in early 2016, we entered into a letter of intent with a US investment bank for up to $10 million in additional investor
capital under the US Government’s EB-5 program to be used specifically for the opening of new restaurants and the creation of new jobs in
certain qualified geographic regions. We are currently preparing the required offering documents, conducting job studies, site qualification
analyses, and performing other diligence and administrative activities required to implement the program. We have received approval for
several potential sites and are actively engaged in marketing the program to potential investors. We expect to complete our first EB5
funding transaction in mid 2016. Until all diligence procedures are fully complete and we receive binding investor commitments, however,
we cannot provide any assurance as to the certainty of completion or the precise amounts, if any, that will be received by the Company.
Also in early 2016, we entered into a letter of intent directly with a US investor to fund the opening of up to 10 Little Big Burger
restaurants in the Seattle area. We are actively pursuing sites and anticipate opening our first store under that arrangement by the end of
2016.
F-47
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, 2015. Our management has
determined that, as of December 31, 2015, the Company’s disclosure controls and procedures were ineffective.
Management’s report on internal control over financial reporting
Management Responsibility for Internal Control over Financial Reporting. Management 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.
Management’s Evaluation of Internal Control over Financial Reporting. Management evaluated our internal control over financial
reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control — Integrated Framework. As a result of this assessment and based on the
criteria in this framework, management has concluded that, as of December 31, 2015, our internal control over financial reporting was
ineffective.
Material Weaknesses
A material weakness is a control deficiency, or a combination of control deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or
detected on a timely basis.
Management identified the following deficiencies in its internal controls over financial reporting:
● As the Company recently completed multiple acquisitions in a short period of time, it currently operates multiple accounting
systems using disparate charts of accounts and inconsistent financial close procedures and timetables. The lack of consistency
makes it more difficult to ensure that the consolidated financial records are completed timely and on a consistent basis each
reporting period, which increases the risk of undetected errors.
● The Company’s financial close procedures are not formally documented across the organization to the degree necessary to
ensure that financial statements are prepared consistently and accurately each reporting period.
● The Company’s information systems, as well as the organization and storage of critical financial records, were not deemed
adequate to ensure the timely ability to recover from a disaster or prevent the accidental loss of critical financial records.
● The Company’s financial statements include complex transactions and financial instruments that are subject to extensive
technical accounting standards that increase the risk of undetected errors and where the Company’s internal resources do not
possess deep technical specialization.
● The Company performs extensive reconciliation and manual review procedures to ensure that the financial statements results
are accurately presented, however, there is inconsistent and informal documentation of those review procedures.
Management determined that the deficiencies, evaluated in the aggregate, could potentially result in a material misstatement of the
consolidated financial statements in a future annual or interim period that would not be prevented or detected. Therefore the deficiencies
constitute material weaknesses in internal control. Based on that evaluation, management determined that our internal controls over
financial reporting were not effective as of December 31, 2015.
36
Remediation Plans
We have initiated several steps and plan to continue to evaluate and implement measures designed to improve our internal control over
financial reporting in order to remediate the control deficiencies noted above.
While our evaluation of the appropriate remediation plans is still ongoing, efforts to date have included recruiting additional qualified
personnel with experience in financial reporting and internal controls. We are also in the process of migrating the majority of our
operations to a common accounting system, standardizing charts of accounts and formalized the documentation of accounting close and
review procedures.
Changes in Internal Control over Financial Reporting — As a result of the acquisitions, the Company is evaluating additional changes
to processes and policies to further standardize the internal control over financial reporting with respect to the monitoring, reporting and
consolidation of the financial results of the acquired operations into the Company’s financial statements. Except for the activities described
above, there were no changes in the Company’s internal control over financial reporting that occurred during the year ended December 31,
2015, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
Not applicable.
37
ITEM 10. Directors, Executive Officers and Corporate Governance.
