UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2010

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)

11220 Elm Lane, Suite 203, Charlotte, NC  28277
(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. ¨ Yes x No.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x No ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨ No ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerate filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter ($2.00 per share) (1,273,320 of 2,003,416 shares outstanding): $2,546,640 as of June 30, 2010.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  There were 2,571,918 shares of common stock issued and 2,048,688 shares outstanding as of March 23, 2011.

DOCUMENTS INCORPORATED BY REFERENCE:  No documents are incorporated by reference into this Report except those Exhibits so incorporated as set forth in the Exhibit index.
 
 
 

 
 
Chanticleer Holdings, Inc.
Form 10-K Index
 
   
Page
     
Part I
   
     
Item 1:
Business
3
Item 1A:
Risk Factors
6
Item 2:
Properties
6
Item 3:
Legal Proceedings
6
Item 4:
[Removed and Reserved]
6
     
Part II
   
     
Item 5:
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
7
Item 6:
Selected Financial Data
8
Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operation
8
Item 7A:
Quantitative and Qualitative Disclosures about Market Risk
15
Item 8:
Financial Statements and Supplementary Data
16
Item 9:
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
48
Item 9A(T):
Controls and Procedures
48
Item 9B:
Other Information
49
     
Part III
   
     
Item 10:
Directors, Executive Officers and Corporate Governance
50
Item 11:
Executive Compensation
53
Item 12:
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
55
Item 13:
Certain Relationships and Related Transactions, and Director Independence
57
Item 14:
Principal Accountant Fees and Services
60
     
Part IV
   
     
Item 15:
Exhibits and Financial Statement Schedules
61
Signatures
 
62
 
 
2

 
 
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.
 
Effective March 23, 2011, the Company's common stock was forward split, 2 shares for each share issued, pursuant to written consent by a majority of the Company's shareholders.  All share references have been adjusted as if the split occurred prior to all periods presented.
  
ITEM 1:
BUSINESS
 
GENERAL DEVELOPMENT OF BUSINESS
Chanticleer Holdings, Inc. 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.

The consolidated financial statements include the accounts of Chanticleer Holdings, Inc. and its wholly owned subsidiaries, Chanticleer Advisors, LLC, (“Advisors”), Avenel Ventures, LLC ("Ventures"), Avenel Financial Services, LLC ("AFS"), Chanticleer Holdings Limited ("CHL") and DineOut SA Ltd. ("DineOut") (the Company sold approximately 7% of DineOut during 2010) collectively referred to as “the Company,” “we,” “us,” or “the Companies”.
 
Information regarding the Company's subsidiaries is as follows:
 
 
·
Advisors was formed as a Nevada Limited Liability Company on January 18, 2007 to manage related companies, Chanticleer Investors, LLC ("Investors LLC"), Chanticleer Investors II, LLC ("Investors II") and other investments owned by the Company (For additional information, see www.chanticleeradvisors.com.);
 
·
Ventures was formed as a Nevada Limited Liability Company on December 24, 2008 to provide business management and consulting services to its clients;
 
 
·
AFS was formed as a Nevada Limited Liability Company on February 19, 2009 to provide unique financial services to the restaurant, real estate development, investment advisor/asset management and philanthropic organizations.  The start-up of AFS's business operation has been delayed and is expected to initially include captive insurance, CHIRA and trust services;
 
 
3

 
 
 
·
CHL was formed as a Limited Liability Company in Jersey on March 24, 2009 and owns the Company's 50% interest in Hooters SA, GP, the general partner of the Hooters restaurant franchises in South Africa;
 
 
·
DineOut was formed as a Private Limited Liability Company in England and Wales on October 29, 2009 to raise capital in Europe.
 
INVESTMENTS MANAGED
 
Chanticleer Investors LLC
On April 18, 2006, the Company formed Investors LLC and sold units for $5,000,000.  Investors LLC’s principal asset was a convertible note in the amount of $5,000,000 with Hooters of America, Inc. (“HOA”), collateralized by and convertible into 2% of HOA common stock.  The original note included interest at 6% and was due May 24, 2009.  The note was extended until November 24, 2010 and included an increase in the interest rate to 8%.
 
The Company owned $1,150,000 (23%) of Investors LLC until May 29, 2009 when it sold 1/2 of its share for $575,000.  Under the original arrangement, the Company received 2% of the 6% interest as a management fee ($25,000 quarterly) and 4% interest on its investment ($11,500 quarterly).  Under the extended note and revised operating agreement, the Company receives a management fee of $6,625 quarterly and interest income of $11,500 quarterly.  The Company sold an additional $75,000 of its investment in December 2010, leaving it with a balance of $500,000 at December 31, 2010.

On January 24, 2011, Investors LLC and its three partners combined to form HOA Holdings, LLC ("HOA LLC") and completed the acquisition of Hooters of America, Inc. ("HOA") and Texas Wings, Inc. ("TW").  Together HOA LLC has created an operating company with 161 company-owned locations across sixteen states, or nearly half of all domestic Hooters restaurants and over one-third of the locations worldwide.

Investors, LLC had a note receivable in the amount of $5,000,000 from HOA that was repaid at closing.  Investors LLC then invested $3,550,000 in HOA LLC (approximately 3.1%) ($500,000 of which is the Company's share).  One of the investors in Investors LLC that owned a $1,750,000 share is a direct investor in HOA LLC and will now carry its ownership in HOA LLC directly.  The Company now owns approximately 14% of Investors LLC.

The Company received a payment of $400,000 at closing for its services in facilitating the acquisition.  In addition, for a minimum of four years, the Company will receive annual payments of $100,000 due in January each year while Mr. Pruitt serves on its board.

Chanticleer Investors II, LLC
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 and has now completed its fourth year of operations with $1,603,869 under management at December 31, 2010.
 
 
4

 
 
Chanticleer Dividend Fund, Inc. ("CDF")
On November 10, 2010 the Company formed Chanticleer Dividend Fund, Inc. ("CDF") under the general corporation laws of the State of Maryland.  CDF filed a registration statement under Form N-2 to register as a non-diversified, closed-end investment company in January 2011.  The Company, through Advisors, will have a role in management of CDF when its registration statement becomes effective.

NARRATIVE DESCRIPTION OF BUSINESS - SEGMENTS

The Company is organized into two active business segments as of the end of 2010, one of which was added during 2009 and had its initial operations in 2010.  The insurance and specialized services segment is inactive at December 31, 2010.  The operation of the restaurants in South Africa commenced in 2010.  See Note 12 of the consolidated financial statements.

Management and consulting services
The Company provides management and consulting services for small companies which are generally seeking to become publicly traded.  The Company also provides management and investment services for Investors LLC and Investors II.  The Company will also provide management services to CDF.

Insurance and specialized financial services
We have formed AFS to provide unique financial services to the restaurant, real estate development, investment advisor/asset management and philanthropic organizations.  The start-up of AFS's business operation has been delayed and is expected to initially include captive insurance, CHIRA and trust services.

Operation of restaurants (South Africa)
The Company formed CHL to own the Company's 50% general partner interest in Hooters S.A., GP, the general partner of the Hooters' restaurant franchises in South Africa.  Each restaurant is being organized as a limited partnership.  In the first location in Durban, South Africa, the Hoot SA, LP is structured as follows.  CHL owns 50% of the general partner ("GP") interest.  The limited partner ("LP") interest is allocated 40% of the total restaurant cash flow (80% of the 50% owned by CHL) until they have received a return of their capital and a pre-tax compounded return on that capital of 20%.  After the LP interest has received its return, the LP interest share will reduce to 20% and the GP interest will increase to 80%.  CHL initially has a 10% GP interest which will convert to 40% GP interest after the LP payout.  The Company sold its LP interest in the Durban location effective February 28, 2010 for its cost of $37,500.  Hoot SA II, LP was formed to finance the Johannesburg restaurant, which opened in June 2010, and Hoot SA III, LP was formed to finance the Cape Town restaurant, which is planned to open in the spring of 2011.  Both limited partnerships were organized the same way with 20% going to the GP and 80% to the LP until LP payout and 80% to the GP and 20% to the LP after payout.

ACQUISITION OF HOOTERS RESTAURANTS

On January 24, 2011, Investors LLC and its three partners combined to form HOA Holdings, LLC ("HOA LLC") and completed the acquisition of Hooters of America, Inc. ("HOA") and Texas Wings, Inc. ("TW").  Together HOA LLC has created an operating company with 161 company-owned locations across sixteen states, or nearly half of all domestic Hooters restaurants and over one-third of the locations worldwide.
 
 
5

 
 
Investors, LLC had a note receivable in the amount of $5,000,000 from HOA that was repaid at closing.  Investors LLC then invested $3,550,000 in HOA LLC (approximately 3.1%)  ($500,000 of which is the Company's share).  One of the investors in Investors LLC that owned a $1,750,000 share is a direct investor in HOA LLC and will now carry its ownership in HOA LLC directly.  The Company now owns approximately 14% of Investors LLC.

The Company received a payment of $400,000 at closing for its services in facilitating the acquisition.  In addition, for a minimum of four years, the Company will receive annual payments of $100,000 due in January each year while Mr. Pruitt serves on its  board.

