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EX-32.1 - Sonnet BioTherapeutics Holdings, Inc. | v171952_ex32-1.htm |
EX-31.1 - Sonnet BioTherapeutics Holdings, Inc. | v171952_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A-2
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES AND EXCHANGE ACT OF 1934
For
the Fiscal Year Ended December 31, 2008
Commission
File Number 000-29507
CHANTICLEER HOLDINGS,
INC.
(Exact
name of registrant as specified in the charter)
Delaware
|
20-2932652
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
Number)
|
The Rotunda, 4201 Congress
Street, Suite 145, Charlotte, NC 28209
(Address
of principal executive offices, including zip code)
Registrant's
telephone number, including area
code: (704) 366-5122
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.0001 par value
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o 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. o Yes x No.
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes x No o.
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. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerate filer o
Accelerated filer o
Non-accelerated
filer o Smaller
reporting company x
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes x No.
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter ($7.00 per share) (588,655 of 941,726 shares): $4,120,585 as of June 30,
2008.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date. There were 946,376 shares
of common stock outstanding as of February 10, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE: No documents are incorporated by reference
into this Report except those Exhibits so incorporated as set forth in the
Exhibit index.
EXPLANATORY
NOTE
We filed
our Annual Report on Form 10-K for the year ended December 31, 2008 on March 6,
2009 (the "Original Report"). We are filing this Amendment No. 1 on
Form 10-K/A (this "Amendment") to revise the accounting for an other than
temporary decline in available-for-sale securities as discussed in Note 3 to the
consolidated financial statements. In addition, we expanded our
Management's Discussion and Analysis in Item 7, expanded our revenue recognition
policy in Note 2 to the consolidated financial statements, expanded our
disclosure of Investments in Note 5 to the consolidated financial statements,
revised our income tax disclosure in Note 8 to the consolidated financial
statements as a result of the increased loss from our other than temporary loss
on available-for-sale securities, expanded Item 9A(T) and provided
currently-dated Exhibits 31.1 and 32.1.
This
Amendment is being filed in response to comments we received from the staff of
the Division of Corporation Finance of the Securities and Exchange Commission
(the "SEC") in connection with the staff's review of the Original
Report. We have made no attempt in this Amendment to modify or update
the disclosures presented in the Original Report other than as noted in the
previous paragraph. Also, this Amendment does not reflect events
occurring after the filing of the Original Report. Accordingly, this
Amendment should be read in conjunction with the Original Report and our other
filings with the SEC subsequent to the filing of the Original
Report.
2
Chanticleer
Holdings, Inc.
Form
10-K/A Index
Page
|
||
Part
I
|
||
Item
1:
|
Business
|
4
|
Item
1A:
|
Risk
Factors
|
8
|
Item
2:
|
Properties
|
8
|
Item
3:
|
Legal
Proceedings
|
8
|
Item
4:
|
Submission
of Matters to a Vote of Security Holders
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8
|
Part
II
|
||
Item
5:
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
9
|
Item
6:
|
Selected
Financial Data
|
10
|
Item
7:
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
10
|
Item
7A:
|
Quantitative
and Qualitative Disclosures about Market Risk
|
16
|
Item
8:
|
Financial
Statements and Supplementary Data
|
17
|
Item
9:
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
40
|
Item
9A(T):
|
Controls
and Procedures
|
40
|
Item
9B:
|
Other
Information
|
42
|
Part
III
|
||
Item
10:
|
Directors,
Executive Officers and Corporate Governance
|
43
|
Item
11:
|
Executive
Compensation
|
46
|
Item
12:
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
48
|
Item
13:
|
Certain
Relationships and Related Transactions, and Director
Independence
|
49
|
Item
14:
|
Principal
Accountant Fees and Services
|
50
|
Part
IV
|
||
Item
15:
|
Exhibits
and Financial Statement Schedules
|
51
|
Signatures
|
52
|
3
PART
I
FORWARD
LOOKING STATEMENTS
This
Annual Report contains forward-looking statements within the meaning of the
federal securities laws that involve a number of risks and uncertainties. Our
future results may differ materially from our historical results and actual
results could differ materially from those projected in the forward-looking
statements as a result of certain risk factors. These factors are
described in the “Risk Factors” section below. Among the factors that
could cause actual results to differ materially from those expected are the
following: business conditions and general economic conditions; competitive
factors, such as pricing and marketing efforts; and the pace and success of
product research and development. These and other factors may cause expectations
to differ.
ITEM
1:
|
BUSINESS
|
GENERAL
DEVELOPMENT OF BUSINESS
Chanticleer
Holdings, Inc. (the “Company,” “we,” “us” or “Chanticleer”) filed an election to
be treated as a business development company under the Investment Company Act of
1940 (the “1940 Act”) on May 23, 2005. In connection with this election, we
adopted corporate resolutions and operated as a closed-end, non-diversified
management investment company and as a business development company (a “BDC”)
until this election was revoked, as described below.
On April
18, 2006, we formed Chanticleer Investors LLC (“Investors LLC”) and sold units
for $5,000,000, of which we own $1,150,000 (23%) as of December 31,
2008. Investors LLC’s principal asset is a 6%, convertible note in
the amount of $5,000,000 with Hooters of America, Inc. (“Hooters”),
collateralized by and convertible into 2% of Hooters common
stock. One-third of the interest is paid to us as a management fee
and we share pro-rata with the other investors in the remaining 4% interest,
which is distributed to the investors quarterly.
On July
31, 2006, we formed Chanticleer Investors II, LLC (“Investors
II”). Investors II began raising funds in January 2007 for the
purpose of investing in publicly traded value securities.
In
January 2007, we formed Chanticleer Advisors, LLC (“Advisors”), as a wholly
owned subsidiary to manage Investors II as well as other
investments. (For additional information, see
www.chanticleeradvisors.com.)
On July
21, 2008, we filed Form N-54C with the Securities and Exchange Commission
(“SEC”) to notify the SEC of the withdrawal of our previous election to be
regulated as a BDC under applicable provisions of the 1940 Act. After
careful consideration of the 1940 Act requirements applicable to BDCs,
evaluation of the Company’s ability to operate as a going concern in an
investment company regulatory environment, the costs associated with complying
with the 1940 Act and a thorough assessment of potential alternative business
models, our Board of Directors determined that continuation as a BDC was not in
the best interests of the Company or our stockholders. With the
approval of more than a majority of the voting power of our common stock, we
proceeded to file Form N-54C and thereby revoking our BDC
status.
4
Pursuant
to Regulation S-X, Rule 6, the Company operated on a non-consolidated basis
until July 21, 2008. Operations of the portfolio companies were
reported at the portfolio company level and only the appreciation or impairment
of these investments was included in the Company’s financial
statements. Subsequent to July 21, 2008, as noted above, we ceased
operating as a BDC and prepared consolidated financial statements with our
wholly owned subsidiary.
NARRATIVE
DESCRIPTION OF BUSINESS
NEW
BUSINESS MODEL
We intend
to pursue a business model whereby we acquire majority ownership in
restaurant-related companies, principally the Hooters brand and
concept.
Under our
new business model, we will at all times conduct our activities in such a way
that we will not be deemed an “investment company” subject to regulation under
the 1940 Act. Thus, we will not hold ourselves out as being engaged
primarily in the business of investing, reinvesting or trading in
securities. In addition, we will conduct our business in such a
manner as to ensure that we will at no time own or propose to acquire investment
securities having a value exceeding 40% of our total assets at any one
time.
On
December 24, 2008, Avenel Ventures LLC (“Ventures”) was formed as a wholly owned
subsidiary of Chanticleer. Ventures has entered into consulting
agreements with two clients and will receive common stock from the clients for
its business management and consulting services. The Company expects
to continue to expand this area of the business.
On
February 19, 2009, Avenel Financial Services, LLC (“Financial”) was formed as a
wholly owned subsidiary of Chanticleer. Financial was organized to
provide unique financial services to the restaurant, real estate development,
investment advisor/asset management and philanthropic
organizations. Initial services will include captive insurance, CHIRA
and trust services.
PENDING
ACQUISITIONS
Hooters,
Inc.
On March
11, 2008, the Company entered into a Stock Purchase Agreement for the purchase
of Hooters, Inc., Hooters Management Corporation and their related restaurants
(collectively “HI”) from the nine current individual HI shareholders, many of
whom will continue to stay involved in the ongoing operation as shareholders of
Chanticleer. The transaction is valued at approximately $55.1 million
and could close in the second quarter of 2009.
The
closing of the transaction is subject to Chanticleer raising the necessary debt
and equity financing to complete the acquisition. Chanticleer has
retained an investment banking firm to assist in securing the equity capital
necessary to close the proposed transaction. Chanticleer has
completed all other conditions and is in process of raising the necessary debt
and equity financing to complete the transaction. (See current status
below).
5
HI was
founded in 1983 and was the creator of the Hooters brand and
concept. In 1984, HI licensed Neighborhood Restaurants of America,
n/k/a Hooters of America, Inc. (“HOA”), owned by a separate group of
shareholders, to be its exclusive licensee in the development and expansion of
its restaurant business. In 2001 HI sold the Hooters trademarks and
other related proprietary rights to HOA. HI continues to own certain
rights including a perpetual irrevocable license agreement with greatly reduced
royalties, to operate its restaurants in its retained territories and, most
importantly, to acquire franchisees within the Hooters system. These
rights will be acquired by Chanticleer as a part of the
transaction.
Chanticleer
has an existing relationship with HOA through its position as the lead investor
in a $5 million, 6% convertible three-year promissory note from the Estate of
Robert Brooks, the former Chairman of HOA. This note is secured by
and contains conversion options into 2% of HOA’s outstanding
stock. Chanticleer was also granted a right of first refusal and a
right to match any equity financing proposed to, or sought by,
HOA. Additionally, Chanticleer currently holds an Option Agreement
with HOA to open Hooters franchises in the Republic of South Africa which is
under development.
HI
currently owns and operates 22 restaurants, which comprise the highest average
unit gross sales within the Hooters system, and includes locations in and around
Tampa, Florida, Chicago, Illinois and the Manhattan regions, including the
original Hooters restaurant located in Clearwater, Florida. These are
the operations of HI being acquired by Chanticleer.
Through
December 31, 2008, the Company has recorded $279,050 in deferred acquisition
costs related to the planned acquisition of HI.
Texas
Wings
On July
8, 2008, the Company entered into an Asset Purchase Agreement to acquire
substantially all of the assets of Texas Wings Incorporated and its 45 related
Hooters branded restaurants (collectively “Texas Wings”) for total consideration
of approximately $106 million, including approximately $53 million in cash,
approximately $37 million in Chanticleer common stock and convertible notes with
an aggregate principal amount of approximately $16 million (the
“Transaction”).
Chanticleer
will create an operating company and combine Texas Wings with HI and its 22
Hooters restaurants, which the Company agreed to acquire in March
2008.
The
Transaction is subject to a number of customary closing conditions and could
close during the second quarter of 2009, concurrently with the closing of the HI
acquisition. (See current status below).
6
Current
Status
The
termination date for the Company’s pending acquisition of the stock of HI and
certain of its related entities followed immediately by the subsequent
acquisition of Texas Wings and certain of its related entities has
passed. To date the sellers have not exercised their rights to
terminate the agreements and the Company continues to pursue consummation of
these transactions. There is no assurance that the Company will be
able to close the pending acquisitions.