PART III
Information called for by this item may be found in our definitive Proxy Statement in connection with our 2016 Annual Meeting of
Shareholders to be filed with the SEC under the headings “Board of Directors and Management,” “Section 16(a) Beneficial Ownership
Reporting Compliance” and “Corporate Governance Matters” and is incorporated herein by reference.
ITEM 11. Executive Compensation.
Information called for by this item may be found in our definitive Proxy Statement in connection with our 2016 Annual Meeting of
Shareholders to be filed with the SEC under the headings “Executive Compensation” and “Corporate Governance Matters” and is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information called for by this item may be found in our definitive Proxy Statement in connection with our 2016 Annual Meeting of
Shareholders to be filed with the SEC under the headings “Equity Compensation Plan Information” and “Security Ownership of Certain
Beneficial Owners and Management” and is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
Information called for by this item may be found in our definitive Proxy Statement in connection with our 2016 Annual Meeting of
Shareholders to be filed with the SEC under the headings “Related Person Transactions” and “Corporate Governance Matters” and is
incorporated herein by reference.
ITEM 14. Principal Accountant Fees and Services.
Information called for by this item may be found in our definitive Proxy Statement in connection with our 2016 Annual Meeting of
Shareholders to be filed with the SEC under the headings “Independent Registered Public Accounting Firm Fee Information” and “Audit
Committee Pre-Approval Policy” and is incorporated herein by reference.
38
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements.
PART IV
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, 2015 and 2014
● Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2015 and 2014
● Consolidated Statements of Stockholders’ Equity at December 31, 2015 and 2014
● Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
● Notes to the Consolidated Financial Statements
(a)(2) Financial Statements Schedules.
Financial Statement Schedules were omitted, as they are not required or are not applicable, or the required information is included in
the Financial Statements.
(a)(3) Exhibits Filed.
The exhibits listed in the accompanying Exhibit Index are filed as a part of this report.
(b) Exhibits.
See Exhibit Index.
(c) Separate Financial Statements and Schedules.
None.
39
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 March 30, 2016.
SIGNATURES
CHANTICLEER HOLDINGS, INC.
By: /s/ Michael D. Pruitt
Michael D. Pruitt, Chairman
and Chief Executive 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
Title (Capacity)
March 30, 2016
March 30, 2016
Chairman, Chief Executive Officer,
and Principal Executive Officer
Chief Financial Officer and Principal
Accounting Officer
March 30, 2016
Director
March 30, 2016
Director
March 30, 2016
Director
March 30, 2016
Director
40
Signature
/s/ Michael D. Pruitt
Michael D. Pruitt
/s/ Eric S. Lederer
Eric S. Lederer
/s/ Michael Carroll
Michael Carroll
/s/ Russell J. Page
Russell J. Page
/s/ Paul I. Moskowitz
Paul I. Moskowitz
/s/ Keith Johnson
Keith Johnson
Exhibit
Description
EXHIBIT INDEX
2.1
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Purchase Agreements for Australian Entities dated June 30, 2014 (Incorporated by reference to Exhibit 2.1 to our Current
Report on Form 8-K, filed with the SEC on July 3, 2014)
Certificate of Incorporation (Incorporated by reference to the Exhibit 3.1.A to our Registration Statement on Form 10SB-12G,
filed with the SEC on February 15, 2000 (File No. 000-29507)
Certificate of Merger, filed May 2, 2005 (Incorporated by reference to Exhibit 2.1 filed with our Quarterly Report on Form 10-
Q, filed with the SEC on August 15, 2011)
Certificate of Amendment, filed July 16, 2008 (Incorporated by reference to Exhibit 3.1 filed with our Registration Statement
on Form S-1/A (Registration No. 333-178307), filed with the SEC on February 3, 2012)
Certificate of Amendment, filed March 18, 2011 Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K,
filed with the SEC on March 18, 2011)
Certificate of Amendment, filed May 23, 2012 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K,
filed with the SEC on May 24, 2012)
Certificate of Amendment, filed February 3, 2014 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-
K, filed with the SEC on February 4, 2014)
Certificate of Amendment, filed October 2, 2014 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K,
filed with the SEC on October 2, 2014)
Bylaws (Incorporated by reference to Exhibit 3.II.A to our Registration Statement on Form 10SB-12G, filed with the SEC on
February 15, 2000 (File No. 000-29507))
Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-1
(Registration No. 333-178307), filed with the SEC on December 2, 2011)
Form of Unit Certificate dated June 2012 (Incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-
1/A (Registration No. 333-178307), filed with the SEC on May 30, 2012)
F o r m of Warrant Agency Agreement dated June 2012 with Form of Warrant Certificate with $6.50 Exercise Price
(Incorporated by reference to Exhibit 4.4 to our Registration Statement on Form S-1/A (Registration No. 333-178307), filed
with the SEC on May 30, 2012)
Form of 6% Secured Subordinate Convertible Note dated August 2013 (Incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K, filed with the SEC on August 5, 2013)
Form of Warrant for August 2013 Convertible Note with $3.00 Exercise Price (Incorporated by reference to Exhibit 10.2 to our
Current Report on Form 8-K, filed with the SEC on August 5, 2013).
