Quarterly report pursuant to Section 13 or 15(d)

RESTATEMENT OF 2011 AND 2012 FINANCIAL INFORMATION

v2.4.0.6
RESTATEMENT OF 2011 AND 2012 FINANCIAL INFORMATION
6 Months Ended
Jun. 30, 2012
Restatement Of Prior Year Income [Abstract]  
Restatement To Prior Year Income [Text Block]
16. RESTATEMENT OF 2011 AND 2012 FINANCIAL INFORMATION

 

These condensed consolidated financial statements restate certain items previously reported by the Company for the three and six months ended June 30, 2012 and revise certain items previously reported by the Company in the notes to the consolidated financial statements due to the events described below. For information regarding the restatement of the 2011 year see the Company’s Amended Form 10-K/A filed with the SEC on December 4, 2012.

 

Restated balances for 2012 and 2011 financial information items have been identified with the notation “Restated” where appropriate and applicable.

 

Other than the revising of the previously filed condensed consolidated financial statements relating to the restatement, these notes to the condensed consolidated financial statements speak as of the filing date of the Company’s original Form 10-Q for the six months ended June 30, 2012, filed on August 13, 2012, and these notes to the condensed consolidated financial statements have not been updated to reflect other events occurring subsequent to the original filing date. These notes to the condensed consolidated financial statements should be read in their historical context, except to the extent revised as a result of this restatement.

 

On September 7, 2012, the audit committee of the Company, upon recommendation of the Company’s management determined that the Company’s Consolidated Financial Statements for its fiscal year ended December 31, 2011 as originally filed in the Form 10-K could no longer be relied on. The Company determined that the financial statements of Kiarabrite (Pty) Ltd., Dimaflo (Pty) Ltd., Tundraspex (Pty) Ltd., Civisign (Pty) Ltd., Dimalogix (Pty) Ltd., and Chanticleer & Shaw Foods (Pty) Ltd. (collectively referred to as the “South African Operations”) which are the South African management company and the four entities organized for the stores we operate in South Africa, and the company that owns the HOA franchise rights for the territory of South Africa, were not audited as the Company was led to believe. Accordingly, this Amendment is being filed to include the changes to the financial statements of the South African Operations and its impact on the condensed consolidated financial statements of the Company for the period ended June 30, 2012, as a result of the audit of the South African Operations for the three months ended December 31, 2011 and the subsequent review of the operations for the three and six months ended June 30, 2012.

 

On September 7, 2012, the Company’s South African Chief Financial Officer (“SA CFO”) resigned. It was determined that the SA CFO had committed certain illegal acts, fraud and certain misrepresentations of facts. Due to the SA CFO’s actions, certain taxes were not paid. In addition, the applicable tax forms were not filed during the proper periods. The Company has engaged tax experts to assist in the tax process. The Company also discovered a balance of approximately $96,737 and $42,109 of cash that was misappropriated by the SA CFO as of the end of the second quarter of 2012 and the fourth quarter of 2011 (presented as “other receivable” on the Company’s condensed consolidated balance sheet as of June 30, 2012 and December 31, 2011), and approximately $128,000 in total for the period from October 2011 through September 2012. As of December 10, 2012, approximately $41,000 has been recovered by the Company and payment plans are in place for the remainder.

  

The Company engaged outside South African tax experts in September 2012 to assist with compliance with Value Added Tax (VAT), payroll taxes, and income taxes n South Africa. A voluntary disclosure agreement has been submitted and the Company is awaiting contract from the South African governmental agency.

 

In connection with the acquisition of assets as described in Note 3, the Company believes the purchase and sale with the seller was accomplished in accordance with the laws and regulations of the taxing authorities in South Africa. However, there can be no absolute assurance that the seller has fulfilled its tax and regulatory filing requirements, and whether or not the local authorities could seek to recover any unpaid taxes or other amounts from the Company, its shareholders or others. The Company is not aware of any known obligations for which the Company may be required to settle.

 

The following tables include the condensed consolidated balance sheet as of June 30, 2012, condensed consolidated statement of operations for the three months ended June 30, 2012 and condensed consolidated statements of operations and cash flows for the six months ended June 30, 2012 and include the consolidated amounts previously reported, adjustments reflected in this amended filing, and the restated amounts for 2012.