In
addition, the commitment letters from certain financial institutions to provide
one or more related entities of the Company the $85,000,000 Senior Secured
Credit have expired, primarily due to the inability of the Company to raise the
necessary equity portion of the financing at acceptable terms in today’s
financial environment. The Company continues to communicate with the
financial institutions that agreed to provide the credit facility, as well as
others; however, there can be no assurance that the Company will be successful
in obtaining any financing or that the terms of any credit facility in the
future will be acceptable to the Company.
EMPLOYEES
At
December 31, 2008 and 2007, we had 4 full-time employees.
Our
employees are not represented by a labor union. We have experienced
no work stoppage and believe that our employee relationships are
good.
OPERATION
AS A BDC
Under our
election to be governed as a BDC under the 1940 Act, we engaged in the business
of providing investors with the opportunity to participate, with a modest amount
of venture capital, in investments that are generally not available to the
public and that typically require substantially larger financial
commitments. In addition, we provided professional management and
administration that might otherwise be unavailable to investors if they were to
engage directly in venture capital investing. When regulated as a BDC
under the 1940 Act, we operated as a non-diversified company as that term is
defined in Section 5(b)(2) of the 1940 Act. We could not cease to be,
or withdraw our election as, a BDC without the approval of the holders of a
majority of our outstanding and voting stock as defined under the 1940
Act.
As a BDC,
we were required to invest at least 70% of our total assets in qualifying
assets, which, generally, are securities of companies that are not investment
companies and that:
|
·
|
do
not have a class of securities registered on an exchange or included in
the Federal Reserve Board’s over-the-counter margin
list;
|
|
·
|
are
actively controlled by a BDC and have an affiliate of a BDC on their board
of directors; or
|
|
·
|
meet
such other criteria as may be established by the
SEC.
|
7
Qualifying
assets also include cash, cash equivalents, U.S. Government securities and
high-quality debt investments maturing within one year or less from the date of
investment. We also were required to offer to provide significant
managerial assistance to our qualifying portfolio companies. We could
invest the remaining 30% of our total assets in non-qualifying assets, including
debt and/or equity securities of companies that may be larger or more stabilized
than target portfolio companies.
ITEM 1A:
|
RISK
FACTORS
|
Not
applicable.
ITEM
2:
|
PROPERTIES
|
On
February 22, 2007, we entered into a lease agreement jointly with Five Oaks
Capital Partners, LLC to lease a total of 5,041 square feet, commencing March
26, 2007 through December 31, 2008. Our allocated share of the space
is 2,000 square feet and our monthly base rent is $3,980 in 2008. Our
lease is continuing on a month-to-month basis.
Our
office facilities are suitable and adequate for our business as it is presently
conducted.
ITEM
3:
|
LEGAL
PROCEEDINGS
|
We are
not currently subject to any legal proceedings, nor, to our knowledge, is any
legal proceeding threatened against us. However, from time to time, we may be a
party to certain legal proceedings in the ordinary course of
business.
ITEM
4:
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
There
were no matters submitted to a vote of security holders during the fourth
quarter.
On May
16, 2008, stockholders representing more than a majority of the voting power of
the Company, acting by written consent, approved and authorized our Board of
Directors to withdraw the Company’s election to be treated as a BDC under the
1940 Act by filing Form N-54C with the SEC. The Company filed its
preliminary information statement on Schedule 14C on May 23, 2008, its amended
preliminary information statement on Schedule 14C on June 18, 2008 and the
definitive information statement on Schedule 14C on June 20, 2008 with the
SEC. The information statement was provided on behalf of our Board of
Directors to record holders of shares of our common stock as of the close of
business on the record date of May 14, 2008 to provide them with notice that our
Board of Directors had recommended revoking of BDC status and a one-for-ten
reverse stock split and that stockholders representing more than a majority of
our voting power had approved the transactions by written
consent.
8
Part
II
ITEM
5:
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Our
common stock is currently listed on the electronic quotation and reporting
service maintained by the National Association of Securities Dealers (“NASD”)
and known as the “OTC Bulletin Board” or “OTCBB” system and currently trades
under the symbol "CCLR".
The
market closing, high and low prices during each quarter for the two years ended
December 31, 2008, are as follows:
QUARTER
ENDED
|
CLOSING
|
HIGH
|
LOW
|
|||||||||
March
31, 2007
|
$ | 10.00 | $ | 11.00 | $ | 8.50 | ||||||
June
30, 2007
|
8.00 | 10.00 | 8.00 | |||||||||
September
30, 2007
|
9.90 | 10.00 | 9.00 | |||||||||
December
31, 2007
|
5.20 | 7.50 | 5.10 | |||||||||
March
31, 2008
|
6.50 | 8.00 | 5.40 | |||||||||
June
30, 2008
|
7.00 | 7.00 | 5.10 | |||||||||
September
30, 2008
|
7.00 | 7.00 | 5.75 | |||||||||
December
31, 2008
|
5.75 | 7.00 | 5.50 |
Number
of Shareholders and Total Outstanding Shares
As of
February 10, 2009, there were 946,376 shares of common stock issued and
outstanding, held by approximately 46 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.
Options
None.
Securities
Authorized for Issuance under Equity Compensation Plans
None.
Recent
Sales of Unregistered Securities
Sales of
our common stock during the first three quarters of the fiscal year were
reported in Item 2 of Part II of the Form 10-Q filed for each
quarter. No shares were sold in the fourth quarter of
2008.
9
Repurchase
of Equity Securities by the Issuer and Affiliated Purchasers
There
were no repurchase transactions to report for our fiscal year ended December 31,
2008.
ITEM 6:
|
SELECTED
FINANCIAL DATA
|
Not
applicable.
ITEM
7:
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
FORWARD-LOOKING
STATEMENTS
Certain
statements contained in this report that are not historical fact are
"forward-looking statements" as that term is defined in the Private Securities
Litigation Reform Act of 1995. The words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "believes," "estimates,"
"projects" or similar expressions are intended to identify these forward-looking
statements. These statements are subject to risks and uncertainties beyond our
reasonable control that could cause our actual business and results of
operations to differ materially from those reflected in our forward-looking
statements. The safe harbor provisions provided in the Securities Litigation
Reform Act do not apply to forward-looking statements we make in this report.
Forward-looking statements are not guarantees of future performance. Our
forward-looking statements are based on trends which we anticipate in our
industry and our good faith estimate of the effect on these trends of such
factors as industry capacity, product demand and product pricing. The inclusion
of projections and other forward-looking statements should not be regarded a
representation by us or any other person that we will realize our projections or
that any of the forward-looking statements contained in this prospectus will
prove to be accurate.
Management’s
Analysis of Business
We intend
to pursue a business model whereby we acquire majority ownership in
restaurant-related companies, principally the Hooters brand and
concept.
Under our
new business model, we will at all times conduct our activities in such a way
that we will not be deemed an “investment company” subject to regulation under
the 1940 Act. Thus, we will not hold ourselves out as being engaged
primarily in the business of investing, reinvesting or trading in
securities. In addition, we will conduct our business in such a
manner as to ensure that we will at no time own or propose to acquire investment
securities having a value exceeding 40% of our total assets at any one
time.
While
operating as a BDC, the Company provided equity and debt investment capital to
fund growth, acquisitions and recapitalizations of small market companies in the
United States.
10
See Item
1, pages 5-7 for a discussion of our planned acquisition of Hooters, Inc. and
Texas Wings.
LIQUIDITY
AND CAPITAL RESOURCES
At
December 31, 2008 and 2007, the Company had current assets of $23,556 and
$95,893; current liabilities of $686,125 and $349,268; and negative working
capital of $662,569 and $253,375, respectively. The Company incurred
a loss of $2,238,613 during the year ended December 31, 2008. The
Company receives quarterly cash inflow of $25,000 from management fees and
$11,500 from investment distributions, but expects quarterly cash outflow of
approximately $130,000 per quarter for 2009, assuming the acquisitions
previously discussed are not completed.
The
Company expects to meet its short-term requirements through the liquidation of
one investment to raise approximately $42,000 in cash; return of the advance
made for the development rights of Hooters restaurants in Nevada in the
remaining amount of $70,000; and a firm commitment for non-interest bearing
advances from its CEO in the amount of $50,000.
The
Company expects to have sufficient funding available from these sources until
the possible second quarter of 2009 close of the acquisitions of HI and Texas
Wings. Subsequent to the close, the overhead requirements would be
covered by distributions from the operations of HI and Texas Wings.
In the
event the acquisitions do not close, the Company expects to have sufficient
funds available to meet its requirements until May 2009, when the Company is
scheduled to receive a distribution from its investment in Chanticleer Investors
LLC in the amount of approximately $1,275,000. Investors LLC has one
asset, a note receivable from Hooters of America, Inc. in the amount of
$5,000,000 which is due May 24, 2009. At that time, the Company plans
to repay the line of credit, any other short-term borrowings and have sufficient
cash to cover all overhead requirements for at least another year while
increasing the funds which Advisors manages.
At
December 31, 2008, the Company had drawn the full amount of its bank
line-of-credit in the amount of $500,000. The line-of-credit is due
in June 2009 and is expected to be renewed at that time.
RESULTS
OF OPERATIONS
Revenue
Revenue
amounted to $234,055 in 2008 and $531,247 in 2007. Cash revenues were
$105,500 in 2008 and $100,000 in 2007. Non-cash revenues from
management fees include $128,555 in 2008 and include $431,247 in 2007 which was
recognized from the receipt of securities for our services. The
majority of our cash revenues are management fees from Investors
LLC. Investors LLC has one principal asset, a $5,000,000 convertible
note with HOA, which is scheduled to be repaid in May 2009.
11
Pursuant
to EITF 00-8, the fair value of the equity instruments received was determined
based upon the stock prices as of the date we reached an agreement with the
third party. The terms of the securities are not subject to
adjustment after the measurement date.
General and Administrative
Expense (“G&A”)
G&A
amounted to $1,131,830 in 2008 and $819,361 in 2007. The more
significant components of G&A are summarized as follows:
2008
|
2007
|
|||||||
Professional
fees
|
$ | 275,456 | $ | 199,113 | ||||
Payroll
|
374,435 | 238,877 | ||||||
Travel
and entertainment
|
106,203 | 112,911 | ||||||
Accounting
and auditing
|
76,100 | 66,150 | ||||||
Other
G & A
|
299,636 | 202,310 | ||||||
$ | 1,131,830 | $ | 819,361 |
The
majority of the increase in professional fees, travel and entertainment and
accounting and auditing are a result of the planned acquisition of HI and Texas
Wings. Other G&A costs increased primarily for the same
reason.
In 2007,
the CEO initially began receiving a salary and was paid $41,917 and in 2008 was
paid $136,148. The remainder of the increase in 2008 is primarily a
result of hiring an in-house accountant.
If the
acquisition of HI and Texas Wings is completed the G&A costs would remain
about the same level as in 2008 plus increased audit fees and would be funded by
management fees from the operating subsidiaries. If the acquisition
is not completed, the G&A costs are expected to decline to approximately
$520,000.
Asset
Impairment
We
recorded an impairment loss of $52,216 on our investment in two gas wells,
primarily due to a reduction in gas prices from which the estimated future cash
flow was calculated.
OTHER
INCOME (EXPENSE)
Other
income (expense) consisted of the following at December 31, 2008 and
2007:
12
2008
|
2007
|
|||||||
Other
income (expense):
|
||||||||
Equity
in earnings (losses) of investments
|
$ | (123,111 | ) | $ | 35,916 | |||
Realized
gains from sale of investments
|
- | 24,696 | ||||||
Unrealized
gains (losses) of marketable equity securities
|
5,000 | (43,000 | ) | |||||
Interest
expense
|
(20,486 | ) | (10,933 | ) | ||||
Interest
income
|
- | 3,629 | ||||||
Loss
on sale of fixed asset
|
- | (713 | ) | |||||
Other
than temporary decline in available-for-sale securities
|
(1,150,025 | ) | - | |||||
$ | (1,288,622 | ) | $ | 9,595 |
Equity in Earnings (Losses)
of Investments
Equity in
earnings of investments includes our share of earnings (losses) from investments
in which we own at least 20% and are being accounted for using the equity
method.