Form of Warrant for September 2013 Merger Agreement with $5.00 Exercise Price (Incorporated by reference to Exhibit 10.2
to our Current Report on Form 8-K, filed with the SEC on October 1, 2013)
Form of Warrant for September 2013 Subscription Agreement with $5.00 Exercise Price (Incorporated by reference to Exhibit
10.2 to our Current Report on Form 8-K, filed with the SEC on October 10, 2013)
Form of Warrant for November 2013 Subscription Agreement with $5.50 and $7.00 Exercise Price (Incorporated by reference
to Exhibit 10.2 to our Current Report on Form 8-K, filed with the SEC on November 13, 2013)
Form of Warrant for January 2015 Subscription Agreement with $2.50 Exercise Price (Incorporated by reference to Exhibit 4.1
to our Current Report on Form 8-K/A, filed with the SEC on January 9, 2015)
10.1
Form of Franchise Agreement between the Company and Hooters of America, LLC (Incorporated by reference to Exhibit 10.2
to our Registration Statement on Form S-1 (Registration No. 333-178307), filed with the SEC on December 2, 2011)
10.2*
Chanticleer Holdings, Inc. 2014 Stock Incentive Plan effective February 3, 2014 (Incorporated by reference to Exhibit 10.1 to
our Current Report on Form 8-K, filed with the SEC on February 4, 2014)
10.3
Debt Assumption Agreements, dated July 1, 2014 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-
K, filed with the SEC on July 3, 2014)
10.4
Gaming Assignment, dated July 1, 2014 (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed
with the SEC on July 3, 2014)
10.5
Asset Purchase Agreement by and between Chanticleer Holdings, Inc., The Burger Company, LLC and American Burger
Morehead, LLC dated September 9, 2014 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed
with the SEC on September 10, 2014)
41
10.6
Asset Purchase Agreement by and between Chanticleer Holdings, Inc., Dallas Spoon, LLC and Express Working Capital, LLC
d/b/a CapRock Services dated December 31, 2014 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-
K, filed with the SEC on January 6, 2015)
10.7
Form of Subscription Agreement dated January 2015 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K/A, filed with the SEC on January 9, 2015)
10.8
Form of Note dated January 2015 (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K/A, filed with
the SEC on January 9, 2015)
10.9
Form of Registration Rights Agreement dated January 2015 (Incorporated by reference to Exhibit 10.3 to our Current Report
on Form 8-K/A, filed with the SEC on January 9, 2015)
10.10
Asset Purchase Agreement by and between Chanticleer Holdings, Inc., BGR Holdings, LLC and BGR Acquisition LLC, dated
February 18, 2015 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on
February 18, 2015)
10.11
Membership Interest Purchase Agreement dated July 31, 2015 (Incorporated by reference to exhibit 10.1 to our Current Report
on Form 8-K, filed with the SEC on August 3, 2015)
10.12
Form of Leak Out Agreement dated September 30, 2015 (Incorporated by reference to exhibit 10.2 to our Current Report on
Form 8-K, filed with the SEC on October 5, 2015)
10.13
Form of Securities Account Control Agreement dated September 30, 2015 (Incorporated by reference to exhibit 10.3 to our
Current Report on Form 8-K, filed with the SEC on October 5, 2015)
10.14
Stock Pledge and Security Agreement dated September 30, 2015 (Incorporated by reference to exhibit 10.4 to our Current
Report on Form 8-K, filed with the SEC on October 5, 2015)
10.15
10.16
Asset Purchase Agreement by and between Chanticleer Holdings, Inc., BT’s Burgerjoint Management, LLC and BT Burger