EMPLOYEES
 
At December 31, 2010 and 2009, we had 5 and 6 full-time employees, respectively.
 
Our employees are not represented by a labor union.  We have experienced no work stoppage and believe that our employee relationships are good.

ITEM 1A:
RISK FACTORS
 
Not applicable.

ITEM 2:
PROPERTIES

Effective August 1, 2010, the Company renewed its office lease agreement for a period of one year at a monthly rental of $2,100, for its office located at 11220 Elm Lane, Suite 103, Charlotte, NC  28277.

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:
[REMOVED AND RESERVED]

N/A.
 
6

 
  
Part II

ITEM 5:
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is currently listed on the electronic quotation and reporting service maintained by the National Association of Securities Dealers (“NASD”) and known as the “OTC Bulletin Board” or “OTCBB” system and currently trades under the symbol "CCLR".

The market closing, high and low prices during each quarter for the two years ended December 31, 2010, are as follows:

QUARTER ENDED
 
CLOSING
   
HIGH
   
LOW
 
                   
March 31, 2010
  $ 2.13     $ 2.13     $ 1.50  
June 30, 2010
    2.00       2.13       1.75  
September 30, 2010
    2.00       2.13       1.75  
December 31, 2010
    2.13       2.13       1.50  
                         
March 31, 2009
  $ 2.25     $ 2.88     $ 0.51  
June 30, 2009
    2.70       2.78       1.50  
September 30, 2009
    1.99       2.70       1.13  
December 31, 2009
    2.00       2.75       1.03  
 
Number of Shareholders and Total Outstanding Shares

As of March 23, 2011, there were 2,571,918 shares of common stock issued and 2,048,688 shares of common stock outstanding, held by approximately 49 shareholders of record.

Effective March 23, 2011, the Company's common stock was forward split, 2 shares for each share issued, pursuant to written consent by a majority of the Company's shareholders.  All share references have been adjusted as if the split occurred prior to all periods presented.
 
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.
 
 
7

 
 
Recent Sales of Unregistered Securities

Sales of our common stock during the first three quarters of the fiscal year were reported in Item 2 of Part II of the Form 10-Q filed for each quarter.  The Company issued 8,572 shares valued at $15,000 for a consulting agreement and issued 10,000 shares valued at $17,500 for accounts payable during the fourth quarter of 2010.  Effective December 31, 2010, the Company issued 20,000 shares of its common stock to its outside directors for directors fees valued at $42,500.

Repurchase of Equity Securities by the Issuer and Affiliated Purchasers

On September 29, 2010, the Company acquired 300 shares of its common stock for $680 which was added to treasury stock.  The Company does not have a publicly announced plan or program to acquire shares and there is no maximum number of shares or amount that may yet be purchased under any plan or program.
 
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

The Company currently operates in two principal segments, management services and ownership of restaurant franchises in South Africa.  Management services have included management of Investors LLC and Investors II; and will include management services provided to CDF after its registration statement becomes effective.  In addition, the Company also provides management services to certain other companies with services generally paid for with common stock.
  
 
8

 
 
At December 31, 2010, the Company owned an interest in two restaurants which began operations in 2010 and owned an interest in another restaurant which is under construction and is scheduled to open in the spring of 2011.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2010 and 2009, the Company had current assets of $158,718 and $60,180; current liabilities of $645,634 and $735,651; and a working capital deficit of $486,916 and $675,471, respectively.  The Company incurred a loss of $1,011,565 during the year ended December 31, 2010 and had an unrealized gain from available-for-sale securities of $152,027 resulting in a comprehensive loss of $859,538.

The Company's general and administrative expenses averaged approximately $235,000 per quarter during 2010.  The Company expects costs to remain relatively constant in 2011 with probable increases to manage CDF offset by expected management fee income.  The Company's share of income from the ownership of the Hooters restaurants in South Africa is also continuing to increase.  In addition, the Company has a note for $250,000 owed to its bank which is due in July 2011.  The Company plans to continue to use limited partnerships to fund its share of costs for additional Hooters restaurants.

The Company expects to meet its obligations in 2011 with some or all of the following:

 
·
The Company holds 3,724,961 shares in DineOut at December 31, 2010, which are free-trading on the Frankfort Exchange and were trading at approximately €1.30 (approximately $1.74) per share at December 31, 2010.  The Company plans to continue to sell some of these shares to meet its short-term capital requirements;
 
·
The Company received $400,000 in January 2011 when the acquisition of the Hooters restaurants was completed (See Note 15 to the consolidated financial statements);
 
·
Extend a portion of its existing line of credit;
 
·
Convert its convertible notes payable into common stock (See Note 15 to the consolidated financial statements);
 
·
The Company expects to raise all of its cash requirements for the South Africa restaurants from limited partners; and
 
·
The Company is funding the initial formation of CDF including the registration of its common stock.  The Company expects to get most of its capital outlay back after the registration statement becomes effective (See Note 11 to the consolidated financial statements).
 
 
9

 
 
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.
  
 
10

 
 
BUSINESS SEGMENTS

The Company is organized into two active business segments as of the end of 2010, one of which was added during 2009 and had its initial operations in 2010.  The financial information about these business segments is included in Note 12 of the consolidated financial statements.

RESULTS OF OPERATIONS

Revenue

Revenue amounted to $136,301 in 2010 and $602,978 in 2009.  Cash revenues were $84,218 in 2010 and $74,250 in 2009.  Non-cash revenues from management fees include $52,083 in 2010 and included $504,167 in 2009 which was recognized from the receipt of securities for our services.  In addition, 2009 included revenues from a related party of $24,000 which was included in bad debt expense in 2010.  The majority of our cash revenues are management fees from Investors LLC and Investors II.

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.  See Note 3 of the consolidated financial statements for details.

General and Administrative Expense (“G&A”)

G&A amounted to $946,189 in 2010 and $816,198 in 2009.  The more significant components of G&A are summarized as follows:

   
2010
   
2009
 
             
Professional fees
  $ 106,594     $ 106,379  
Payroll
    490,690       385,320  
Travel and entertainment
    42,950       57,120  
Accounting and auditing
    67,914       59,675  
Director fees
    42,500       -  
Bad debt expense
    24,907       -  
Other G&A
    170,634       207,704  
    $ 946,189     $ 816,198  

G&A costs are expected to continue at approximately the same level as 2010, $235,000 per quarter, with the costs associated with the activities of the management services to be provided to CDF increasing.  Revenue is expected to exceed this increase in expense.

Payroll costs increased in 2010 due to the addition of two employees to assist the Company in raising funds.  Both of these employees have now left the Company.
 
 
11

 
 
Effective December 31, 2010, the Company issued 20,000 shares of its common stock to its outside directors for current and prior director fees.  The stock was valued at $42,500 based on the closing price of the common stock on that date.
 
The Company recognized a bad debt in the amount of $24,907 in 2010 for prior management services of $24,000 and expense advances of $907 owed by Green St. Energy, Inc., a company for which the Company previously provided management services.

Deferred acquisition costs

FASB ASC 805-10-25-23 replaced prior guidance and became effective January 1, 2009.  Acquisition-related costs are defined as costs the acquirer incurs to effect a business combination and further provides that the acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services received.  Pursuant to the Company's planned acquisition of HI, the Company incurred $279,050 in acquisition-related costs which were capitalized in 2008 pursuant to accounting guidance in effect at that time.

FASB ASC 805-10-25-23 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008.  Accordingly, on January 1, 2009 the Company charged its previously capitalized acquisition costs to expense on that date.

Asset Impairment

In 2010, the Company recorded an impairment of $250,000 for our equity interest in BreezePlay as a result of it not being able to raise sufficient capital to complete its business plan and substantially ceasing operation.  In 2009, the Company recorded an impairment of our equity investment in Confluence Partners of $50,000 due to the uncertain SPAC market.

OTHER INCOME (EXPENSE)
 
Other income (expense) consisted of the following at December 31, 2010 and 2009:

   
2010
   
2009
 
Other income (expense):
           
Equity in earnings of investments
  $ 58,337     $ 23,000  
Realized gains from sale of investments
    106,035       58,697  
Interest expense
    (140,016 )     (33,914 )
Interest income
    46,000       23,000  
Miscellaneous income
    -       50  
Other than temporary decline in available-for-sale securities
    (40,386 )     (342,259 )
    $ 29,970     $ (271,426 )
 
 
12

 
 
Equity in Earnings of Investments

Equity in earnings of investments includes our share of earnings from investments in which we own at least 20% and are being accounted for using the equity method.  This included income from the Hoot SA partnerships in 2010 of $58,337 and from Investors of $23,000 in 2009.

Realized Gains from Sale of Investments

Realized gains are recorded when investments are sold and include transactions in 2010 from a gain on sales of DineOut of $157,807, a loss on sales of Vought Defense Systems of $58,355 and a gain on sales of Healthsport of $6,583 and in 2009 from marketable equity securities for $8,697 and a $50,000 gain from the exchange of our oil and gas property investment for marketable equity securities.

Interest Expense

Interest expense increased in 2010 from 2009 primarily due to the addition of convertible notes payable in the amount of $686,500 in 2010.