Unrealized Gains (Losses) of
Marketable Equity Securities
These
amounts represent the unrealized gains and losses recorded for our marketable
equity securities. The remainder of these securities were sold in
2008.
Realized Gains from Sale of
Investments
Realized
gains are recorded when investments are sold and include transactions in
marketable equity securities in 2007.
Interest
Expense
Interest
expense increased in 2008 from 2007 primarily due to the need to borrow funds
commencing in 2007 for due diligence and fund raising efforts associated with
the potential acquisitions of HI and Texas Wings.
Other than Temporary Decline
in Available-for-Sale Securities
The
Company determined that its investment in available-for-sale securities had an
other than temporary decline in value and recorded a realized loss in the amount
of $1,150,025 at December 31, 2008.
RECENT
ACCOUNTING PRONOUNCEMENTS
There are
several new accounting pronouncements issued by the Financial Accounting
Standards Board (“FASB”) which are not yet effective. Each of these
pronouncements, as applicable, has been or will be adopted by the
Company. Management does not believe any of these accounting
pronouncements has had or will have a material impact on the Company’s financial
position or operating results.
13
In May
2008, the FASB issued SFAS 163, “Accounting for Financial Guarantee Insurance
Contracts-an interpretation of SFAS 60”. SFAS 163 clarifies how SFAS
60 applies to financial guarantee insurance contracts, including the recognition
and measurement of premium revenue and claims liabilities. This statement also
requires expanded disclosures about financial guarantee insurance contracts.
SFAS 163 is effective for fiscal years beginning on or after December 15, 2008,
and interim periods within those years. SFAS 163 has no effect on the Company’s
financial position, statements of operations, or cash flows at this
time.
In May
2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting
Principles”. SFAS 162 sets forth the level of authority to a given
accounting pronouncement or document by category. Where there might be
conflicting guidance between two categories, the more authoritative category
will prevail. SFAS 162 will become effective 60 days after the SEC approves the
PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards. SFAS
162 has no effect on the Company’s financial position, statements of operations,
or cash flows at this time.
In March
2008 the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities—an amendment of SFAS 133.” This standard requires
companies to provide enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company has not yet
adopted the provisions of SFAS 161, but does not expect it to have a material
impact on its financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB 51.” This
statement amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Before this statement was issued,
limited guidance existed for reporting noncontrolling interests. As a result,
considerable diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as liabilities or
in the mezzanine section between liabilities and equity. This statement improves
comparability by eliminating that diversity. This statement is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. Earlier adoption is prohibited. The effective date of
this statement is the same as that of the related SFAS 141 (revised 2007). The
Company will adopt this statement beginning January 1, 2009. It is not believed
that this will have an impact on the Company’s financial position, results of
operations or cash flows.
14
In
December 2007, the FASB, issued SFAS 141 (revised 2007), “Business
Combinations.” This Statement replaces SFAS 141, “Business
Combinations,” but retains the fundamental requirements in
SFAS 141. This Statement establishes principles and requirements
for how the acquirer: (a) recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (b) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and (c) determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. The effective date of this statement is the same as
that of the related SFAS 160. The Company will adopt this statement
beginning January 1, 2009. The Company will record an expense for the previously
deferred acquisition costs of $279,050 pursuant to paragraph 59 of SFAS 141(R)
on January 1, 2009.
CRITICAL
ACCOUNTING POLICIES
The SEC
issued Financial Reporting Release No. 60, “Cautionary Advice Regarding
Disclosure about Critical Accounting Policies” (“FRR 60”), suggesting companies
provide additional disclosure and commentary on their most critical accounting
policies. In FRR 60, the SEC defined the most critical accounting
policies as the ones that are most important to the portrayal of a company’s
financial condition and operating results, and require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this
definition our most critical accounting policy is the valuation of our
investments. The methods, estimates and judgments we use in applying
this accounting policy has a significant impact on the results we report in our
financial statements.
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 valuation
process is intended to provide a consistent basis for determining the fair value
of our available-for-sale investments. Paragraph 16 of SFAS No. 115,
paragraphs 7 through 15 of FSP FAS 115-1/124-1 and SAB Topic 5.M provide
guidance for measuring and recording the impairment of available-for-sale
securities. 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 cost basis of 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.
15
The first
step in the analysis is to determine if the security is
impaired. Both of our available-for-sale securities are listed and we
use the closing market price 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. SAB Topic 5.M provides in
part that the following should be considered 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:
|
·
|
The
length of the 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.
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. These
investments are evaluated for impairment in accordance with the requirements of
Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for
Investments in Common Stock.” An impairment loss would be recorded
whenever a decline in the value of an equity investment or investment carried at
cost below its carrying amount 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.
OFF-BALANCE
SHEET ARRANGEMENTS
Not
applicable.
TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Not
applicable.
ITEM
7A:
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not
applicable.
16
ITEM 8:
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
CHANTICLEER
HOLDINGS, INC. AND SUBSIDIARY
INDEX TO
CONSOLIDTED FINANCIAL STATEMENTS AND SCHEDULES
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
19
|
Consolidated
Balance Sheets at December 31, 2008 and 2007
|
20
|
Consolidated
Statements of Operations for the Years Ended December 31, 2008 and
2007
|
21
|
Consolidated
Statements of Stockholders’ Equity at December 31, 2008 and
2007
|
22
|
23
|
|
Notes
to Consolidated Financial Statements
|
25
|
17
CREASON
& ASSOCIATES, P.L.L.C.
7170
S. Braden Ave., Suite 100
Tulsa,
Oklahoma 74136
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Chanticleer
Holdings, Inc.:
We have
audited the accompanying consolidated balance sheets of Chanticleer Holdings,
Inc. and Subsidiary (the "Company") as of December 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders’ equity and cash
flows for the years ended December 31, 2008 and 2007. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As
discussed in Notes 1 and 4 to the consolidated financial statements, the Company
revoked its status as a business development company and is now an operating
company, which resulted in a change in reporting entity.
As
described in Note 3 to the consolidated financial statements, the Company has
restated its December 31, 2008 consolidated financial statements due to
management’s determination that its available-for-sale securities were impaired
at December 31, 2008, and that these impairments were other than
temporary. Consequently, the unrealized losses on these securities
have been recognized in the restated consolidated statement of operations rather
than being recognized in other comprehensive income as a separate component of
equity in the Company’s amended Form 10-K/A.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Chanticleer
Holdings, Inc. and Subsidiary as of December 31, 2008 and 2007, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2008 and 2007, in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
Chanticleer Holdings, Inc. and Subsidiary will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, Chanticleer Holdings, Inc. has two planned acquisitions which
require substantial financing. However, there can be no assurance
that the Company will be able to obtain sufficient funding to conduct its
business plan or if the acquisitions are completed will have sufficient revenues
to fund its operations and commitments. These conditions raise
substantial doubt about Chanticleer Holdings, Inc. and Subsidiary’s ability to
continue as a going concern. Management’s plans regarding these
matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that may result from the outcome of
these uncertainties.
/s/Creason
& Associates, P.L.L.C.
Tulsa,
Oklahoma
March 2,
2009, except for Note 3, as to
which
the date is August 11, 2009
18
Chanticleer
Holdings, Inc. and Subsidiary
Consolidated
Balance Sheets
December
31, 2008 and 2007
2008
|
2007
|
|||||||
(Restated
|
||||||||
Note
3)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 14,151 | $ | 183 | ||||
Due
from affiliate
|
5,150 | 11,150 | ||||||
Marketable
securities
|
- | 65,000 | ||||||
Prepaid
expenses
|
4,255 | 19,560 | ||||||
Total
current assets
|
23,556 | 95,893 | ||||||
Property
and equipment, net
|
36,161 | 45,537 | ||||||
Investments
at fair value
|
108,545 | 1,016,566 | ||||||
Other
investments, principally accounted for under the equity
method
|
1,773,969 | 1,930,343 | ||||||
Deferred
acquisition costs
|
279,050 | - | ||||||
Deposits
and other assets
|
3,980 | 3,980 | ||||||
TOTAL
ASSETS
|
$ | 2,225,261 | $ | 3,092,319 | ||||
LIABILITIES
|
||||||||
Notes
payable
|
$ | 500,000 | $ | 165,272 | ||||
Accounts
payable
|
178,325 | 25,555 | ||||||
Accrued
expenses
|
500 | 4,150 | ||||||
Due
to related party
|
7,300 | - | ||||||
Deferred
revenue
|
- | 128,555 | ||||||
Bank
overdraft
|
- | 25,736 | ||||||
TOTAL
LIABILITIES
|
686,125 | 349,268 | ||||||
Commitments
and contingencies
|
||||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Common
stock: $0.0001 par value; authorized 200,000,000 shares; issued
and outstanding 946,376 shares and 833,232 shares at December 31, 2008 and
2007, respectively
|
946 | 833 | ||||||
Additional
paid in capital
|
4,642,347 | 3,849,767 | ||||||
Accumulated
other comprehensive loss
|
- | (242,005 | ) | |||||
Accumulated
deficit
|
(3,104,157 | ) | (865,544 | ) | ||||
1,539,136 | 2,743,051 | |||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 2,225,261 | $ | 3,092,319 |
See
accompanying notes to consolidated financial statements.
19
Chanticleer
Holdings, Inc. and Subsidiary
Consolidated
Statements of Operations
For
the Years Ended December 31, 2008 and 2007
2008
|
2007
|
|||||||
(Restated
|
||||||||
Note
3)
|
||||||||
Revenue:
|
||||||||
Management
fee income
|
||||||||
Non-affiliates
|
$ | - | $ | 39,380 | ||||
Affiliates
|
234,055 | 491,867 | ||||||
Total
revenue
|
234,055 | 531,247 | ||||||
Expenses:
|
||||||||
General
and administrative expense
|
1,131,830 | 819,361 | ||||||
Asset
impariment
|
52,216 | - | ||||||
Total
expenses
|
1,184,046 | 819,361 | ||||||
Earnings
(loss) from operations
|
(949,991 | ) | (288,114 | ) | ||||
Other
income (expense)
|
||||||||
Equity
in earnings (losses) of investments
|
(123,111 | ) | 35,916 | |||||
Realized
gains from sales of investments
|
- | 24,696 | ||||||
Unrealized
gains (losses) of marketable equity securities
|
5,000 | (43,000 | ) | |||||
Interest
expense
|
(20,486 | ) | (10,933 | ) | ||||
Interest
income
|
- | 3,629 | ||||||
Loss
on sale of fixed asset
|
- | (713 | ) | |||||
Other
than temporary decline in available-for-sale securities
|
(1,150,025 | ) | - | |||||
Total
other income (expense)
|
(1,288,622 | ) | 9,595 | |||||
Net
loss before income taxes
|
(2,238,613 | ) | (278,519 | ) | ||||
Provision
for income taxes
|
- | - | ||||||
Net
loss
|
(2,238,613 | ) | (278,519 | ) | ||||
Other
comprehensive income (loss):
|
||||||||
Unrealized
gain (loss) on available-for-sale securities
|
- | (315,602 | ) | |||||
Net
comprehensive loss
|
$ | (2,238,613 | ) | $ | (594,121 | ) | ||
Net
earnings (loss) per share, basic and diluted
|
$ | (2.46 | ) | $ | (0.35 | ) | ||
Weighted
average shares outstanding
|
911,162 | 799,553 |
See
accompanying notes to consolidated financial statements.