Acquisition, LLC dated March 31, 2015 (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed
with the SEC on March 31, 2015)
Amendment No. 1 to Asset Purchase Agreement by and between Chanticleer Holdings, Inc., BT’s Burgerjoint Management,
LLC and BT Burger Acquisition, LLC dated May 31, 2015 (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to
Form S-3, Registration No. 333- 203679, as filed June 3, 2015)
10.17
Form of Securities Purchase Agreement by and between the Company and Carl Caserta dated February 11, 2015 (Incorporated
by reference to Exhibit 10.1 to our Registration Statement on Form S-3 filed with the SEC on April 27, 2015)
10.18
Agreement dated April 24, 2015 by and among the Company, AT Media Corp. and Aton Select Fund, Ltd. (Incorporated by
reference to Exhibit 10.2 to our Registration Statement on Form S-3 filed with the SEC on April 27, 2015)
10.19
Registration Rights Agreement by and between the Company and Carl Caserta dated February 11, 2015 (Incorporated by
reference to Exhibit 10.3 to our Registration Statement on Form S-3 filed with the SEC on April 27, 2015)
10.20
Membership Interest Purchase Agreement dated July 31, 2015 (incorporated by reference to Exhibit 10.1 to Current Report on
Form 8-K as filed with the SEC on August 3, 2015)
10.21
Form of Leak out Agreement (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K as filed with the SEC
on October 5, 2015)
42
10.22
Form of Securities Account Control Agreement Form of Leak out Agreement (incorporated by reference to Exhibit 10.3 to
Current Report on Form 8-K as filed with the SEC on October 5, 2015)
10.23
Stock Pledge and Security Agreement dated September 30, 2015 (incorporated by reference to Exhibit 10.4 to Current Report
on Form 8-K as filed with the SEC on October 5, 2015)
10.24
Business sale agreement to purchase the assets of Hoot Campbelltown Pty Ltd and Hoot Penrith Pty Ltd for the purchase price
of $390,000 AUD dated August 12, 2015+
10.25
Business sale agreement to purchase the assets of Hoot Gold Coast Pty Ltd and Hoot Townsville Pty Limited dated August 12,
2015+
10.26
Business sale agreement to purchase the assets of Hoot Parramatta Pty Ltd dated August 13, 2015+
21
23.1
23.2
31.1
Subsidiaries of the Company+
Consent of Marcum LLP, Independent Registered Public Accounting Firm+
Consent of Cherry Bekaert LLP, Independent Registered Public Accounting Firm+
Certification of Periodic Report by Michael D. Pruitt, as Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of
the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+
31.2
Certification of Periodic Report by Eric S. Lederer, as Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the
Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+
32.1
Certification of Periodic Report by Michael D. Pruitt, as Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+
32.2
Certification of Periodic Report by Eric S. Lederer, as Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+
101
The following financial information from our Annual Report on Form 10-K for the year ended December 31, 2014, formatted
in XBRL (eXtensible Business Reporting Language) includes: (i) the Consolidated Balance Sheets at December 31, 2015 and
December 31, 2014, (ii) the Consolidated Statements of Operations for the years ended December 31, 2015 and December 31,
2014, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2015 and
December 31, 2014, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2015 and December 31,
2014, and (v) the Notes to the Financial Statements.