Interest Income

Interest income includes our earnings from Investors for all of 2010 and in 2009, after we sold 1/2 of our 23% investment in May 2009.

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 $40,386 and $342,259 in 2010 and 2009, respectively.  Valuations were determined based on the quoted market price for the stock on December 31, 2010 and 2009, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

There are several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not yet effective.  Each of these pronouncements, as applicable, has been or will be adopted by the Company.  Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or operating results.  See Note 2 to the consolidated financial statements.
 
 
13

 
 
CRITICAL ACCOUNTING POLICIES
 
The SEC has suggested companies provide additional disclosure and commentary on their most critical accounting policies, which they defined as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.  Based on this definition our most critical accounting policy is the valuation of our investments.  The methods, estimates and judgments we use in applying this accounting policy has a significant impact on the results we report in our financial statements.

We determine fair value to be the amount for which an investment could be exchanged in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale.  Our evaluation process is intended to provide a consistent basis for determining the fair value of our available-for-sale investments.  In summary, for individual securities classified as available-for-sale securities, an enterprise shall determine whether a decline in fair value below the amortized cost basis is other than temporary.  If the decline in fair value is judged to be  other than temporary, the individual security shall be written down to fair value as a new cost basis and the amount of the write-down shall be included in earnings (accounted for as a realized loss).  The new cost basis shall not be changed for subsequent recoveries in fair value.  Subsequent increases in the fair value of available-for-sale securities shall be included in other comprehensive income and subsequent decreases in fair value, if not an other-than-temporary impairment, also shall be included in other comprehensive income.

The first step in the analysis is to determine if the security is impaired.  All of our available-for-sale securities were listed and we use the closing market price to determine the amount of impairment if any.  The second step, if there is an impairment, is to determine if the impairment is other than temporary.  To determine if a decline in the value of an equity security is other than temporary and that a write-down of the carrying value is required, we considered the following:
 
 
·
The length of 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.  The Company also has equity investments in which it owns less than 20% which are stated at cost.  An impairment loss would be recorded whenever a decline in the value of an equity investment or investment carried at cost is below its carrying amount and is determined to be other than temporary.  In judging “other than temporary,” the Company considers the length of time and extent to which the fair value of the investment has been less than the carrying amount of the investment, the near-term and long-term operating and financial prospects of the investee, and the Company’s long-term intent of retaining the investment in the investee.
 
 
14

 
 
OFF-BALANCE SHEET ARRANGEMENTS

Effective August 1, 2010, the Company extended its office lease agreement for a period of one year at a monthly rental of $2,100, for its office located at 11220 Elm Lane, Suite 103, Charlotte, NC  28277.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

Not applicable.

ITEM 7A:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.
 
 
15

 
 
ITEM 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
CHANTICLEER HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDTED FINANCIAL STATEMENTS
    
 
Page
   
Report of Independent Registered Public Accounting Firm
17
Consolidated Balance Sheets at December 31, 2010 and 2009
18
Consolidated Statements of Operations for the Years Ended December 31, 2010 and 2009
19
Consolidated Statements of Stockholders’ Equity at December 31, 2010 and 2009
20
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010 and 2009
21
Notes to Consolidated Financial Statements
23
 
 
16

 
 
CREASON & ASSOCIATES, P.L.L.C.
7170 S. Braden Ave., Suite 100
Tulsa, Oklahoma  74136

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Chanticleer Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of Chanticleer Holdings, Inc. and Subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for the years ended December 31, 2010 and 2009.  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.
 
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 Subsidiaries as of December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years ended December 31, 2010 and 2009, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming that Chanticleer Holdings, Inc. and Subsidiaries will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, Chanticleer Holdings, Inc. has incurred substantial net losses and negative cash flows from operations for the past several years, along with negative working capital.   In addition, the Company has future plans that may require substantial financial obligations.  There can be no assurance that the Company will be able to generate sufficient cash revenues to fund its current operations and fulfill its future commitments.  These conditions raise substantial doubt about Chanticleer Holdings, Inc. and Subsidiaries’ ability to continue as a going concern.  Management’s plans regarding these matters are also described in Note 1.  The consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.
 
/s/Creason & Associates, P.L.L.C.
Tulsa, Oklahoma
April 1, 2011
 
 
17

 
 
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2010 and 2009
 
   
2010
   
2009
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 46,007     $ 2,374  
Accounts receivable
    4,258       -  
Due from related parties
    84,269       32,806  
Prepaid expenses
    24,184       25,000  
TOTAL CURRENT ASSETS
    158,718       60,180  
Property and equipment, net
    25,563       32,125  
Available-for-sale investments at fair value
    352,500       83,286  
Investments accounted for under the equity method
    87,200       82,500  
Investments accounted for under the cost method
    766,598       1,191,598  
Deposits and other assets
    23,980       3,980  
TOTAL ASSETS
  $ 1,414,559     $ 1,453,669  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Notes payable
  $ 250,000     $ 412,500  
Accounts payable
    211,432       190,482  
Accrued expenses
    66,103       2,246  
Due to related parties
    116,349       109,590  
Deferred revenue
    1,750       20,833  
TOTAL CURRENT LIABILITIES
    645,634       735,651  
Convertible notes payable
    686,500       -  
TOTAL LIABILITIES
    1,332,134       735,651  
Commitments and contingencies (Note 13)
               
                 
Stockholders' equity:
               
Common stock: $0.0001 par value; authorized 200,000,000 shares; issued 2,571,918 shares and 2,492,752 shares; and outstanding 2,048,688 and 1,969,822 shares at December 31, 2010 and 2009, respectively
    257       250  
Additional paid in capital
    5,456,067       5,255,624  
Non-controlling interest
    24,175       -  
Other comprehensive income (loss)
    68,027       (84,000 )
Accumulated deficit
    (4,929,418 )     (3,917,853 )
Less treasury stock, 523,230 shares and 522,930 shares at December 31, 2010 and 2009, respectively
    (536,683 )     (536,003 )
       82,425       718,018  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 1,414,559     $ 1,453,669  

See accompanying notes to consolidated financial statements.
 
 
18

 
 
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2010 and 2009
 
   
2010
   
2009
 
Revenue:
           
Management fee income
           
Non-affiliates
  $ 20,833     $ 504,167  
Affiliates
    115,468       98,811  
Total revenue
    136,301       602,978  
Expenses:
               
General and administrative expense
    946,189       816,198  
Deferred acquisition costs
    -       279,050  
Asset impariment
    250,000       50,000  
Total expenses
    1,196,189       1,145,248  
Loss from operations
    (1,059,888 )     (542,270 )
Other income (expense)
               
Equity in earnings of investments
    58,337       23,000  
Realized gains from sales of investments
    106,035       58,697  
Interest income
    46,000       23,000  
Miscellaneous income
    -       50  
Interest expense
    (140,016 )     (33,914 )
Other than temporary decline in available-for-sale securities
    (40,386 )     (342,259 )
Total other income (expense)
    29,970       (271,426 )
Net loss before income taxes
    (1,029,918 )     (813,696 )
Provision for income taxes
    -       -  
Net loss before non-controlling interest
    (1,029,918 )     (813,696 )
Non-controlling interest
    18,353       -  
Net loss
    (1,011,565 )     (813,696 )
Other comprehensive income (loss):
               
Unrealized gain (loss) on available-for-sale securities (none applies to non-controlling interest)
    152,027       (84,000 )
Other comprehensive loss
  $ (859,538 )   $ (897,696 )
                 
Net earnings (loss) per share, basic and diluted
  $ (0.51 )   $ (0.42 )
Weighted average shares outstanding
    1,990,462       1,928,200  
 
See accompanying notes to consolidated financial statements.
 
 
19

 
 
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2010 and 2009
 
                      
Accumulated
                         
                     
Other
                         
               
Additional
   
Comprehensive
   
Non-
                   
   
Common Stock
   
Paid-in
   
Income
   
Controlling
   
Accumulated
   
Treasury
       
   
Shares
   
Par
   
Capital
   
(Loss)
   
Interest
   
Deficit
   
Stock
   
Total
 
                                                 
Balance, December 31, 2008
    1,892,752       189       4,643,104       -       -       (3,104,157 )     -       1,539,136  
Common stock issued for:
                                                               
Cash proceeds
    77,070       8       76,570       -       -       -       -       76,578  
Acquisition of DineOut, SA
    522,930       53       535,950       -       -       -       (536,003 )     -  
Available-for-sale securities:
                                                               
Current year decline
    -       -       -       (426,259 )     -       -       -       (426,259 )
Other than temporary decline
    -       -       -       342,259       -       -       -       342,259  
Net loss
    -       -       -       -       -       (813,696 )     -       (813,696 )
                                                                 
Balance, December 31, 2009
    2,492,752       250       5,255,624       (84,000 )     -       (3,917,853 )     (536,003 )     718,018  
                                                                 
Common stock issued for:
                                                               
Consultants
    15,572       1       24,999       -       -       -       -       25,000  
Amounts due related party
    33,594       3       58,787       -       -       -       -       58,790  
Accounts payable
    10,000       1       17,499       -       -       -       -       17,500  
Director fees
    20,000       2       42,498       -       -       -       -       42,500  
Beneficial conversion feature of convertible notes payable
    -       -       56,660       -       -       -       -       56,660  
Available-for-sale securities
    -       -       -       152,027       -       -       -       152,027  
Purchase treasury stock
    -       -       -       -       -       -       (680 )     (680 )
Non-controlling interest
    -       -       -       -       42,528       -       -       42,528  
Net loss
    -       -       -       -       (18,353 )     (1,011,565 )     -       (1,029,918 )
                                                                 
Balance, December 31, 2010
    2,571,918     $ 257     $ 5,456,067     $ 68,027     $ 24,175     $ (4,929,418 )   $ (536,683 )   $ 82,425  
 
See accompanying notes to consolidated financial statements.
 