20
Chanticleer
Holdings, Inc. and Subsidiary
Consolidated
Statements of Stockholders' Equity
Years
ended December 31, 2008 and 2007
(Restated
- Note 3)
Accumulated
|
||||||||||||||||||||||||
Other
|
||||||||||||||||||||||||
Additional
|
Comprehensive
|
|||||||||||||||||||||||
Common
Stock
|
Paid-in
|
Income
|
Accumulated
|
|||||||||||||||||||||
Shares
|
Par
|
Capital
|
(Loss)
|
Deficit
|
Total
|
|||||||||||||||||||
Balance,
December 31, 2006
|
768,946 | $ | 769 | $ | 2,799,831 | $ | 73,597 | $ | (587,025 | ) | $ | 2,287,172 | ||||||||||||
Common
stock issued for cash proceeds
|
64,286 | 64 | 449,936 | - | - | 450,000 | ||||||||||||||||||
Investment
contributed by shareholder
|
- | - | 600,000 | - | - | 600,000 | ||||||||||||||||||
Net
changes in available-for-sale securities
|
- | - | - | (315,602 | ) | - | (315,602 | ) | ||||||||||||||||
Net
loss
|
- | - | - | - | (278,519 | ) | (278,519 | ) | ||||||||||||||||
Balance,
December 31, 2007
|
833,232 | 833 | 3,849,767 | (242,005 | ) | (865,544 | ) | 2,743,051 | ||||||||||||||||
Common
stock issued for:
|
||||||||||||||||||||||||
Cash
proceeds
|
111,994 | 112 | 784,588 | - | - | 784,700 | ||||||||||||||||||
Services
|
1,150 | 1 | 7,992 | - | - | 7,993 | ||||||||||||||||||
Available-for-sale
securities:
|
||||||||||||||||||||||||
Current
year decline
|
- | - | - | (908,020 | ) | - | (908,020 | ) | ||||||||||||||||
Other
than temporary decline
|
- | - | - | 1,150,025 | - | 1,150,025 | ||||||||||||||||||
Net
loss
|
- | - | - | - | (2,238,613 | ) | (2,238,613 | ) | ||||||||||||||||
Balance,
December 31, 2008
|
946,376 | $ | 946 | $ | 4,642,347 | $ | - | $ | (3,104,157 | ) | $ | 1,539,136 |
See
accompanying notes to consolidated financial statements.
21
Chanticleer
Holdings, Inc. and Subsidiary
Consolidated
Statements of Cash Flows
For
the Years Ended December 31, 2008 and 2007
2008
|
2007
|
|||||||
(Restated
|
||||||||
Note
3)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (2,238,613 | ) | $ | (278,519 | ) | ||
Adjustments
to reconcile net loss to net cash used in
|
||||||||
operating
activities:
|
||||||||
Change
in unrealized appreciation of investments
|
(5,000 | ) | 43,000 | |||||
Other
than temporary decline in value of available-for-sale
securities
|
1,150,025 | - | ||||||
Consulting
and other services rendered in exchange for investment
securities
|
- | (553,600 | ) | |||||
Depreciation
|
11,198 | 8,860 | ||||||
Equity
in earnings (losses) of investments
|
123,111 | (35,916 | ) | |||||
Asset
impairment
|
52,216 | - | ||||||
Common
stock issued for services
|
7,993 | - | ||||||
(Gain)
loss on sale of investments
|
- | (24,696 | ) | |||||
Loss
on sale of fixed assets
|
- | 713 | ||||||
Decrease
in amounts due from affiliate
|
6,000 | 20,331 | ||||||
(Increase)
decrease in prepaid expenses and other assets
|
15,306 | (1,212 | ) | |||||
Increase
in accounts payable and accrued expenses
|
149,120 | 16,750 | ||||||
Increase
(decrease) in deferred revenue
|
(128,555 | ) | 128,555 | |||||
Advance
from related party
|
7,300 | - | ||||||
Net
cash used in operating activities
|
(849,899 | ) | (675,734 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Proceeds
from sale of fixed assets
|
- | 270 | ||||||
Proceeds
from sale of investments
|
50,000 | 181,166 | ||||||
Investment
distribution
|
51,047 | 46,000 | ||||||
Purchase
of investments
|
(120,000 | ) | (74,043 | ) | ||||
Purchase
of fixed assets
|
(1,822 | ) | (22,091 | ) | ||||
Deferred
acquisition costs
|
(279,050 | ) | - | |||||
Net
cash provided (used) by investing activities
|
(299,825 | ) | 131,302 | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from sale of common stock
|
784,700 | 450,000 | ||||||
Loan
proceeds
|
404,728 | 95,272 | ||||||
Loan
repayment
|
- | (150,704 | ) | |||||
Bank
overdraft
|
(25,736 | ) | 25,736 | |||||
Net
cash provided by financing activities
|
1,163,692 | 420,304 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
13,968 | (124,128 | ) | |||||
Cash
and cash equivalents, beginning of year
|
183 | 124,311 | ||||||
Cash
and cash equivalents, end of year
|
$ | 14,151 | $ | 183 |
(Continued)
See
accompanying notes to consolidated financial statements.
22
Chanticleer
Holdings, Inc. and Subsidiary
Consolidated
Statements of Cash Flows, continued
For
the Years Ended December 31, 2008 and 2007
2008
|
2007
|
|||||||
(Restated
|
||||||||
Note
3)
|
||||||||
Supplemental
cash flow information:
|
||||||||
Cash
paid for interest and income taxes:
|
||||||||
Interest
|
$ | 20,850 | $ | 10,233 | ||||
Income
taxes
|
- | - | ||||||
Non-cash
investing and financing activities:
|
||||||||
Rescind
acquisition of investment for note payable
|
$ | 70,000 | $ | - | ||||
Investment
contributed by shareholder
|
- | 600,000 | ||||||
Exchange
of note payable for investment
|
- | 70,000 | ||||||
Reclassification
of deposit as investment
|
- | 20,000 |
See
accompanying notes to consolidated financial statements.
23
Chanticleer
Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
1.
|
NATURE
OF BUSINESS
|
ORGANIZATION
Chanticleer
Holdings, Inc. (the “Company”) was organized October 21, 1999, under its
original name, Tulvine Systems, Inc., under the laws of the State of
Delaware. The Company previously had limited operations and in
accordance with Statement of Financial Accounting Standards (“SFAS”) 7,
“Accounting and Reporting by Development Stage Enterprises” was considered a
development stage company until July 2005. On April 25, 2005, the
Company formed a wholly owned subsidiary, Chanticleer Holdings,
Inc. On May 2, 2005, Tulvine Systems, Inc. merged with and changed
its name to Chanticleer Holdings, Inc.
The
consolidated financial statements include the accounts of Chanticleer Holdings,
Inc. and its wholly owned subsidiary, Chanticleer Advisors, LLC, (“Advisors”)
collectively referred to as “the Company,” “we,” “us,” or “the Companies”. All
significant inter-company balances and transactions have been eliminated in
consolidation.
On April
18, 2006, the Company formed Chanticleer Investors LLC (“Investors LLC”) and
sold units for $5,000,000, of which the Company owns $1,150,000 (23%) as of
December 31, 2008. Investors LLC’s principal asset is a 6%,
convertible note in the amount of $5,000,000 with Hooters of America, Inc.
(“Hooters”), collateralized by and convertible into 2% of Hooters common
stock.
Investors
LLC receives 6% interest on its $5 million loan to HOA. Investors LLC
in turn pays the Company 2% of this interest or $100,000 in management fees and
distributes the remaining 4% to each of the members in proportion to the members
investment quarterly.
On July
31, 2006, the Company formed Chanticleer Investors II, LLC (“Investors
II”). Investors II began raising funds in January 2007 for the
purpose of investing in publicly traded value securities. In January
2007, the Company formed Advisors, as a wholly owned subsidiary to manage
Investors II as well as the Company’s other investments.
24
INVESTMENT
COMPANY
On May
23, 2005, the Company filed a notification on Form N54a with the U.S. Securities
and Exchange Commission (the “SEC”) indicating its election to be regulated as a
business development company under the Investment Company Act of 1940 (the “1940
Act”). In connection with this election, the Company adopted
corporate resolutions and operated as a closed-end management investment company
as a business development company (a “BDC”). Under this election, the
Company was organized to provide investors with an opportunity to participate,
with a modest amount in venture capital, in investments that are generally not
available to the public and that typically require substantially larger
financial commitments. In addition, the Company provided professional
management and administration that might otherwise be unavailable to investors
if they were to engage directly in venture capital investing. The
Company decided to be regulated as a business development company under the 1940
Act, and operated as a non-diversified company as that term is defined in
Section 5(b)(2) of the 1940 Act. The Company could not change the
nature of its business so as to cease to be, or withdraw its election as, a BDC
without the approval of the holders of a majority of its outstanding voting
stock as defined under the 1940 Act.
On July
21, 2008, the Company filed Form N-54C with the SEC to notify the SEC of the
withdrawal of its previous election to be regulated as a BDC under applicable
provisions of the 1940 Act. After careful consideration of the 1940
Act requirements applicable to BDCs, evaluation of the Company’s ability to
operate as a going concern in an investment company regulatory environment, the
costs associated with complying with the 1940 Act and a thorough assessment of
potential alternative business models, the Company’s Board of Directors
determined that continuation as a BDC was not in the best interests of the
Company or its stockholders. With the approval of more than a
majority of the voting power of its common stock, the Company proceeded to file
Form N-54C and thereby revoked its BDC status.
GOING
CONCERN
At
December 31, 2008 and 2007, the Company had current assets of $23,556 and
$95,893; current liabilities of $686,125 and $349,268; and negative working
capital of $662,569 and $253,375, respectively. The Company incurred
a loss of $2,238,613 during the year ended December 31, 2008. The
Company receives quarterly cash inflow of $25,000 from management fees and
$11,500 from investment distributions, but expects quarterly cash outflow of
approximately $130,000 per quarter for 2009, assuming the acquisitions discussed
in Note 12 are not completed.
The
Company expects to meet its short-term requirements through the liquidation of
one investment to raise approximately $42,000 in cash; return of the advance
made for the development rights of Hooters restaurants in Nevada in the
remaining amount of $70,000; and non-interest bearing advances from its CEO in
the amount of $50,000.
The
Company expects to have sufficient funding available from these sources until
the possible second quarter of 2009 close of the acquisitions of HI and Texas
Wings. Subsequent to the close, the overhead requirements would be
covered by distributions from the operations of HI and Texas
Wings.
25
In the
event the acquisitions do not close, the Company expects to have sufficient
funds available to meet its requirements until May 2009, when the Company is
scheduled to receive a distribution from an investment in the amount of
approximately $1,275,000. At that time, the Company plans to repay
the line of credit, any other short-term borrowings and have sufficient cash to
cover all overhead requirements for at least another year while increasing the
funds which Advisors manages.
If the
above events do not occur or if the Company does not raise sufficient capital,
substantial doubt about the Company’s ability to continue as a going concern
exists. These consolidated financial statements do not reflect any
adjustments that might result from the outcome of these
uncertainties.
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
USE
OF ESTIMATES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Significant estimates include the
valuation of the investments in portfolio companies and deferred tax asset
valuation allowances. Actual results could differ from those
estimates.