* Denotes an executive compensation plan or agreement
+ Filed herewith
Our SEC file number reference for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-
35570. Prior to June 7, 2012, our SEC file number reference was 000-29507.
43
95%
100%
88%
100%
100%
90%
78%
100%
80%
80%
80%
80%
80%
80%
Name
CHANTICLEER HOLDINGS,
INC.
Burger Business
American Roadside Burgers,
Inc.
Jurisdiction of
Incorporation
Delaware, USA
Percent
Owned
Name
Jurisdiction of
Incorporation
Percent
Owned
Delaware, USA
Pacific Northwest Hooters
Oregon Owl’s Nest, LLC
100%
Oregon, USA
100%
Jantzen Beach Wings, LLC
Tacoma Wings, LLC
Oregon, USA
Washington,
100%
100%
USA
100%
100%
North Carolina,
ARB Stores
American Roadside McBee,
LLC
American Burger Morehead,
LLC
American Roadside Morrison,
LLC
American Burger Ally, LLC North Carolina,
North Carolina,
North Carolina,
USA
USA
USA
USA
BGR Acquisition, LLC
North Carolina,
100%
BGR Franchising, LLC
Virginia, USA
100%
USA
BGR Operations, LLC
BGR Old Town, LLC
BGR Dupont, LLC
BGR Arlington, LLC
BGR Old Keene Mill,
LLC
BGR Potomac, LLC
BGR Cascades, LLC
BGR Washingtonian,
LLC
BGR Tysons, LLC
Virginia, USA
Maryland, USA
Virginia, USA
Virginia, USA
Virginia, USA
Maryland, USA
Virginia, USA
Maryland, USA
Virginia, USA
100%
BGR Springfield Mall,
LLC
Capitol Burger, LLC
Virginia, USA
100%
Maryland, USA
100%
BT Burger Acquisition, LLC North Carolina,
100%
USA
North Carolina,
100%
USA
North Carolina,
100%
USA
BT’s Burgerjoint Biltmore,
LLC
BT’s Burgerjoint
Promenade, LLC
BT’s Burgerjoint Sun
Valley, LLC
BT’s Burgerjoint Rivergate
LLC
100% South African Hooters
100%
Hooters On The Buzz (Pty) Ltd South Africa
Chanticleer South Africa (Pty)
Ltd.
Hooters Emperors Palace (Pty.)
Ltd.
Hooters PE (Pty) Ltd
Hooters Ruimsig (Pty) Ltd.
Hooters Umhlanga (Pty.) Ltd.
Hooters SA (Pty) Ltd
Hooters Willows Crossing (Pty)
Ltd
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
100%
100%
100%
100%
100%
100%
100% Australian Hooters
100%
HOTR AUSTRALIA PTY LTD Australia
HOTR CAMPBELLTOWN
PTY LTD
HOTR GOLD COAST PTY
LTD
HOTR PARRAMATTA PTY
LTD
HOTR PENRITH PTY LTD
HOTR TOWNSVILLE PTY
LTD
Australia
Australia
Australia
Australia
Australia
North Carolina,
100% European Hooters
USA
North Carolina,
100%
Chanticleer Holdings Limited
Jersey
100%
USA
LBB Acquisition, LLC
North Carolina,
100%
West End Wings LTD
United Kingdom
100%
Cuarto LLC
Segundo LLC
Noveno LLC
Primero LLC
Septimo LLC
Quinto LLC
Octavo LLC
Sexto LLC
USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
Oregon, USA
100%
100%
100%
100%
100%
100%
100%
100%
Just Fresh
JF Franchising Systems, LLC North Carolina,
56%
USA
Crown Restaurants Kft.
Hungary
Brazil
England
Inactive Entities
Hooters Brazil
DineOut SA Ltd.