 
20

 
 
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2010 and 2009
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net loss
  $ (1,011,565 )   $ (813,696 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Other than temporary decline in value of available-for-sale securities
    40,386       342,259  
Bad debt expense - related party
    24,907       -  
Non-controlling interest
    (18,353 )     -  
Consulting and other services rendered in exchange for investment securities
    (33,000 )     (150,000 )
Depreciation
    11,079       11,481  
Equity in earnings of investments
    (58,337 )     (23,000 )
Asset impairment
    250,000       50,000  
Common stock issued for services
    49,375       -  
(Gain) loss on sale of investments
    (106,035 )     (58,697 )
Beneficial converstion feature of convertible notes payable
    56,660       -  
Expense previously deferred acquisition costs
    -       279,050  
(Increase) decrease in amounts due from affiliate
    (46,547 )     (24,907 )
(Increase) decrease in accounts receivable
    (4,258 )     (750 )
(Increase) decrease in prepaid expenses and other assets
    -       (20,745 )
Increase in accounts payable and accrued expenses
    89,807       26,404  
Increase (decrease) in deferred revenue
    (19,083 )     (354,167 )
Advance from related parties for working capital
    14,650       100,291  
Net cash used by operating activities
    (760,314 )     (636,477 )
                 
Cash flows from investing activities:
               
Proceeds from sale of investments
    281,765       685,197  
Investment distribution
    16,137       64,371  
Purchase of investments
    (26,334 )     (94,000 )
Purchase of property and equipment
    (4,517 )     (7,446 )
Treasury stock acquired
    (680 )     -  
Deposit made for investment
    (20,000 )     -  
Net cash provided by investing activities
    246,371       648,122  
                 
Cash flows from financing activities:
               
Proceeds from sale of common stock
    -       76,578  
Loan proceeds
    541,000       400,000  
Loan repayment
    (4,500 )     (500,000 )
Loans to related parties
    (48,924 )     -  
Loan from related party
    70,000       -  
Net cash provided (used) by financing activities
    557,576       (23,422 )
Net increase (decrease) in cash and cash equivalents
    43,633       (11,777 )
Cash and cash equivalents, beginning of year
    2,374       14,151  
Cash and cash equivalents, end of year
  $ 46,007     $ 2,374  
 
See accompanying notes to consolidated financial statements.
 
 
21

 
 
Chanticleer Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 2010 and 2009
 
   
2010
   
2009
 
             
Supplemental cash flow information:
           
Cash paid for interest and income taxes:
           
Interest
  $ 31,999     $ 19,668  
Income taxes
    -       -  
                 
Non-cash investing and financing activities:
               
Common stock issued for amounts due related party
  $ 58,790     $ -  
Common stock issued for accounts payable
    17,500       -  
Accrued interest paid with increase in note payable
    -       12,500  
Reclassification of trading security as available-for-sale security
    -       126,000  
Reclassification of investment accounted for under the cost method as available-for-sale security
    100,000       275,000  
Investments acquired as compensation for management agreements
    -       525,000  
Exchange of oil and gas property investment for equity securities classified as trading securities
    -       126,000  
Deposit transferred to investment accounted for using the equity method
    -       20,000  
 
See accompanying notes to consolidated financial statements.
 
 
22

 
 
Chanticleer Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 
1. 
NATURE OF BUSINESS
 
ORGANIZATION
 
Chanticleer Holdings, Inc. (the “Company”) was organized October 21, 1999, under its original name, Tulvine Systems, Inc., under the laws of the State of Delaware. The Company previously had limited operations and was considered a development stage company until July 2005. On April 25, 2005, the Company formed a wholly owned subsidiary, Chanticleer Holdings, Inc. On May 2, 2005, Tulvine Systems, Inc. merged with and changed its name to Chanticleer Holdings, Inc.
 
The consolidated financial statements include the accounts of Chanticleer Holdings, Inc. and its wholly owned subsidiaries, Chanticleer Advisors, LLC, (“Advisors”), Avenel Ventures, LLC ("Ventures"), Avenel Financial Services, LLC ("AFS"), Chanticleer Holdings Limited ("CHL") and DineOut SA Ltd. ("DineOut") (the Company sold approximately 7% of DineOut during 2010) collectively referred to as “the Company,” “we,” “us,” or “the Companies”. All significant inter-company balances and transactions have been eliminated in consolidation.
 
Effective March 23, 2011, the Company's common stock was forward split, 2 shares for each share issued, pursuant to written consent by a majority of the Company's shareholders. All share references have been adjusted as if the split occurred prior to all periods presented.
 
Information regarding the Company's subsidiaries is as follows:
 
 
·
Advisors was formed as a Nevada Limited Liability Company on January 18, 2007 to manage related companies, Chanticleer Investors, LLC ("Investors LLC"), Chanticleer Investors II, LLC ("Investors II") and other investments owned by the Company;
 
 
·
Ventures was formed as a Nevada Limited Liability Company on December 24, 2008 to provide business management and consulting services to its clients;
 
 
·
AFS was formed as a Nevada Limited Liability Company on February 19, 2009 to provide unique financial services to the restaurant, real estate development, investment advisor/asset management and philanthropic organizations. AFS's business operation has not been activated and is expected to initially include captive insurance, CHIRA and trust services;
 
 
·
CHL was formed as a Limited Liability Company in Jersey on March 24, 2009 to own the Company's 50% interest in Hooters SA, GP, the general partner of the Hooters restaurant franchises in South Africa;
 
 
23

 
 
 
·
DineOut was formed as a Private Limited Liability Company in England and Wales on October 29, 2009 to raise capital in Europe.
 
GOING CONCERN
At December 31, 2010 and 2009, the Company had current assets of $158,718 and $60,180; current liabilities of $645,634 and $735,651; and a working capital deficit of $486,916 and $675,471, respectively. The Company incurred a loss of $1,011,565 during the year ended December 31, 2010 and had an unrealized gain from available-for-sale securities of $152,027 resulting in a comprehensive loss of $859,538.
 
The Company's general and administrative expenses averaged approximately $235,000 per quarter during 2010. The Company expects cost to remain relatively constant in 2011 with probable increases to manage the new Chanticleer Dividend Fund, Inc. offset by expected management fee income. The Company's share of income from the ownership of the Hooters restaurants in South Africa is also continuing to increase. In addition, the Company has a note for $250,000 owed to its bank which is due in July 2011. The Company plans to continue to use limited partnerships to fund its share of costs for additional Hooters restaurants.
 
The Company expects to meet its obligations in 2011 with some or all of the following:
 
 
·
The Company holds 3,724,961 shares in DineOut at December 31, 2010, which are free-trading on the Frankfort Exchange and were trading at approximately €1.30 (approximately $1.74) per share at December 31, 2010. The Company plans to continue to sell some of these shares to meet its short-term capital requirements;

 
·
The Company received $400,000 in January 2011 when the acquisition of the Hooters restaurants was completed (See Note 15);

 
·
Extend a portion of its existing line of credit;
 
 
·
Convert its convertible notes payable into common stock (See Note 15);

 
·
The Company expects to raise all of its cash requirements for the South Africa restaurants from limited partners; and
 
 
·
The Company is funding the initial formation of Chanticleer Dividend Fund, Inc., including the registration of its common stock. The Company expects to get most of its capital outlay back after the registration statement becomes effective (See Note 11).
 
 
24

 
 
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 policy provides that revenue is generally realized or realizable and earned when all of the following criteria have been met:
 
·
Persuasive evidence of an arrangement exists;
 
·
Delivery has occurred or services have been rendered;
 
·
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.

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.
 
 
25

 
 
MARKETABLE EQUITY SECURITIES
 
Trading securities
The Company's investment in marketable equity securities are carried at fair value and are classified as current assets in the consolidated balance sheets. Unrealized gains and losses, net of tax, are reported in the statement of operations as unrealized gain (loss) on marketable equity securities. Gains and losses are reported in the consolidated statements of operations when realized, based on the disposition of specifically identified investments, using a first-in, first-out method.

Available-for-sale securities
The Company’s investments in marketable equity securities which are classified as available-for-sale are carried at fair value. Investments available for current operations are classified in the consolidated balance sheets as current assets; investments held for long-term purposes are classified as non-current assets. Unrealized gains and losses, net of tax, are reported in other comprehensive income as a separate component of stockholders’ equity. Gains and losses are reported in the consolidated statements of operations when realized, determined based on the disposition of specifically identified investments, using a first-in, first-out method.