CASH
AND CASH EQUIVALENTS
For
purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
REVENUE
RECOGNITION
The
Company's current source of revenue is from management fees from both affiliated
companies and non-affiliated companies. Our revenue recognition
follows the guidelines of SAB Topic 13.A.1, which provides that revenue is
generally realized or realizable and earned when all of the following criteria
have been met:
|
·
|
Persuasive
evidence of an arrangement exists;
|
|
·
|
Delivery
has occurred or services have been
rendered;
|
|
·
|
The
seller's price to the buyer is fixed or determinable;
and
|
|
·
|
Collectability
is reasonably assured.
|
We may
collect revenue in both cash and in the equity securities of the company to whom
we are providing services. Typically when we are paid cash for
services, it is based on a monthly fee and is recorded when
earned. When we receive equity securities for our management
services, we generally receive the securities in advance for our services to be
earned over the life of the contract, generally one year. We value
these securities and defer recognition of the revenue over the life of the
management contract.
26
Pursuant
to EITF 00-8, the fair value of the equity instruments received was determined
based upon the stock prices as of the date we reached an agreement with the
third party. The terms of the securities are not subject to
adjustment after the measurement date.
MARKETABLE
EQUITY SECURITIES
The
Company’s investments are comprised of marketable equity securities which are
classified as available-for-sale and 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 shareholders’ equity. Gains and losses are
reported in the consolidated statements of operations when realized, determined
based on the disposition of specifically identified investments.
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. The Company and its
investment advisors used analyst reports, credit ratings or other items as part
of its review.
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. These
investments are evaluated for impairment in accordance with the requirements of
Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for
Investments in Common Stock.” An impairment loss would be recorded
whenever a decline in the value of an equity investment or investment carried at
cost below its carrying amount is determined to be other than
temporary. In judging “other than temporary,” the Company considers
the length of time and extent to which the fair value of the investment has been
less than the carrying amount of the investment, the near-term and long-term
operating and financial prospects of the investee, and the Company’s long-term
intent of retaining the investment in the investee.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
SFAS 107,
“Disclosures About Fair Value of Financial Instruments,” requires disclosure of
fair value information about financial instruments when it is practicable to
estimate that value. The carrying amounts of the Company’s cash,
accounts receivable, accounts 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.
27
FIXED
ASSETS
Fixed
assets are stated at cost, less accumulated
depreciation. Depreciation is recorded using the straight-line method
over the estimated useful lives of the respective assets (generally five and
seven years). The carrying amount of all long-lived assets is
evaluated periodically to determine if adjustment to the depreciation and
amortization period or the unamortized balance is warranted. Based
upon its most recent analysis, the Company believes that no impairment of
property and equipment exists at December 31, 2008 and
2007. 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.
INCOME
TAXES
The
Company accounts for income taxes under SFAS 109, “Accounting for Income
Taxes.” Under SFAS 109, 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. Due to its limited operations, the
Company has provided a valuation allowance for the full amount of the deferred
tax assets.
STOCK-BASED
COMPENSATION
In
December 2004, the FASB issued SFAS 123R, “Share-Based Payment,” which requires
that the compensation cost relating to share-based payment transactions
(including the cost of all employee stock options) be recognized in the
financial statements. That cost is measured based on the estimated
fair value of the equity or liability instruments issued. SFAS 123R covers 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. SFAS 123R replaces SFAS 123,
“Accounting for Stock-Based Compensation,” and supersedes APB Opinion 25,
“Accounting for Stock Issued to Employees.” The Company adopted SFAS
123R in the 1st quarter of 2006. Thus, the Company’s financial
statements would reflect an expense for (a) 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, and (b) the portion
of previous share-based awards for which the requisite service has not been
rendered as of that date, based on the grant-date estimated fair
value.
28
As of
December 31, 2008 and 2007, there were no options outstanding.
EARNINGS
(LOSS) PER COMMON SHARE
Earnings
(loss) per common share are calculated under the provisions of SFAS 128, “Earnings per Share”
requires the Company to report both basic earnings per share, which is based on
the weighted-average number of common shares outstanding, and diluted earnings
per share, which is based on the weighted-average number of common shares
outstanding plus all potentially dilutive shares outstanding. At
December 31, 2008 and 2007, there are no exercisable common stock
equivalents. Accordingly, no common stock equivalents are included in
the earnings (loss) per share calculations and basic and diluted earnings per
share are the same for all periods presented.
COMPREHENSIVE
INCOME
SFAS 130,
“Reporting Comprehensive Income,” establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. It requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in financial statements, and (b) display the accumulated balance of
other comprehensive income separately in the equity section of the balance sheet
for all periods presented.
CONCENTRATION
OF CREDIT RISK
Cash is
maintained at financial institutions, which at times, may exceed the FDIC
insurance limit.
RECENT
ACCOUNTING PRONOUNCEMENTS
There are
several new accounting pronouncements issued by the Financial Accounting
Standards Board (“FASB”) which are not yet effective. Each of these
pronouncements, as applicable, has been or will be adopted by the
Company. Management does not believe any of these accounting
pronouncements has had or will have a material impact on the Company’s financial
position or operating results.
In May
2008, the FASB issued SFAS 163, “Accounting for Financial Guarantee Insurance
Contracts-an interpretation of SFAS 60”. SFAS 163 clarifies how SFAS
60 applies to financial guarantee insurance contracts, including the recognition
and measurement of premium revenue and claims liabilities. This statement also
requires expanded disclosures about financial guarantee insurance contracts.
SFAS 163 is effective for fiscal years beginning on or after December 15, 2008,
and interim periods within those years. SFAS 163 has no effect on the Company’s
financial position, statements of operations, or cash flows at this
time.
29
In May
2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting
Principles”. SFAS 162 sets forth the level of authority to a given
accounting pronouncement or document by category. Where there might be
conflicting guidance between two categories, the more authoritative category
will prevail. SFAS 162 will become effective 60 days after the SEC approves the
PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards. SFAS
162 has no effect on the Company’s financial position, statements of operations,
or cash flows at this time.
In March
2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities—an amendment of SFAS 133.” This standard requires
companies to provide enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This Statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The Company has not yet
adopted the provisions of SFAS 161, but does not expect it to have a material
impact on its financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB 51.” This
statement amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Before this statement was issued,
limited guidance existed for reporting noncontrolling interests. As a result,
considerable diversity in practice existed. So-called minority interests were
reported in the consolidated statement of financial position as liabilities or
in the mezzanine section between liabilities and equity. This statement improves
comparability by eliminating that diversity. This statement is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. Earlier adoption is prohibited. The effective date of
this statement is the same as that of the related SFAS 141 (revised 2007). The
Company will adopt this Statement beginning January 1, 2009. It is not believed
that this will have an impact on the Company’s financial position, results of
operations or cash flows.
30
In
December 2007, the FASB, issued SFAS 141 (revised 2007), “Business
Combinations.” This statement replaces SFAS 141, “Business
Combinations,” but retains the fundamental requirements in
SFAS 141. This Statement establishes principles and requirements
for how the acquirer: (a) recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (b) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and (c) determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. The effective date of this statement is the same as
that of the related SFAS 160. The Company will adopt this statement
beginning January 1, 2009. The Company will record an expense for previously
deferred acquisition costs of $259,050 pursuant to paragraph 59 of SFAS 141(R)
on January 1, 2009.
3.
|
RESTATEMENT
|
As more
fully explained below, effective as of August 11, 2009, the Board of Directors
of the Company concluded that the financial statements for the fiscal year ended
December 31, 2008, as presented in our Annual Report on Form 10-K filed with the
SEC on March 6, 2009 should no longer be relied upon due to an error in
reporting the Company's available-for-sale securities in such financial
statements.
We
determined that our available-for-sale investments were impaired at December 31,
2008 and that these impairments were other than temporary. In
accordance with the provisions of paragraph 16 of SFAS No. 115, paragraph 7
through 15 of FSP FAS 115-1/124-1, and SAB Topic 5.M, the other than temporary
loss should be recorded as a realized loss in the statement of operations rather
than being included in accumulated other comprehensive loss as an element of
stockholders' equity. The following table shows the items which
changed as a result of the restatement and includes the balances as previously
reported, the related adjustments and the restated balance.
December
31, 2008
|
||||||||||||
As Previously
|
||||||||||||
Reported
|
Adjustments
|
As Restated
|
||||||||||
Consolidated
balance sheet:
|
||||||||||||
Accumulated
other comprehensive loss
|
$ | (1,150,025 | ) | $ | 1,150,025 | $ | - | |||||
Accumulated
deficit
|
(1,954,132 | ) | (1,150,025 | ) | (3,104,157 | ) | ||||||
Total
stockholders equity
|
1,539,136 | - | 1,539,136 | |||||||||
Consolidated
statements of operations:
|
||||||||||||
Net
loss
|
(1,088,588 | ) | (1,150,025 | ) | (2,238,613 | ) | ||||||
Other
comprehensive loss
|
(908,020 | ) | 908,020 | - | ||||||||
Net
comprehensive loss
|
(1,996,608 | ) | (242,005 | ) | (2,238,613 | ) | ||||||
Net
loss per share, basic and diluted
|
$ | (1.19 | ) | $ | (1.27 | ) | $ | (2.46 | ) |
31
4.
|
CHANGE
IN REPORTING ENTITY
|
From May
23, 2005 until July 21, 2008, the Company operated as a BDC under the 1940
Act. As such, the Company was subject to different reporting
requirements and methods of accounting for its investments. With the
reversion to an operating company, the Company is no longer subject to the
requirements of a BDC and the Company was required pursuant to SFAS 154,
“Accounting Changes and Error Corrections” to retroactively modify its financial
statements as if it were not subject to the requirements of a BDC during all
periods presented.
The
following reports the effect of the change on net earnings (loss), other
comprehensive income and net earnings per-share for the year ended December 31,
2007:
2007
|
||||
Net
increase in net assets from operations
|
$ | 11,887 | ||
Fair
value increases recorded for other
|
||||
investments
|
(594,556 | ) | ||
Fair
value increases recorded for available-
|
||||
for-sale
securities now included in other
|
||||
comprehensive
earnings (loss)
|
315,602 | |||
Equity
in earnings (loss) of investments
|
(10,086 | ) | ||
Net
loss of wholly-owned subsidiary not
|
||||
previously
consolidated
|
(1,366 | ) | ||
Net
loss
|
(278,519 | ) | ||
Other
comprehensive income (loss):
|
||||
As
originally reported
|
- | |||
Unrealized
gains (losses) on available-for-
|
||||
sale
securities
|
(315,602 | ) | ||
Net
comprehensive income (loss)
|
$ | (594,121 | ) | |
Net
earnings (loss) per share, basic and diluted:
|
||||
As
originally reported
|
$ | 0.01 | ||
Restated
|
$ | (0.35 | ) |
32
5.
|
INVESTMENTS
|
Investments
are summarized as follows at December 31, 2008 and 2007:
2008
|
2007
|
|||||||
Marketable
equity securities:
|
||||||||
Cost
|
$ | - | $ | 70,000 | ||||
Unrealized
loss
|
- | (5,000 | ) | |||||
Total
|
- | 65,000 | ||||||
Available
for sale securities:
|
||||||||
Cost
|
1,258,570 | 1,258,570 | ||||||
Realized
loss
|
(1,150,025 | ) | - | |||||
Unrealized
loss
|
- | (242,004 | ) | |||||
Total
|
108,545 | 1,016,566 | ||||||
Other
investments:
|
||||||||
Investments
using the equity method:
|
||||||||
Balance,
beginning of year
|
1,410,482 | 1,420,566 | ||||||
Equity
in earnings (loss)
|
(123,111 | ) | 35,916 | |||||
Distributions
received
|
(46,000 | ) | (46,000 | ) | ||||
Balance,
end of year
|
1,241,371 | 1,410,482 | ||||||
Investments
at cost
|
442,598 | 499,860 | ||||||
Investment
deposits
|
90,000 | 20,000 | ||||||
$ | 1,773,969 | $ | 1,930,342 |
Equity
investments consist of the following at December 31, 2008 and
2007:
33
2008
|
2007
|
|||||||
Carrying
value:
|
||||||||
Chanticleer
Investors, LLC (23%)
|
$ | 1,150,000 | $ | 1,150,000 | ||||
First
Choice Mortgage (33 1/3%) (a)
|
41,371 | 210,482 | ||||||
Confluence
Partners, LLC (50%)
|
50,000 | 50,000 | ||||||
$ | 1,241,371 | $ | 1,410,482 | |||||
Equity
in earnings (loss):
|
||||||||
Chanticleer
Investors, LLC
|
$ | 46,000 | $ | 46,000 | ||||
First
Choice Mortgage
|
(169,111 | ) | (10,084 | ) | ||||
$ | (123,111 | ) | $ | 35,916 | ||||
Distributions:
|
||||||||
Chanticleer
Investors, LLC
|
$ | 46,000 | $ | 46,000 | ||||
Undistributed
losses included in accumulated deficit
|
$ | (208,629 | ) | $ | (39,518 | ) |
(a)
liquidated in January 2009.