Avenel Financial Services, LLC Nevada, USA
Nevada, USA
Avenel Ventures, LLC
Nevada, USA
Chanticleer Advisors, LLC
North Carolina,
Chanticleer Investment Partners,
LLC
Dallas Spoon Beverage, LLC Texas, USA
Texas, USA
Dallas Spoon, LLC
USA
JF Restaurants, LLC
North Carolina,
56%
Hoot Campbelltown Pty Ltd
Australia
USA
Chanticleer Holdings Australia
Pty, Ltd.
Hoot Australia Pty Ltd
TMIX Management Australia
Pty Ltd.
Hoot Parramatta Pty Ltd
Hoot Penrith Pty Ltd
Australia
Australia
Australia
Australia
Australia
80%
100%
89%
100%
100%
100%
100%
100%
100%
60%
100%
60%
60%
60%
60%
Hoot Gold Coast Pty Ltd
Hoot Townsville Pty. Ltd
Hoot Surfers Paradise Pty. Ltd.
MVLE DARLING HARBOUR
PTY LTD
MVLE GAMING PTY LTD
American Roadside Cross Hill,
LLC
Australia
Australia
Australia
Australia
Australia
North Carolina,
USA
60%
60%
60%
50%
100%
100%
44
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in these Registration Statements of Chanticleer Holdings, Inc. on Form S-3 (File Nos. 333-
193144 and 333-195055) and on Form S-8 (File No. 333-193742) of our report dated April 14, 2015 with respect to our audit of the
consolidated financial statements of Chanticleer Holdings, Inc. and Subsidiaries as of December 31, 2014 and for the year then ended
appearing in this Annual Report on Form 10-K of Chanticleer Holdings, Inc. and Subsidiaries for the year ended December 31, 2015.
Exhibit 23.1
/s/ Marcum llp
Marcum llp
New York, NY
March 30, 2016
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion or incorporation by reference of our report, dated March 30, 2016, with respect to the consolidated balance
sheet of Chanticlecr Holdings. Inc. and subsidiaries (the “Company”) as of December 31. 2015 and the related consolidated statements of
operations and comprehensive loss, stockholders’ equity and cash flows for the year then ended, in (i) the Company’s Registration
Statement on Form S-3 (File No. 333-193144 and 333-195055). and (ii) the Company’s Registration Statement on Form S-8 (No. 333-
193742). which report is included in this Annual report on Form 10-K of Chanticleer Holdings. Inc. and subsidiaries as of December 31,
2015 and for the year then ended.
Exhibit 23.2
/s/ Cherry Bekaert LLP
Charlotte. North Carolina
March 30. 2016
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Michael D. Pruitt, certify that:
1.
I have reviewed this annual report on Form 10-K of Chanticleer Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement 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. The registrant’s other certifying officer and I are 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-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our 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;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent 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. The registrant’s other certifying officer and I have disclosed, based on our 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 control over financial reporting 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 control over financial reporting.
Date: March 30, 2016
/s/ Michael D. Pruitt
Michael D. Pruitt
President, Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Eric S. Lederer, certify that:
1.
I have reviewed this annual report on Form 10-K of Chanticleer Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement 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. The registrant’s other certifying officer and I are 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-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our 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;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent 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. The registrant’s other certifying officer and I have disclosed, based on our 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 control over financial reporting 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 control over financial reporting.
Date: March 30, 2016
/s/ Eric S. Lederer
Eric S. Lederer
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Michael D. Pruitt, certify that:
1.
I am the Chief Executive Officer of Chanticleer Holdings, Inc. (the “Issuer”).
2. Attached to this certification is the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “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, as amended (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, to
my knowledge:
● The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
● The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Issuer.
March 30, 2016
/s/ Michael D. Pruitt
Michael D. Pruitt
President, Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Eric S. Lederer, certify that:
1.
I am the Chief Financial Officer of Chanticleer Holdings, Inc. (the “Issuer”).
2. Attached to this certification is the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “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, as amended (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, to
my knowledge:
● The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
● The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Issuer.
March 30, 2016
/s/ Eric S. Lederer
Eric S. Lederer
Chief Financial Officer
(Principal Financial Officer)