Investments identified by the Company as being potentially impaired are subject to further analysis to determine if the impairment is other than temporary. Other than temporary declines in market value from original costs are charged to investment and other income, net, in the period in which the loss occurs. In determining whether investment holdings are other than temporarily impaired, the Company considers the nature, cause, severity and duration of the impairment.
 
OTHER INVESTMENTS
 
Investments in which the Company has the ability to exercise significant influence and that, in general, are at least 20 percent owned are stated at cost plus equity in undistributed net earnings (loss), less distributions received. The Company also has equity investments in which it owns less than 20% which are stated at cost. An impairment loss would be recorded whenever a decline in the value of an equity investment or cost investment is below its carrying amount and is determined to be other than temporary. In judging “other than temporary,” the Company considers the length of time and extent to which the fair value of the investment has been less than the carrying amount of the investment, the near-term and long-term operating and financial prospects of the investee, and the Company’s long-term intent of retaining the investment in the investee.
 
FAIR VALUE MEASUREMENTS
 
For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.
 
 
26

 
 
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
 
 
Level 1
Quoted prices for identical instruments in active markets.
 
Level 2
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
 
Level 3
Significant inputs to the valuation model are unobservable.

We maintain policies and procedures to value instruments using the best and most relevant data available. Our investment committee reviews and approves all investment valuations.

 
Our available-for-sale equity securities are all valued using Level 1 inputs or Level 2 inputs.

FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The Company is required to disclose fair value information about financial instruments when it is practicable to estimate that value. The carrying amounts of the Company’s cash, accounts receivable, accounts payable, convertible notes payable and notes payable approximate their estimated fair value due to the short-term maturities of these financial instruments and because related interest rates offered to the Company approximate current rates.
 
FIXED ASSETS
 
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets (generally five and seven years). The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of property and equipment exists at December 31, 2010 and 2009. 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.
 
 
27

 
 
INCOME TAXES
 
Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company has provided a valuation allowance for the full amount of the deferred tax assets.
 
As of December 31, 2010 and 2009 the Company had no accrued interest or penalties relating to any tax obligations. The Company currently has no federal or state examinations in progress, nor has it had any federal or state tax examinations since its inception. The last three years of the Company's tax years are subject to federal and state tax examination.
 
STOCK-BASED COMPENSATION
 
The compensation cost relating to share-based payment transactions (including the cost of all employee stock options) is required to be recognized in the financial statements. That cost is measured based on the estimated fair value of the equity or liability instruments issued. A wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans are included. The Company’s financial statements would include an expense for all share-based compensation arrangements granted on or after January 1, 2006 and for any such arrangements that are modified, cancelled or repurchased after that date based on the grant-date estimated fair value.
 
As of December 31, 2010 and 2009, there were no options outstanding.
  
EARNINGS (LOSS) PER COMMON SHARE
 
The Company is required to report both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding plus all potentially dilutive shares outstanding. At December 31, 2010 and 2009, there are no potentially dilutive shares outstanding. Accordingly, no common stock equivalents are included in the earnings (loss) per share calculations and basic and diluted earnings per share are the same for all periods presented.
  
 
28

 
 
COMPREHENSIVE INCOME
  
Standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. We are required to (a) classify items of other comprehensive income by their nature in financial statements, and (b) display the accumulated balance of other comprehensive income separately in the equity section of the balance sheet for all periods presented.
 
CONCENTRATION OF CREDIT RISK
 
Cash is maintained at financial institutions, which at times, may exceed the FDIC insurance limit.
 
RECLASSIFICATIONS

Certain reclassifications have been made in the financial statements at December 31, 2009 and for the periods then ended to conform to the December 31, 2010 presentation. The reclassifications had no effect on net loss.

RECENT ACCOUNTING PRONOUNCEMENTS
 
There are several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company. At March 23, 2011, none of these pronouncements is expected to have a material effect on the financial position, results of operations or cash flows of the Company.
 
3. 
INVESTMENTS
 
INVESTMENTS ARE SUMMARIZED AS FOLLOWS AT DECEMBER 31, 2010 AND 2009.
 
   
2010
   
2009
 
Trading securities:
           
Balance, beginning of year
  $ -     $ -  
Shares acquired from a related party
    26,334       31,500  
Exchange oil and gas property
    -       126,000  
Transfer to available-for-sale securities
    -       (126,000 )
Cost of securities sold
    (26,334 )     (31,500 )
Balance, end of year
  $ -     $ -  
                 
Proceeds from sale of trading securities
  $ 32,917     $ 40,197  
Gain from sale of trading securities
  $ 6,583     $ 8,697  
 
 
29

 
 
   
2010
   
2009
 
Available for sale securities:
           
Cost at beginning of year
  $ 83,286     $ 108,545  
Transfer from trading securities
    -       126,000  
Transfer from investments accounted for by the cost method
    100,000       275,000  
Received as management fees
    33,000       -  
Acquired in exchange for DineOut shares
    124,573       -  
Proceeds from sale of securities
    (41,645 )     -  
Realized loss
    (98,741 )     (342,259 )
Cost at end of year
    200,473       167,286  
Unrealized gain (loss)
    152,027       (84,000 )
Total
  $ 352,500     $ 83,286  

   
2010
   
2009
 
Investments using the equity method:
           
Balance, beginning of year
  $ 82,500     $ 1,241,371  
Equity in earnings (loss)
    58,337       23,000  
General partnership formed
    -       82,500  
Sale of investment
    (37,500 )     (575,000 )
Transfer to investments at cost
    -       (575,000 )
Asset impairment
    -       (50,000 )
Distributions received
    (16,137 )     (64,371 )
Balance, end of year
  $ 87,200     $ 82,500  

   
2010
   
2009
 
Investments at cost:
           
Balance, beginning of year
  $ 1,191,598     $ 442,598  
Impairment
    (250,000 )     -  
Distributions
    -       -  
Proceeds from sale of investment
    (75,000 )        
Exchange for marketable equity securities
    -       (76,000 )
Investment transferred from equity investments
    -       575,000  
Investment transferred to available-for-sale securities
    (100,000 )     (275,000 )
Investments acquired pursuant to management agreements
    -       525,000  
Total
  $ 766,598     $ 1,191,598  
 
30

 
 
AVAILABLE-FOR-SALE SECURITIES
Our available-for-sale securities consist of the following:
 
         
Realized
   
Unrecognized
       
         
Holding
   
Holding
   
Fair
 
   
Cost
   
Loss
   
Gains (Losses)
   
Value
 
December 31, 2010
                       
Special Projects Group *
  $ -     $ -     $ -     $ -  
Syzygy Entertainment, Ltd. *
    1,286       (1,286 )     -       -  
Remodel Auction *
    40,000       (39,100 )     100       1,000  
North American Energy
    126,000       -       (98,000 )     28,000  
North American Energy *
    10,500       -       (4,500 )     6,000  
Efftec International, Inc. *
    22,500       -       22,500       45,000  
Efftec International, Inc. (warrant) *
    -       -       22,500       22,500  
HiTech Stages
    124,573       -       125,427       250,000  
    $ 324,859     $ (40,386 )   $ 68,027     $ 352,500  
                                 
December 31, 2009
                               
Special Projects Group *
  $ 31,407     $ (31,407 )   $ -     $ -  
Syzygy Entertainment, Ltd. *
    77,138       (75,852 )     -       1,286  
Remodel Auction *
    275,000       (235,000 )     -       40,000  
North American Energy
    126,000       -       (84,000 )     42,000  
    $ 509,545     $ (342,259 )   $ (84,000 )   $ 83,286  
 
* Investments acquired in exchange for management services.

Special Projects Group - The transaction in which Special Projects Group was involved to acquire an operating company was cancelled and Special Projects became a shell company. During 2009, Special Projects was dropped from the Pink Sheets and the Company determined it was an other than temporary impairment and wrote off its remaining investment in 2009.
 
Syzygy Entertainment, Ltd. - During 2007, the Company acquired 342,814 shares of Syzygy in exchange for a management services contract which covered a one-year period commencing April 1, 2007. The shares were valued at $1.50 per share, a discount to the listed price at that time. Also 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 did not receive additional compensation as a result of the transfers.
 
As a result of the above transactions, the Company owns 642,814 shares of Syzygy with a cost of $1,114,221 and a fair value as of December 31, 2010 of $0. The Company considers this decline in value to be other than temporary and has recognized an impairment loss of $75,852 in 2009 and $1,286 in 2010.
 
 
31

 
 
Remodel Auction Incorporated - Remodel Auction Incorporated was formed to launch and operate an online listing service for remodeling projects. The Company received 167 shares of Remodel Auction common stock in exchange for providing management services for one year, effective January 1, 2009. We valued our initial investment of 167 shares at 50% of the price Remodel was receiving from third parties for its stock, $125,000. Remodel Auction began trading under the symbol REMD on August 10, 2009, and the Company received an additional 167 shares of Remodel common stock pursuant to its management agreement. We recorded the additional 167 shares at the trading price of the stock on that date of $900 per share and recognized $150,000 in management income. Remodel Auction began trading on the Pink Sheets, and the market price was readily determinable. Therefore, the Company transferred this investment from investments accounted for by the cost method to available-for-sale securities. The market value of Remodel Auction was approximately the same as the original cost at the time of the transfer. Accordingly, the transfer was recorded at the original cost. At December 31, 2009, the common stock had declined to $120 per share and the Company determined that the loss was other-than temporary and recorded a loss of $235,000 on its investment in Remodel Auction common stock. During 2010, the Company recognized an additional impairment of $39,100. At December 31, 2010, the Company valued its investment at $1,000 and recorded an unrealized gain of $100.