We have
investments in the common stock of two companies which comprise the total of our
available-for-sale securities, as follows:
Realized
|
Unrecognized
|
|||||||||||||||
Holding
|
Holding
|
Fair
|
||||||||||||||
Cost
|
Loss
|
Losses
|
Value
|
|||||||||||||
December 31, 2008
|
||||||||||||||||
Special
Projects Group
|
$ | 144,350 | $ | (112,943 | ) | $ | - | $ | 31,407 | |||||||
Syzygy
Entertainment, Ltd.
|
1,114,220 | (1,037,082 | ) | - | 77,138 | |||||||||||
$ | 1,258,570 | $ | (1,150,025 | ) | $ | - | $ | 108,545 | ||||||||
December 31, 2007
|
||||||||||||||||
Special
Projects Group
|
$ | 144,350 | $ | - | $ | (92,004 | ) | $ | 52,346 | |||||||
Syzygy
Entertainment, Ltd.
|
1,114,220 | - | (150,000 | ) | 964,220 | |||||||||||
$ | 1,258,570 | $ | - | $ | (242,004 | ) | $ | 1,016,566 |
The
summarized financial data for Chanticleer Investors LLC, of which we own 23%,
follows:
2008
|
2007
|
|||||||
Revenue
(interest income)
|
$ | 300,000 | $ | 300,000 | ||||
Gross
profit
|
300,000 | 300,000 | ||||||
Income
from continuing operations
|
199,506 | 199,232 | ||||||
Net
income
|
199,506 | 199,232 |
34
6.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consists of the following at December 31, 2008 and
2007:
2008
|
2007
|
|||||||
Office
and computer equipment
|
$ | 25,488 | $ | 23,666 | ||||
Furniture
and fixtures
|
39,607 | 39,607 | ||||||
65,095 | 63,273 | |||||||
Accumulated
depreciation
|
(28,934 | ) | (17,736 | ) | ||||
$ | 36,161 | $ | 45,537 |
7.
|
NOTES
PAYABLE
|
At
December 31, 2008 and 2007, the Company had notes payable as
follows:
The
Company has a line-of-credit with a bank in the amount of $500,000 which
matures on June 3, 2009. The loan is guaranteed by the Chief Executive
Officer of the Company and is collateralized by all inventory, chattel
paper, accounts, equipment and general intangibles of the Company. The
loan bears interest at 4% per annum at December 31, 2008.
|
$ | 500,000 | $ | 95,272 | ||||
The
Company had a one -year note with a company which was due September 15,
2008. The loan bears interest at 4% and was used to acquire an investment.
The transaction was rescinded on June 30, 2008.
|
- | 70,000 | ||||||
$ | 500,000 | $ | 165,272 |
35
8.
|
INCOME
TAXES
|
During
the years ended December 31, 2008 and 2007, the provision for income taxes (all
deferred) differs from the amounts computed by applying the U.S. Federal income
tax rate of 34% to income before provision for income taxes as a result of the
following:
2008
|
2007
|
|||||||
Computed
"expected" income tax expense (benefit)
|
$ | (761,100 | ) | $ | (94,700 | ) | ||
State
income taxes, net of federal benefit
|
(89,500 | ) | (11,100 | ) | ||||
Travel,
entertainment and other
|
7,400 | (800 | ) | |||||
Valuation
allowance
|
843,200 | 106,600 | ||||||
Income
tax expense (benefit)
|
$ | - | $ | - |
Significant
components of net deferred income tax assets are as follows:
2008
|
2007
|
|||||||
Investments
|
$ | (361,700 | ) | $ | 93,100 | |||
Net
operating loss carryforwards
|
(786,000 | ) | (397,600 | ) | ||||
Capital
loss carryforwards
|
(18,600 | ) | (18,600 | ) | ||||
Total
deferred tax assets
|
(1,166,300 | ) | (323,100 | ) | ||||
Valuation
allowance
|
1,166,300 | 323,100 | ||||||
Net
deferred tax assets
|
$ | - | $ | - |
The
Company has a net operating loss carryforward of approximately $2,067,000, which
will expire at various dates beginning in 2024 through 2028, if not
utilized. The Company has a capital loss carryforward of $49,000
which expires in 2010 if not utilized. The tax basis of investments
exceeds their book cost by approximately $952,000.
9.
|
STOCKHOLDERS’
EQUITY
|
The
Company has 200,000,000 shares of its $0.0001 par value common stock authorized
and 946,376 and 833,232 shares issued and outstanding at December 31, 2008 and
2007, respectively. There are no warrants or options
outstanding.
36
2008
Transactions
During
the year ended December 31, 2008, the Company sold 111,994 shares of its common
stock pursuant to its Offering Circular under Regulation E promulgated under the
Securities Act of 1933 for proceeds in the amount of $784,700 and issued 1,150
shares for services valued at $7,993.
2007
Transactions
During
the year ended December 31, 2007, the Company sold 64,286 shares of its common
stock pursuant to its Offering Circular under Regulation E promulgated under the
Securities Act of 1933 for proceeds in the amount of $450,000.
10. RELATED
PARTY TRANSACTIONS
Michael
D. Pruitt, the Company’s Chief Executive Officer, is also a Director of Syzygy
Entertainment, Ltd. (SYZG).
The
Company received a non-interest bearing advance in the amount of $7,300 from a
company partly owned by Mr. Pruitt in December 2008.
During
2007, Mr. Pruitt contributed 300,000 shares of Syzygy Entertainment, Ltd. to the
Company, which was valued by the investment committee at $600,000 on the dates
contributed. Mr. Pruitt will not receive additional compensation as a
result of the transfers.
On July
31, 2006, the Company formed Investors II. Investors II began raising
funds in January 2007 for the purpose of investing in publicly traded value
securities.
In
January 2007, the Company formed Advisors as a wholly-owned subsidiary to manage
Investors II, as well as other designated projects.
During
the three months ended March 31, 2007, the Company sold its investment in two
securities to Investors II for $21,775, which approximated market value on the
transaction dates. The Company realized a profit of $127 on the
transactions.
On
December 13, 2006, the Company completed the acquisition of a $50,000 investment
in Investors LLC from Michael D. Pruitt, CEO, at its original cost and at the
estimated market value at the time. This increased the Company’s
interest in Investors LLC from $1,100,000 (22%) to $1,150,000
(23%). The Company recorded management fee income of $100,000 in 2008
and 2007 and $64,167 in 2006 from Investors LLC.
37
11. COMMITMENTS
AND CONTINGENCIES
On
February 22, 2007, the Company entered into a lease agreement jointly with Five
Oaks Capital Partners, LLC to lease a total of 5,041 square feet, commencing
March 26, 2007 through December 31, 2008. The Company’s allocated
share of the space is 2,000 square feet and its monthly base rent is $3,980 in
2008. Five Oaks Capital Partners, LLC is the managing member of EE
Investors, LLC, in which the Company is an investor. The Company’s
lease is continuing on a month-to-month basis.
On
November 21, 2006, the Company entered into an option agreement with HOA to open
and operate Hooters restaurants in the Republic of South
Africa. Negotiations are underway regarding a proposed development
plan.
12. HOOTERS,
INC. AND TEXAS WINGS
PENDING
ACQUISITIONS
Hooters,
Inc.
On March
11, 2008, the Company entered into a Stock Purchase Agreement for the purchase
of Hooters, Inc., Hooters Management Corporation and their related restaurants
(collectively “HI”) from the nine current individual HI shareholders, many of
whom will continue to stay involved in the ongoing operation as shareholders of
Chanticleer. The transaction is valued at approximately $55.1 million
and could close in the second quarter of 2009.
The
closing of the transaction is subject to Chanticleer raising the necessary debt
and equity financing to complete the acquisition. Chanticleer has
retained an investment banking firm to assist in securing the equity capital
necessary to close the proposed transaction. Chanticleer has
completed all other conditions and is in process of raising the necessary debt
and equity financing to complete the transaction. (See current status
below).
HI was
founded in 1983 and was the creator of the Hooters brand and
concept. In 1984, HI licensed Neighborhood Restaurants of America,
n/k/a Hooters of America, Inc. (“HOA”), owned by a separate group of
shareholders, to be its exclusive licensee in the development and expansion of
its restaurant business. In 2001 HI sold the Hooters trademarks and
other related proprietary rights to HOA. HI continues to own certain
rights including a perpetual irrevocable license agreement with greatly reduced
royalties, to operate its restaurants in its retained territories and, most
importantly, to acquire franchisees within the Hooters system. These
rights will be acquired by Chanticleer as a part of the
transaction.
Chanticleer
has an existing relationship with HOA through its position as the lead investor
in a $5 million, 6% convertible three-year promissory note from the Estate of
Robert Brooks, the former Chairman of HOA. This note is secured by
and contains conversion options into 2% of HOA’s outstanding
stock. Chanticleer was also granted a right of first refusal and a
right to match any equity financing proposed to, or sought by,
HOA. Additionally, Chanticleer currently holds an Option Agreement
with HOA to open Hooters franchises in the Republic of South Africa which is
under development.
38
HI
currently owns and operates 22 restaurants, which comprise the highest average
unit gross sales within the Hooters system, and includes locations in and around
Tampa, Florida, Chicago, Illinois and the Manhattan regions, including the
original Hooters restaurant located in Clearwater, Florida. These are
the operations of HI being acquired by Chanticleer.
Through
December 31, 2008, the Company has recorded $279,050 in deferred acquisition
costs related to the planned acquisition of HI.
Texas
Wings
On July
8, 2008, the Company entered into an Asset Purchase Agreement to acquire
substantially all of the assets of Texas Wings Incorporated and its 45 related
Hooters branded restaurants (collectively “Texas Wings”) for total consideration
of approximately $106 million, including approximately $53 million in cash,
approximately $37 million in Chanticleer common stock and convertible notes with
an aggregate principal amount of approximately $16 million (the
“Transaction”).
Chanticleer
will create an operating company and combine Texas Wings with HI and its 22
Hooters restaurants, which the Company agreed to acquire in March
2008.
The
Transaction is subject to a number of customary closing conditions and could
close during the second quarter of 2009, concurrently with the closing of the HI
acquisition. (See current status below).
Current
Status
The
termination date for the Company’s pending acquisition of the stock of HI and
certain of its related entities followed immediately by the subsequent
acquisition of Texas Wings and certain of its related entities has
passed. To date the sellers have not exercised their rights to
terminate the agreements and the Company continues to pursue consummation of
these transactions. There is no assurance that the Company will be
able to close the pending acquisitions.
In
addition, the commitment letters from certain financial institutions to provide
one or more related entities of the Company the $85,000,000 Senior Secured
Credit have expired, primarily due to the inability of the Company to raise the
necessary equity portion of the financing at acceptable terms in today’s
financial environment. The Company continues to communicate with the
financial institutions that agreed to provide the credit facility, as well as
others; however, there can be no assurance that the Company will be successful
in obtaining any financing or that the terms of any credit facility in the
future will be acceptable to the Company.
39
ITEM
9:
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
ITEM
9A(T):
|
CONTROLS
AND PROCEDURES
|
Evaluation
of disclosure controls and procedures (restated)
In our
Annual Report on Form 10-K for the year ended December 31, 2008, originally
filed on March 6, 2009, our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, concluded that our disclosure
controls and procedures (as defined in Rules 13a-15(e) to the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) were effective as of
December 31, 2008, except for a lack of segregation of duties. In
connection with our decision to restate our Annual Report on Form 10-K for the
year ended December 31, 2008, our management, including our Chief Executive
Officer and Chief Financial Officer, performed a reevaluation and concluded that
our disclosure controls and procedures were not effective as of December 31,
2008 as a result of the additional material weaknesses in our internal control
over financial reporting as discussed below.
Under the
PCAOB standards, a significant deficiency is a control deficiency, or
combination of control deficiencies, that , in the Company's judgment, would
adversely affect the ability to initiate, authorize, record, process, or report
external financial data reliably in accordance with generally accepted
accounting principles such that there is more than a remote likelihood that a
misstatement of the annual or interim financial statements that is more than
inconsequential will not be prevented or detected. A material
weakness is a significant deficiency, or combination of significant
deficiencies, that, in our judgment, results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will
not be prevented or detected.
The
material weaknesses identified were:
|
·
|
Due
to the limited number of accounting employees, the Company is unable to
segregate all noncompatible duties, which would prevent one person from
having significant control over the initiation, authorization and
recording of transactions. This condition is characteristic of
all companies except those with large numbers of accounting
personnel. A mitigating control is the personal involvement of
the members of the Board of Directors in the analysis and review of
internal financial data, as well as the consultant retained by the Company
to serve the functions of a controller for assistance and preparation of
financial reporting.
|
|
·
|
An
effective Audit Committee is an integral part to the integrity of the
Company's financial reporting. The responsibilities of the
Audit Committee should be detailed in the Committee's charter and provided
to its members. These responsibilities should, at a minimum,
require inquiry and awareness of current Company transactions, analysis of
interim and annual financial data and review of minutes of the Board of
Directors. The Audit Committee's oversight and periodic
investigation can serve as a mitigating control to the lack of segregation
of duties inherent to companies with a limited number of
personnel. The current practices of the Company's Audit
Committee do not fulfill these
criteria.
|
40
|
·
|
We
did not maintain effective control over the application, monitoring and
reporting of the appropriate accounting policies related to
available-for-sale securities. Specifically, we did not take
into account the other than temporary impairment of available-for-sale
securities and did not record the other than temporary impairment as a
realized loss rather than as a component of other comprehensive loss in
stockholders' equity.
|
Our
management has discussed these material weaknesses with our board of directors
and has commenced the following remediation efforts to ensure that the
significant deficiencies are mitigated. The board of directors has
reviewed the lack of segregation of duties issue and has determined it is not
practical to add personnel merely to allow for segregation of noncompatible
duties. The Company already retains a third party consultant who acts
as controller for the Company, who has no check signing authority and no access
to assets, to oversee its reporting responsibilities. In addition, as
discussed below, the Company plans on expanding the duties of its Audit
Committee, which will also further mitigate any perceived weakness due to a lack
of segregation of duties.
The board
of directors is updating the Audit Committee procedures and responsibilities and
will require active participation from the Audit Committee. This is
expected to be completed before the end of 2009.
Management
of the Company is working with its consultants to implement procedures to reduce
the likely-hood of a reoccurrence of the miss-application of accounting
procedures.
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,
2008. Based on the information set forth above, our management has
determined that, as of the date of this report, we do not have effective
disclosure controls and procedures.
Management's
report on internal control over financial reporting
Management
of the Company is responsible for establishing and maintaining effective
internal control over financial reporting, as defined in Rule 13a-15(f) under
the Exchange Act. The Company's internal control over financial
reporting is designed to provide reasonable assurance to the Company's
management and Board of Directors regarding the preparation and fair
presentation of published financial statements in accordance with the United
States' generally accepted accounting principles (US GAAP), including those
policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
disposition of the assets of the Company, (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with US GAAP and that receipts and expenditures are
being made only in accordance with authorizations of management and directors of
the Company, and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the financial
statements.
41
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Under the
supervision and with the participation of our management, including our chief
executive officer and our chief financial officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the
framework established by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) as set forth in its Internal Control - Integrated
Framework. Based on our evaluation under the framework in Internal
Control - Integrated Framework, and including the material weaknesses discussed
above, our management has concluded that our internal control over financial
reporting was not effective as of December 31, 2008.
This
annual report does not include an audit or attestation report of our registered
public accounting firm regarding our internal control over financial
reporting. Our management's report was not subject to audit or
attestation by our registered public accounting firm pursuant to temporary rules
of the SEC that permit us to provide only management's report in this annual
report.
There
have been no significant changes in internal controls or in other factors that
could significantly affect these controls during the quarter ended December 31,
2008, including any corrective actions with regard to significant deficiencies
and material weaknesses.
ITEM
9B:
|
OTHER
INFORMATION
|
Not
applicable.
42
PART
III
ITEM
10:
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
The
following section sets forth the names, ages and current positions with the
Company held by the Directors, Executive Officers and Significant Employees as
of December 31, 2008; together with the year such positions were
assumed. There is no immediate family relationship between or among
any of the Directors, Executive Officers or Significant Employees, and the
Company is not aware of any arrangement or understanding between any Director or
Executive Officer and any other person pursuant to which he was elected to his
current position. Each Executive Officer will serve until he or she
resigns or is removed or otherwise disqualified to serve, or until his or her
successor is elected and qualified.
Each
Director will serve until he or she resigns or is removed or otherwise
disqualified to serve or until his or her successor is elected. The
Company currently has four Directors.
NAME
|
AGE
|
POSITION
|
||
Michael
D. Pruitt
|
48
|
President,
CEO and Director since June 2005
|
||
Michael
Carroll
|
60
|
Independent
Director since June 2005
|
||
Brian
Corbman
|
33
|
Independent
Director since August 2005
|
||
|
||||
Paul
I. Moskowitz
|
52
|
Independent
Director since April
2007
|
Michael D.
Pruitt
Michael
Pruitt, a long-time entrepreneur with a proven track record, possesses the
expertise to evaluate potential investments, form key relationships and
recognize a strong management team. Mr. Pruitt founded Avenel Financial
Group, a boutique financial services firm concentrating on emerging technology
company investments. The business succeeded immediately, and in order to
grow Avenel Financial Group to its full potential and better represent the
company's ongoing business model, he formed Avenel Ventures, an innovative
technology investment and business development company. In the late 1980s,
Mr. Pruitt owned Southern Cartridge, Inc., which he eventually sold to
MicroMagnetic, Inc., where he continued working as Executive Vice President and
a Board member until Southern Cartridge was sold to Carolina Ribbon in
1992. From 1992 to 1996, Mr. Pruitt worked in a trucking firm where he was
instrumental in increasing revenues from $6 million to $30 million. The
firm was sold in 1996 to Priority Freight Systems. Between 1997 and 2000,
Mr. Pruitt assisted several public and private companies in raising capital,
recruiting management and preparing companies to go public or be
sold. He was the CEO, President and Chairman of the Board of
Onetravel Holdings, Inc. (formerly RCG Companies), a publicly traded holding
company formerly listed on the AMEX. Mr. Pruitt received a
Bachelor of Arts degree from Coastal Carolina University in Conway, South
Carolina, where he sits on the Board of Visitors of the Wall School of
Business. Mr. Pruitt is currently a director of Syzygy
Entertainment, Ltd. and Greenstreet Energy, Inc.
43
Michael
Carroll
Michael
Carroll currently owns and operates a sales and training consulting firm based
in Richmond, Virginia. Mr. Carroll has also served as a director for
OneTravel Holdings, Inc., formerly RCG Companies Incorporated, since January of
2004. He previously spent 22 years in the distribution business, 19
of which were in computer products distribution. In 1978, Mr. Carroll
founded MicroMagnetic, Inc., a computer supply distribution company that he sold
to Corporate Express in 1997. From 1997 to 1999, he was a division
president at Corporate Express, a publicly traded business-to-business office
products and service provider. He holds a Bachelor’s Degree in
Business Management from The College of William & Mary in Williamsburg,
Virginia, and a Master’s Degree in Business Administration from Virginia
Commonwealth University.
Brian
Corbman
Brian
Corbman is the managing director of Ardent Advisors, a consulting company he
co-founded in 2003, that specializes in business strategy and corporate advisory
services for emerging growth companies. Mr. Corbman is in the process
of becoming an Officer of Supervisory Jurisdiction under the Westor Capital
broker dealer umbrella and services buy-side institutional investors via equity
research, institutional trading execution and investment banking
activities. Previously, he was an institutional salesman at Fulcrum
Global Partners and Banc of America Securities. Prior to that, he
gained valuable corporate experience working for GSI Commerce, a publicly traded
company, where he was the sole corporate development analyst. A Magna
Cum Laude graduate of George Washington University in Washington, DC, he holds a
Bachelor’s degree in Business Administration. Mr. Corbman has also
attained the NASD general securities principal Series 24, Series 7 and Series 63
licenses.
Paul I.
Moskowitz
Paul
Moskowitz is a Phi Beta Kappa of Vassar College and Cardozo Law
School. Mr. Moskowitz was a co-founder and partner of a successful
New York law firm specializing in corporate and real estate law. He
became affiliated with The World Travel Specialist Group/The Lawyers’ Travel
Service (“WTSG/LTS”) in 1988 and served as corporate counsel, representing the
growing travel agency network in legal, real estate, and other business
activities. In 1989, he joined WTSG full time as President and Chief
Operating Officer until March 2003, with his primary responsibilities including
day-to-day operations which encompassed WTSG’s airline relationships and sales
and marketing. Mr. Moskowitz led the growth of WTSG to one of the top
20 U.S. travel management firms with more than 90 offices throughout the
U.S. Mr. Moskowitz is currently engaged as a consultant for another
travel organization.
AUDIT
COMMITTEE
The Board
of Directors has determined that Michael Carroll meets the requirements of a
financial expert and serves as Chairman of the Audit Committee. Mr.
Carroll is independent as specified in Item 7 (d)(3)(iv) of Schedule 14A under
the Exchange Act.
44
We have a
separately designated standing audit committee established in accordance with
Section 3 (a)(58)(A) of the Exchange Act, which is currently made up of Mr.
Carroll and Mr. Corbman.