North American Energy Resources, Inc. - During the quarter ended June 30, 2009, the Company exchanged its oil & gas property investments for 700,000 shares of North American Energy Resources, Inc. ("NAEY") which were valued at $126,000 based on the closing price of NAEY on the date of the trade. The Company initially classified the NAEY as a trading security when it was acquired based on the Company's intent to begin selling the shares before the end of 2009. In November 2009 the Company decided that it would not sell the stock in the near term and determined that the investment should be reclassified as an available-for-sale security and classified as non-current, due to uncertainties about when it would be sold. At the time of the decision to reclassify the investment as available-for-sale, the trading price and value were approximately equal to the cost. Accordingly, upon the transfer at fair value, the shares were transferred at $126,000, the original cost to the Company. At December 31, 2010 and 2009, the stock had declined to $0.04 and $0.06 per share and the Company recorded an unrealized loss of $98,000 and $84,000, respectively, based on the Company's determination that the price decline was temporary.
 
During the first quarter of 2010, the Company received an additional 150,000 shares of NAEY in exchange for management services. The shares were initially valued at $10,500, based on the trading price at the time. At December 31, 2010, the Company recorded an unrealized loss of $4,500 based on the market value of $6,000.
 
NAEY appointed a new management team in December 2010 and appears to have an opportunity for the stock price to recover. Accordingly, the Company determined that the decline was temporary.
 
Vought Defense Systems Corp. - On May 31, 2006, we acquired debt owed by Atlas Defense Systems, Inc. ("ADS") and formerly Vought Defense Systems Corp. ("VDSC") (formerly, Lifestyle Innovations, Inc.) with a face value of $1,177,395 for $100,000 in cash. Lifestyle has traded under the symbol LFSI and has only had a deminimus amount of income from a royalty during the last three years. LFSI is not currently a reporting company. The debt was converted into a note with interest at 12% on July 1, 2008. We owned approximately 28% of the debt of LFSI at December 31, 2009. LFSI was valued at approximately $400,000 as a shell, ($100,000 for the Company's interest) based on estimates provided by an attorney knowledgeable in the area.
 
 
32

 
 
On February 16, 2010, a majority of the shareholders of LFSI approved a name change to Vought Defense Systems Corp. and a 1 for 545 reverse stock split of the issued shares of common stock. On February 17, 2010, VDSC acquired 100% of RedTide Defense Group, Inc. ("RedTide") which has created a solution to a growing worldwide demand for the manufacturing of Unmanned Aerial Vehicles ("UAVs"). RedTide owns and operates www.redtidedefense.com. The Company's debt was converted into 449,959 shares of VDSC common stock. The Company sold all of its shares for total proceeds of $41,645 and recorded a loss of $58,355 during the last three quarters of 2010.

EffTec International, Inc. - Effective April 1, 2010, the Company's CEO became a director and the CEO of EffTec International, Inc. The Company received 150,000 shares of EffTec and an option to acquire an additional 150,000 shares at $0.15 per share in exchange for the management services to be provided. The shares were valued at $22,500 based on the trading price of EffTec at the date of the transaction. At December 31, 2010, the shares were valued at $0.30 per share and the $22,500 increase in value plus the value of the option of $22,500 was included in accumulated other comprehensive income (loss).

EffTec has developed a powerful, easy to use, Internet-based chiller tool called EffTrack™ that:

 
·
Collects, stores and analyzes chiller operating data,
 
·
Calculates and trends chiller performance,
 
·
Diagnoses the cause of chiller inefficiencies,
 
·
Notifies plant contacts when problems occur,
 
·
Recommends corrective actions,
 
·
Measures the results of corrective actions and
 
·
Provides cost analysis of operational improvements.

Chillers are the single largest energy-using component in most industrial or commercial type facilities using water-cooled chillers for comfort or process cooling and can consume up to 50% of the facility’s electrical usage. There is a vast array of operational and mechanical problems that occur causing a chiller to lose performance. Even small inefficiencies can result in thousands of dollars in energy waste.

HiTech Stages, Ltd. - HiTech Stages, Ltd. ("HiTech") is registered in the UK and is listed on the Frankfurt Stock Exchange (Symbol "JT2.F"). HiTech, in conjunction with a manufacturer, has developed a mobile event stage, including multimedia, which can be packed in three 20' x 8' x 8' containers. The stage can be fully assembled in less than one hour and deployed and operational in ten minutes, including the set-up of all lighting, sound and video systems. This is a revolutionary first in the event business and will rent for approximately one-half of the cost of conventional stage systems. HiTech is in its initial funding stage and intends to raise up to $5.5 million to finance the manufacture of the first stage and build the distribution support services.
 
 
33

 
 
The Company acquired 275,000 shares of HiTech in exchange for 150,450 shares of DineOut. The transaction was initially recorded as an available-for-sale security at the average net sales price of DineOut shares of $124,573. At December 31, 2010, HiTech closed on the Frankfurt Stock Exchange at €1.00 ($1.34). Due to the start-up status of HiTech and limited trading volume, the Company valued its investment at $250,000 at December 31, 2010.

INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Equity investments consist of the following at December 31, 2010 and December 31, 2009:

   
2010
   
2009
 
Carrying value:
           
Chanticleer & Shaw Foods Pty. Ltd. (50%)
  $ 87,200     $ 82,500  
    $ 87,200     $ 82,500  
 
Activity from equity investments during the year ended December, 2010 and 2009 follows:
   
2010
   
2009
 
Equity in earnings (loss):
           
Chanticleer Investors, LLC
    N/A     $ 23,000  
Hoot S.A. I, LLC (20%)
    27,448       N/A  
Hoot S.A. II, LLC (20%)
    30,889       N/A  
    $ 58,337     $ 23,000  
Distributions:
               
Chanticleer Investors, LLC
    N/A     $ 23,000  
Hoot S.A. I, LLC (20%)
    16,137       N/A  
Hoot S.A. II, LLC (20%)
    -       N/A  
Investment liquidation
    -       41,371  
    $ 16,137     $ 64,371  

The summarized financial data for the Hoot SA limited partnerships of which we owned 20% in 2010 and Chanticleer Investors LLC, of which we owned 23% until May 2009, follows:

   
2010
   
2009
 
         
(6 months)
 
             
Revenue
  $ 3,942,663     $ 150,000  
Gross profit
    2,717,191       150,000  
Income from continuing operations
    545,432       99,940  
Net income
    545,432       99,940  
 
 
34

 
The summarized balance sheet of the Hoot SA limited partnerships as of December 31, 2010 is as follows:

   
2010
 
ASSETS
     
Current assets
  $ 101,900  
Non-current assets
  $ 1,604,500  
TOTAL ASSETS
  $ 1,706,400  
LIABILITIES
       
Current liabilities
  $ 172,700  
PARTNER'S EQUITY
  $ 1,533,700  
TOTAL LIABILITIES AND PARTNERS' EQUITY
  $ 1,706,400  

Hooters S.A., GP - The Company formed CHL to own the Company's 50% general partner interest in Hooters S.A., GP, the general partner of the Hooters' restaurant franchises in South Africa.  The initial restaurant opened in December 2009 in Durban, South Africa and operations commenced in January 2010.  In the initial restaurant CHL has a 10% interest in restaurant cash flows until the limited partners receive payout and a 40% interest in restaurant cash flows after limited partner payout.  The second location opened in Johannesburg in June 2010 and a third location is planned to open in Cape Town in the spring of 2011.

Chanticleer Investors LLC - the Company reduced its interest in Investors LLC during 2009 and transferred the remaining investment to investments accounted for under the cost method at that time.  The Company recorded $23,000 in earnings from equity investments and received a distribution of $23,000 before it sold 1/2 of its interest for the book value of $575,000.  See Investments accounted for under the cost method below for additional details.

First Choice Mortgage - this partnership discontinued operations at the end of 2008 and a final distribution of $41,371 was received in 2009.

Confluence Partners - the Company formed a partnership in which it owned 50% and its partner owned 50%.  Each partner contributed $50,000 and the resulting $100,000 was invested with a group that raises funds for a SPAC.  The SPAC was delayed due to the current market conditions and the Company elected to fully impair its investment at December 31, 2009 due to these uncertainties.

 
35

 

 
INVESTMENTS ACCOUNTED FOR USING THE COST METHOD

 
Investments at cost consist of the following at December 31, 2010 and 2009:

 
   
2010
   
2009
 
             
Chanticleer Investors, LLC
  $ 500,000     $ 575,000  
Edison Nation LLC (FKA Bouncing Brain Productions)
    250,000       250,000  
BreezePlay, Inc.
    -       250,000  
Lifestyle Innovations, Inc.
    -       100,000  
Chanticleer Investors II
    16,598       16,598  
    $ 766,598     $ 1,191,598  
 
Chanticleer Investors LLC - The Company sold 1/2 of its investment in Investors LLC in May 2009, which reduced its ownership from 23% to 11.5%.  Accordingly, in May 2009, the Company discontinued accounting for this investment using the equity method and began to account for the investment using the cost method.  In December 2010, the Company sold an additional $75,000 of its investment at cost.