The
primary responsibility of the Audit Committee is to oversee our financial
reporting process on behalf of the Board of Directors and report the result of
their activities to the Board. Such responsibilities shall include, but shall
not be limited to, the selection and, if necessary, the replacement of our
independent auditors and review and discussion with such independent auditors of
(i) the overall scope and plans for the audit, (ii) the adequacy and
effectiveness of the accounting and financial controls, including our system to
monitor and manage business risks, and legal and ethical programs, and (iii) the
results of the annual audit, including the financial statements to be included
in our annual report on Form 10-K.
COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors and persons who own more than ten percent of our common
stock to file initial reports of ownership and changes in ownership with the
SEC. Additionally, SEC regulations require that we identify any
individuals for whom one of the referenced reports was not filed on a timely
basis during the most recent fiscal year or prior fiscal years. To
the best of our knowledge, based solely on a review of reports furnished to us,
each of the Directors timely filed any required Form 4’s during fiscal
2008.
CODE
OF ETHICS
The Board
of Directors of the Company adopted a Code of Ethics which was effective May 23,
2005, which was filed as Exhibit 14 to the Company’s Form 10-K/A dated December
31, 2007.
The Code
of Ethics in general prohibits any officer, director or advisory person
(collectively, "Access Person") of the Company from acquiring any interest in
any security which we (i) are considering a purchase or sale thereof, (ii) are
being purchased or sold by us, or (iii) are being sold short by us. The Access
Person is required to advise us in writing of his or her acquisition or sale of
any such security.
NOMINATING
COMMITTEE
We do not
currently have a standing nominating committee, or a committee performing
similar functions. The full Board of Directors currently serves this
function.
45
ITEM
11:
|
EXECUTIVE
COMPENSATION
|
The
Compensation Committee of the Board of Directors deliberates executive
compensation matters to the extent they are not delegated to the Chief Executive
Officer.
a.
|
Summary
Compensation Table
|
The
following table shows the compensation of the Company’s Chief Executive Officer
and each executive officer whose total cash compensation exceeded $100,000 for
the three years ended December 31, 2008.
ANNUAL
COMPENSATION
Name and Principal Position
|
Year
|
Salary
|
Bonus
|
Total
|
||||||||||
Michael
D. Pruitt (CEO since
|
2008
|
$ | 136,148 | $ | - | $ | 136,148 | |||||||
June
2005) (1)
|
2007
|
$ | 41,917 | - | $ | 41,917 | ||||||||
2006
|
- | - | - |
(1)
|
Mr.
Pruitt did not receive any compensation during 2005 and
2006. The 2008 compensation includes $8,000 in consulting fees
after Mr. Pruitt temporarily discontinued his
salary.
|
Required
columns for stock awards, option awards, non-entity incentive plan compensation,
change in pension value and nonqualified deferred compensation earnings and all
other compensation are omitted from the table above as the amounts are all
zero.
Mr.
Pruitt did not receive compensation during our initial start-up phase as a
BDC. His compensation commenced in February 2007. Our
compensation for Directors is based on comparative compensation levels for
similar positions and time requirements.
EMPLOYMENT
AGREEMENTS
The
Company does not have any current employment agreements with its officers and
directors. The Company intends to pay its Executives and Directors salaries,
wages, or fees commensurate with experience and industry standards in
relationship to the success of the company.
b.
|
Grants
of plan-based awards table
|
There
were no grants of plan-based awards during the year for the named
individuals.
c.
|
Outstanding
equity awards at fiscal year-end
table
|
There
were no outstanding equity awards at fiscal year-end for the named
individuals.
46
d.
|
Option
exercises and stock vested table
|
There
were no option exercises during the year and no stock vested at fiscal year-end
for the named individuals.
e.
|
Pension
benefits
|
There are
no pension plans.
f.
|
Nonqualified
defined contribution and other nonqualified deferred compensation
plans
|
There are
no nonqualified defined contribution or other nonqualified deferred compensation
plans.
g.
|
Potential
payments upon termination or
changes-in-control
|
There are
no potential payments upon termination or changes-in-control for the named
individuals.
h.
|
Compensation
of directors
|
Directors Fee
|
||||
Earned or Paid
|
||||
Name
|
In Cash ($)
|
|||
Michael
Carroll
|
$ | 1,500 | ||
Paul
I. Moskowitz
|
1,500 |
Directors
are generally compensated $1,500 for each meeting during the
year. Although there were no formal meetings during the year, Mr.
Carroll and Mr. Moskowitz were paid $1,500 each. Mr. Pruitt and Mr.
Corbman do not currently receive director fees.
The
columns for stock awards, option awards, non-equity incentive plan compensation,
change in pension value and nonqualified deferred compensation earnings and all
other compensation are omitted as there was no other form of compensation for
the directors.
i.
|
Compensation
committee interlocks and insider
participation
|
The
outside Directors serve on the compensation committee.
47
j.
|
Compensation
committee report
|
Based on
the Compensation Discussion and Analysis required by Item 402(b) between the
compensation committee and management, the compensation committee recommended to
the Board of Directors that the Compensation Discussion and Analysis be included
in the 10-K.
ITEM
12:
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following table indicates all persons who, as of February 10, 2009, the most
recent practicable date, are known by us to own beneficially more than 5% of any
class of our outstanding voting securities. As of February 10, 2009, there were
946,376 shares of our common stock outstanding. Except as otherwise indicated
below, to the best of our knowledge, each person named in the table has sole
voting and investment power with respect to the securities beneficially owned by
them as set forth opposite their name.
Name and Address of
|
Amount and Nature of
|
|||||||||
Title of Class
|
Beneficial Owner
|
Beneficial Owner
|
% of Class
|
|||||||
Common
|
Palisades
Master Fund, LP
|
136,164 | 14.39 | % | ||||||
Harbour
House, 2nd
Floor
|
||||||||||
Waterfront
Drive, P.O. Box 972
|
||||||||||
Road
Town, Tortola D8
|
SECURITY
OWNERSHIP OF MANAGEMENT
The
following table indicates the beneficial ownership of our voting securities of
all Directors of the Company and all Executive Officers who are not Directors of
the Company, and all officers and directors as a group, as of February 10, 2009,
the most recent practicable date. As of February 10, 2009, there were
946,376 shares of our common stock outstanding. Except as otherwise indicated
below, to the best of our knowledge, each person named in the table has sole
voting and investment power with respect to the securities beneficially owned by
them as set forth opposite their name. All options are currently
exercisable, unless otherwise indicated.
48
Name and Address of
|
Amount and Nature of
|
|||||||||
Title of Class
|
Beneficial Owner
|
Beneficial Owner
|
% of Class
|
|||||||
Common
|
Michael
D. Pruitt
|
168,615 | 17.82 | % | ||||||
4500
Cameron Valley Parkway, # 270
|
||||||||||
Charlotte,
NC 28211
|
||||||||||
Common
|
Michael
Carroll
|
2,500 | * | |||||||
4500
Cameron Valley Parkway, # 270
|
||||||||||
Charlotte,
NC 28211
|
||||||||||
Common
|
Paul
I. Moskowitz
|
100 | * | |||||||
4500
Cameron Valley Parkway, # 270
|
||||||||||
Charlotte,
NC 28211
|
||||||||||
Common
|
Brian
Corbman
|
2,550 | * | |||||||
4500
Cameron Valley Parkway, # 270
|
||||||||||
Charlotte,
NC 28211
|
||||||||||
Common
|
All
officers and directors as a
|
173,765 | 18.36 | % | ||||||
Group
(4 persons)
|
*
|
Less
than 1%.
|
EQUITY
COMPENSATION PLAN INFORMATION
We do not
currently have an equity compensation plan.
ITEM
13:
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Michael
D. Pruitt, the Company’s Chief Executive Officer, is also a Director of Syzygy
Entertainment, Ltd. (SYZG).
The
Company received a non-interest bearing advance in the amount of $7,300 from a
company partly owned by Mr. Pruitt in December 2008.
During
2007, Mr. Pruitt contributed 300,000 shares of Syzygy Entertainment, Ltd. to the
Company, which was valued by the investment committee at $600,000 on the dates
contributed. Mr. Pruitt will not receive additional compensation as a
result of the transfers.
On July
31, 2006, the Company formed Investors II. Investors II began raising
funds in January 2007 for the purpose of investing in publicly traded value
securities.
In
January 2007, the Company formed Advisors as a wholly-owned subsidiary to manage
Investors II, as well as other designated projects. The Company has
advanced $15,443 to Advisors for legal expenses and has included this amount as
the investment cost of this entity.
During
the three months ended March 31, 2007, the Company sold its investment in two
securities to Investors II for $21,775, which approximated market value on the
transaction dates. The Company realized a profit of $127 on the
transactions.
49
On
December 13, 2006, we completed acquisition of a $50,000 investment in Investors
LLC from Mr. Pruitt, at its original cost and at the estimated market value at
the time. This increased our interest in Investors LLC from
$1,100,000 (22%) to $1,150,000 (23%). The Company recorded management
fee income of $100,000 in 2008 and 2007 and $64,167 in 2006 from Investors
LLC.
ITEM
14:
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
AUDIT
FEES: For the fiscal years ended December 31, 2008 and 2007, Creason &
Associates, P.L.L.C. (“Creason”) billed the Company $27,750 and $60,300,
respectively, for services rendered through February 15, 2009, for the audit of
the Company’s financial statements included in its report on Form 10-K and the
reviews of the financial statements included in its reports on Form 10-Q filed
with the SEC.
AUDIT
RELATED FEES: None.
TAX FEES:
Not applicable.
OTHER
FEES: None.
50
PART
IV
ITEM
15:
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
|
(a)
|
The
following documents are filed as part of this
report:
|
|
1.
|
Financial
Statements – The following financial statements of Chanticleer Holdings,
Inc. are contained in Item 8 of this Form
10-K/A:
|
|
·
|
Report
of Independent Registered Public Accounting
Firm
|
|
·
|
Consolidated
Balance Sheets at December 31, 2008 and
2007
|
|
·
|
Consolidated
Statements of Operations – For the years ended December 31, 2008 and
2007
|
|
·
|
Consolidated
Statements of Stockholders’ Equity at December 31, 2008 and
2007
|
|
·
|
Consolidated
Statements of Cash Flows – For the years ended December 31, 2008 and
2007
|
|
·
|
Notes
to the Consolidated Financial
Statements
|
|
2.
|
Financial
Statement Schedules were omitted, as they are not required or are not
applicable, or the required information is included in the Financial
Statements.
|
|
3.
|
Exhibits
– The following exhibits are filed with this report or are incorporated
herein by reference to a prior filing, in accordance with Rule 12b-32
under the Securities Exchange Act of
1934.
|
Exhibit
|
Description
|
|
|
||
31.1
|
Certification
of the Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14 of the Securities Exchange Act of 1934
|
|
32.1
|
Certification
of the Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350
|
51
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized on January 21, 2010.
CHANTICLEER
HOLDINGS, INC.
|
||
By:
/s/
|
Michael D. Pruitt
|
|
Michael
D. Pruitt, Chairman,
|
||
Chief
Executive Officer and
|
||
Chief
Financial 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)
|
Signature
|
January
21, 2010
|
Chairman,
Chief Executive Officer
|
/s/ Michael D. Pruitt
|
and
Chief Financial Officer
|
Michael
D. Pruitt
|
|
January
21, 2010
|
Director
|
/s/ Michael Carroll
|
Michael
Carroll
|
||
January
21, 2010
|
Director
|
/s/ Brian Corbman
|
Brian
Corbman
|
||
January
21, 2010
|
Director
|
/s/ Paul I. Moskowitz
|
Paul
I. Moskowitz
|
52