On April 18, 2006, the Company formed Investors LLC and sold units for $5,000,000.  Investors LLC’s principal asset is a convertible note in the amount of $5,000,000 with Hooters of America, Inc. (“HOA”), collateralized by and convertible into 2% of Hooters common stock.  The original note included interest at 6% and was due May 24, 2009.  The note was extended until November 24, 2010 and included an increase in the interest rate to 8%.
 
The Company owned $1,150,000 (23%) of Investors LLC until May 29, 2009 when it sold 1/2 of its share for $575,000.  Under the original arrangement, the Company received 2% of the 6% interest as a management fee ($25,000 quarterly) and 4% interest on its investment ($11,500 quarterly).  Under the extended note and revised operating agreement, the Company receives a management fee of $6,625 quarterly and interest income of $11,500 quarterly.

On January 24, 2011, Investors LLC and its three partners combined to form HOA Holdings, LLC ("HOA LLC") and completed the acquisition of Hooters of America, Inc. ("HOA") and Texas Wings, Inc. ("TW").  Together HOA LLC has created an operating company with 161 company-owned locations across sixteen states, or nearly half of all domestic Hooters restaurants and over one-third of the locations worldwide.

Investors, LLC had a note receivable in the amount of $5,000,000 from HOA that was repaid at closing.  Investors LLC then invested $3,550,000 in HOA LLC (approximately 3.1%) ($500,000 of which is the Company's share).  One of the investors in Investors LLC that owned a $1,750,000 share is a direct investor in HOA LLC and will now carry its ownership in HOA LLC directly.  The Company now owns approximately 14% of Investors LLC.
 
 
36

 
 
EE Investors, LLC - On January 26, 2006, we acquired an investment in EE Investors, LLC with cash in the amount of $250,000.  We acquired 1,205 units (3.378%) in EE Investors, LLC, whose sole asset is 40% of Edison Nation, LLC (formerly Bouncing Brain Productions, LLC).  Edison Nation was formed to provide equity capital for new inventions and help bring them to market.  The initial business plan included developing the products and working with manufacturers and marketing organizations to sell the products.  This has evolved into a less hands-on program which involves selling products with patents to other larger companies and retaining royalties.  Edison Nation has now reached cash flow break-even, and in addition has been retained by a number of companies for which they do product searches to supplement its business.  Edison Nation has repaid the majority of its debt and expects to begin making distributions to its owners during 2011.  Based on the current status of this investment, the Company does not consider the investment to be impaired.

BreezePlay, Inc. - BreezePlay™ LLC (“BreezePlay”), headquartered in Charlotte, NC, was an energy solutions provider serving the needs of residents and utilities via partnership programs with major utilities. BreezePlay offered a proprietary monitoring system called EnviroScape™, which was the only residential consumer energy management product on the market that monitors residential energy consumption 24/7 to provide actual usage and rate data, and that enables customers the ability to automatically adjust systems to effect consumption and automate savings.  We valued the 250,000 shares we received in BreezePlay at $250,000, the price at which BreezePlay was selling its common stock to unrelated parties.  We received the shares in exchange for management services which were provided from February 1, 2009 through January 31, 2010.  We recognized eleven months of income in 2009 and recognized the remaining balance in 2010.  BreezePlay was unable to complete its funding to establish its business plan and based on the Company's analysis determined to fully impair its investment at December 31, 2010.

Vought Defense Systems Corp. - On May 31, 2006, we acquired debt owed by Vought Defense Systems Corp. ("VDSC") (formerly, Lifestyle Innovations, Inc.) with a face value of $1,177,395 for $100,000 in cash.  Lifestyle has traded under the symbol LFSI and has only had a deminimus amount of income from a royalty during the last three years.  LFSI is not currently a reporting company.  The debt was converted into a note with interest at 12% on July 1, 2008.  We owned approximately 28% of the debt of LFSI at December 31, 2009.  LFSI was valued at approximately $400,000 as a shell, ($100,000 for the Company's interest) based on estimates provided by an attorney knowledgeable in the area.

On February 16, 2010, a majority of the shareholders of LFSI approved a name change to Vought Defense Systems Corp. and a 1 for 545 reverse stock split of the issued shares of common stock.  The Company's debt was converted into 449,959 shares of VDSC common stock in March 2010.  In March 2010, the stock was transferred to available-for-sale securities and by the end of 2010, the Company had sold all of its shares for proceeds of $41,645 and recognized a loss of $58,355.

Chanticleer Investors II - The Company paid $16,598 in professional services to form this partnership.  Chanticleer Advisors, LLC acts as the managing general partner and receives a management fee based on a percentage of profits.
 
 
37

 
 
4.
PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 2010 and 2009:

   
2010
   
2009
 
             
Office and computer equipment
  $ 29,371     $ 26,337  
Furniture and fixtures
    47,686       46,203  
      77,057       72,540  
Accumulated depreciation
    (51,494 )     (40,415 )
    $ 25,563     $ 32,125  

5.
NOTES PAYABLE

At December 31, 2010 and 2009, the Company had notes payable as follows:

   
2010
   
2009
 
Line-of credit with a bank with interest at Wall Street Prime +1% (minimum of 5.5%) payable monthly; due in monthly payments of $1,729 commencing February 10, 2011 with the balance due in full on July 10, 2011; collateralized by substantially all assets of the Company; guaranteed by Mr. Pruitt
  $ 250,000     $ 250,000  
                 
Note payable to an individual with interest at 18%; due June 30, 2010; refinanced as a convertible note payable on December 31, 2010
    -       162,500  
    $ 250,000     $ 412,500  
 
6.
CONVERTIBLE NOTES PAYABLE

During the year ended December 31, 2010, the Company issued convertible notes payable with a total principal balance of $691,000 and made a partial repayment of $4,500.  The convertible notes include interest at 10% per annum, which is payable quarterly beginning on April 1, 2010 until maturity on January 4, 2012.  The convertible notes are convertible into our common stock at the rate of $1.75 per share, effective March 23, 2011 (392,286 shares).  The conversion price was below the market price of our common stock on the date the convertible notes were issued.  Accordingly, $56,660 of the proceeds were allocated to the intrinsic value of the conversion feature by crediting additional paid in capital and charging interest expense, since the notes were immediately convertible.  The effective interest rate including the beneficial conversion feature was 24.8% in 2010.  All of the convertible notes were converted to our common stock effective March 30, 2011.

 
38

 

7.
ACQUISITION RELATED COSTS

FASB ASC 805-10-25-23 replaced prior guidance and became effective January 1, 2009.  Acquisition-related costs are defined as costs the acquirer incurs to effect a business combination.  The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services received.  Pursuant to the Company's planned acquisition of HI, the Company incurred $279,050 in acquisition-related costs which were capitalized in 2008 pursuant to accounting guidance in effect at that time.

FASB ASC 805-10-25-23 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008.  Accordingly, on January 1, 2009 the Company charged its previously capitalized acquisition costs to expense on that date.

8.
DEFERRED REVENUE

The Company receives equity securities from companies for which it provides management services.  Generally the securities are issued in advance of the period over which the service is to be provided, generally one year.  The Company values the equity instruments received based upon the stock prices as of the date we reached an agreement with the third party and defers the related revenue.  The revenue is then recognized over the period earned.  Deferred revenue consists of the following during the years ended December 31, 2010 and 2009.

   
2010
   
2009
 
             
Balance at beginning of year
  $ 20,833     $ -  
Additions:
               
North American Energy common stock
    10,500          
Remodel Auction common stock
    -       125,000  
BreezePlay, Inc. common stock
    -       250,000  
Amortization
    (29,583 )     (354,167 )
Balance end of year
  $ 1,750     $ 20,833  
 
 
39

 
 
9.
INCOME TAXES

During the years ended December 31, 2010 and 2009, 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:

 
   
2010
   
2009
 
             
Computed "expected" income tax expense (benefit)
  $ (343,900 )   $ (276,700 )
State income taxes, net of federal benefit
    (40,500 )     (32,500 )
Travel, entertainment and other
    10,100       (8,900 )
Valuation allowance
    374,300       318,100  
Income tax expense (benefit)
  $ -     $ -  

Significant components of net deferred income tax assets are as follows:

   
2010
   
2009
 
             
Investments
  $ 8,900     $ 461,700  
Net operating loss carryforwards
    1,381,600       1,003,300  
Foreign losses
    -       16,500  
Capital loss carryforwards
    478,300       13,000  
Total deferred tax assets
    1,868,800       1,494,500  
Valuation allowance
    (1,868,800 )     (1,494,500 )
Net deferred tax assets
  $ -     $ -  

The Company has a net operating loss carryforward of approximately $3,656,000, which will expire at various dates beginning in 2024 through 2030, if not utilized.  The Company has a capital loss carryforward of $1,258,000 which expires in 2015 if not utilized.  The tax basis of investments exceeds their book cost by approximately $23,000.

10.
STOCKHOLDERS’ EQUITY

The Company has 200,000,000 shares of its $0.0001 par value common stock authorized and 2,571,918 and 2,492,752 shares issued and 2,048,688 and 1,969,822 shares outstanding at December 31, 2010 and 2009, respectively.  There are no warrants or options outstanding.

Effective March 23, 2011, the Company's common stock was forward split, 2 shares for each share issued, pursuant to written consent by a majority of the Company's shareholders.  All share references have been adjusted as if the split occurred prior to all periods presented.
 
 
40

 
 
2010 Transactions

During the year ended December 31, 2010, the Company issued: 15,572 shares of its common stock valued at $25,000 to two consultants for consulting services; 33,594 shares of its common stock valued at $58,790 for amounts due a related party; and issued 10,000 shares for $17,500 in accounts payable.  Effective December 31, 2010, the Company issued 20,000 shares of its common stock to its outside directors for directors fees valued at $42,500.

2009 Transactions

During the year ended December 31, 2009, the Company sold 77,070 shares of its common stock for proceeds in the amount of $76,578.  In addition, the Company issued 522,930 shares of its common stock to form a new subsidiary, DineOut, which was valued at $536,003 and has been included in treasury stock upon consolidation.

11.
RELATED PARTY TRANSACTIONS

Due to related parties

The Company has received non-interest bearing loans and advances from related parties.  The amounts owed by the Company as of December 31, 2010 and 2009 are as follows:

   
2010
   
2009
 
             
Tyler Industrial Group, a company partially owned by Mr. Pruitt
  $ -     $ 58,590  
Chanticleer Investors, LLC
    -       6,000  
Hoot SA III, LLC
    70,000       -  
Avenel Financial Group, a company owned by Mr. Pruitt
    46,349       33,000  
Personal friend of Mr. Pruitt
    -       12,000  
    $ 116,349     $ 109,590  

The Company issued 33,594 shares of its common stock in exchange for the amount due to Tyler Industrial Group during 2010.

Due from related parties

The Company has earned income from and made advances to related parties.  The amounts owed to the Company at December 31, 2010 and 2009 is as follows:

 
41

 

   
2010
   
2009
 
             
Green St. Energy, Inc.
  $ -     $ 24,907  
Chanticleer Investors, LLC
    6,035       7,149  
Chanticleer Investors II, LLC *
    46,547       -  
Chanticleer Dividend Fund, Inc.
    30,937       -  
Other
    750       750  
    $ 84,269     $ 32,806  
                 
*Collected March 15, 2011.
               

Management income from affiliates

The Company had management income from its affiliates in 2010 and 2009, as follows:

   
2010
   
2009
 
             
Chanticleer Investors, LLC
  $ 26,500     $ 63,250  
Chanticleer Investors II LLC
    57,718       561  
Green St. Energy, Inc.
    -       24,000  
Efftec International, Inc.
    22,500       -  
North American Energy Resources, Inc.
    8,750       -  
Syzygy Entertainment, Ltd.
    -       11,000  
    $ 115,468     $ 98,811  
 
Chanticleer Investors LLC

On April 18, 2006, the Company formed Investors LLC and sold units for $5,000,000.  Investors LLC’s principal asset is a 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.  The original note included interest at 6% and was due May 24, 2009.  The note was extended until November 24, 2010 and includes an increase in interest rate to 8%.
 
The Company owned $1,150,000 (23%) of Investors LLC at December 31, 2008 and until May 29, 2009 when it sold 1/2 of its share for $575,000.  Under the original arrangement, the Company received 2% of the 6% interest as a management fee ($25,000 quarterly) and 4% interest on its investment ($11,500 quarterly).  Under the extended note and revised operating agreement, the Company receives a management fee of $6,625 quarterly and interest income of $11,500 quarterly.  The Company sold $75,000 of its investment in December 2010, leaving it with a balance of $500,000 at December 31, 2010.

 
42

 

The Company received management income of $26,500 and $63,250 in 2010 and 2009, respectively, for its management services, which is included in management income from affiliates.  The Company recorded earnings from its equity investment of $23,000 in 2009.  After the Company sold 1/2 of its investment in May 2009, the Company's earnings of $46,000 and $23,000 was included in interest income in 2010 and 2009, respectively.

Chanticleer Investors II LLC

The Company manages Investors II and earned management income of $57,718 ($46,547 was collected March 15, 2011 and $11,171 was collected in 2010) and $561 in 2010 and 2009, respectively.

Chanticleer Dividend Fund, Inc. ("CDF")

On November 10, 2010 the Company formed CDF under the general corporation laws of the State of Maryland.  CDF filed a registration statement under Form N-2 to register as a non-diversified, closed-end investment company in January 2011.  The Company, through Advisors, will have a role in management of CDF when its registration statement becomes effective.

Green St. Energy, Inc. ("Green St.")

Mr. Pruitt was a director of Green St. and during 2009, the Company billed Green St. $24,000 for management services and advanced $907 for Green St. expenses.  This amount was included in bad debt expense at December 31, 2010.

Efftec International, Inc. ("Efftec")

The Company's CEO became CEO and the sole director of Efftec during 2010 and the Company received 150,000 common shares and an option to acquire 150,000 shares for management services.  The shares and option were valued at $22,500, based on the trading price of Efftec at the time.

North American Energy Resources, Inc. ("NAEY")

The Company's CEO became CEO and a director of NAEY during 2010 and the Company received 150,000 common shares for management services.  The shares were valued at $10,500, based on the trading price of NAEY at the time.  The Company's CEO resigned as CEO of NAEY in December 2010 and remains a director.

Syzygy Entertainment, Ltd. ("Syzygy")

Mr. Pruitt was a director of Syzygy until his resignation on June 1, 2009.  Revenue in 2009 included $11,000 in cash management fees from Syzygy.  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 did not receive additional compensation as a result of the transfers.  The Company owns 642,814 shares of Syzygy which have been fully impaired at December 31, 2010.

 
43

 

Other

The Company acquired trading securities from a related party for $26,334 and $31,500 which were sold for $32,917 and $40,197 in 2010 and 2009, respectively.

12.
SEGMENTS OF BUSINESS

The Company is organized into two active segments as of the end of 2010.  One of which was added during 2009 and had its initial revenue in 2010.

Management and consulting services ("Management")
The Company provides management and consulting services for small companies which are generally seeking to become publicly traded.  The Company also provides management and investment services for Investors LLC and Investors II.  The Company will also provide management services to CDF.

Insurance and specialized financial services ("Insurance")
We have formed AFS to provide unique financial services to the restaurant, real estate development, investment advisor/asset management and philanthropic organizations.  AFS's business operation has not been activated and is expected to initially include captive insurance, CHIRA and trust services.

Operation of restaurants (South Africa) ("Restaurants")
The Company formed CHL to own the Company's 50% general partner interest in Hooters S.A., GP, the general partner of the Hooters' restaurant franchises in South Africa.  The initial restaurant opened December 2009 in Durban, South Africa and operations commenced in January 2010.  In the initial restaurant CHL has a 10% interest in total restaurant cash flows until the limited partners receive payout and a 40% interest in total restaurant cash flows after limited partner payout.  The second location opened in Johannesburg in June 2010 and a third location is planned to open in Cape Town during the spring of 2011.  The Company's cash requirement has been financed with limited partnerships.

 
44

 

Financial information regarding the Company's segments is as follows for 2010 and 2009.

 
Year ended December 31, 2010
 
    
Management
   
Insurance
   
Restaurants
   
Total
 
                         
Revenues
  $ 136,301     $ -     $ -     $ 136,301  
                                 
Interest expense
  $ 140,016     $ -     $ -     $ 140,016  
                                 
Depreciation and amortization
  $ 11,079     $ -     $ -     $ 11,079  
                                 
Profit (loss)
  $ (949,904 )   $ -     $ 58,337     $ (891,567 )
Investments and other
                            (138,351 )
Non-controlling interest
                            18,353  
                            $ (1,011,565 )
                                 
Assets
  $ 208,261     $ -     $ 87,200     $ 295,461  
Investments
                            1,119,098  
                            $ 1,414,559  
                                 
Liabilities
  $ 1,332,134     $ -     $ -     $ 1,332,134  
                                    
Expenditures for non-current assets
  $ 4,517     $ -     $ -     $ 4,517  
 
Year ended December 31, 2009
 
   
Management
   
Insurance
   
Restaurants
   
Total
 
                         
Revenues
  $ 602,978     $ -     $ -     $ 602,978  
                                 
Interest expense
  $ 33,914     $ -     $ -     $ 33,914  
                                 
Depreciation and amortization
  $ 11,481     $ -     $ -     $ 11,481  
                                 
Profit (loss)
  $ (702,734 )   $ (15,000 )   $ (43,451 )   $ (761,185 )
Investments and other
                          $ (52,511 )
                            $ (813,696 )
                                 
Assets
  $ 71,285     $ -     $ 107,500     $ 178,785  
Investments
                          $ 1,274,884  
                            $ 1,453,669  
                                 
Liabilities
  $ 708,651     $ -     $ 27,000     $ 735,651  
                                 
Expenditures for non-current assets
  $ 7,446     $ -     $ 62,500