  

Condensed Consolidated Balance Sheet

 

    June 30, 2012  
    As Previously              
    Reported     Adjustment     As Revised  
ASSETS                        
Current assets:                        
Cash and cash equivalents   $ 3,673,005       (104,589 )     3,568,416  
Accounts receivable     41,667       36,429       78,096  
Other receivable             96,737       96,737  
Inventory     122,499       17,508       140,007  
Due from related parties     110,676       -       110,676  
Prepaid expenses     125,056       (22,450 )     102,606  
TOTAL CURRENT ASSETS     4,072,903       23,635       4,096,538  
Property and equipment, net     3,102,917       (1,059,954 )     2,042,963  
Intangible assets, net     769,386       198,932       968,318  
Investments at fair value     80,713       -       80,713  
Other investments     2,077,176       (272,469 )     1,804,707  
Deposits and other assets     3,980       96,511       100,491  
TOTAL ASSETS   $ 10,107,075     $ (1,013,345 )   $ 9,093,730  
                         
LIABILITIES AND STOCKHOLDERS' EQUITY                        
Current liabilities:                        
Current maturities of long-term debt and notes payable   $ 7,722       -       7,722  
Accounts payable anc accrued expenses     592,963       329,955       922,918  
Other current liabilities     332,340       20,058       352,398  
Deferred rent     -       5,573       5,573  
Current maturities of capital leases payable     -       39,054       39,054  
Income taxes payable     62,555       (62,555 )     -  
Due to related parties     27,485       -       27,485  
TOTAL CURRENT LIABILITIES     1,023,065       332,085       1,355,150  
Deferred rent     -       76,098       76,098  
Other liabilities     -       216,518       216,518  
Long-term debt and capital leases, less current maturities     231,519       74,397       305,916  
TOTAL LIABILITIES     1,254,584       699,098       1,953,682  
Commitments and contingencies (Note 13)                        
                         
Stockholders' equity:                        
Common stock     396       -       396  
Additional paid in capital     16,509,226       (1,181,546 )     15,327,680  
Other comprehensive income (loss)     (194,446 )     6,409       (188,037 )
Non-controlling interest     398,037       (232,075 )     165,962  
Accumulated deficit     (7,334,302 )     (305,231 )     (7,639,533 )
Less treasury stock     (526,420 )     -       (526,420 )
      8,852,491       (1,712,443 )     7,140,048  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 10,107,075     $ (1,013,345 )   $ 9,093,730  

 

Condensed Consolidated Statement of Operations            
             
    Three Months Ended June 30, 2012  
    As Previously              
    Reported     Adjustments     As Restated  
Revenue:                        
Restaurant sales, net   $ 1,654,829     $ 41,294     $ 1,696,123  
Management fee income - non-affiliates     25,000       -       25,000  
Management fee income - affiliates     6,698       -       6,698  
Total revenue     1,686,527       41,294       1,727,821  
Expenses:                        
Restaurant cost of sales     606,221       103,391       709,612  
Restaurant operating expenses     711,808       211,482       923,290  
Restaurant pre-opening expenses     25,000       (1,501 )     23,499  
General and administrative expense     656,596       (484 )     656,112  
Depreciation and amortization     127,087       (39,926 )     87,161  
Total expenses     2,126,712       272,962       2,399,674  
Loss from operations     (440,185 )     (231,668 )     (671,853 )
Other income (expense)                        
Equity in earnings (losses) of investments     (33,348 )     -       (33,348 )
Interest expense     (201,550 )     (6,552 )     (208,102 )
Total other income (expense)     (234,898 )     (6,552 )     (241,450 )
Net loss before income taxes     (675,083 )     (238,220 )     (913,303 )
Provision for income taxes     47,327       (47,327 )     -  
Net loss before non-controlling interest     (722,410 )     (190,893 )     (913,303 )
Non-controlling interest     (10,971 )     80,658       69,687  
Net loss     (733,381 )     (110,235 )     (843,616 )
Other comprehensive income (loss):                        
Unrealized gain (loss) on available-for-sale securities     (132,021 )     -       (132,021 )
(none applies to non-controlling interest)                        
Foreign translation losses     (4,193 )     11,859       7,666  
Other comprehensive loss   $ (869,595 )   $ (98,376 )   $ (967,971 )
                         
Net earnings (loss) per share, basic and diluted   $ (0.49 )   $ (0.07 )   $ (0.56 )
Weighted average shares outstanding     1,502,418       1,502,418       1,502,418  

 

Condensed Consolidated Statement of Operations

 

    Six Months Ended June 30, 2012  
    As Previously              
    Reported     Adjustments     As Restated  
Revenue:                        
Restaurant sales, net   $ 3,003,816     $ 79,802     $ 3,083,618  
Management fee income - non-affiliates     50,000       -       50,000  
Management fee income - affiliates     6,698       -       6,698  
Total revenue     3,060,514       79,802       3,140,316  
Expenses:                        
Restaurant cost of sales     1,102,770       188,393       1,291,163  
Restaurant operating expenses     1,327,578       365,044       1,692,622  
Restaurant pre-opening expenses     91,120       (26,900 )     64,220  
General and administrative expense     1,137,868       29,765       1,167,633  
Depreciation and amortization     235,699       (68,514 )     167,185  
Total expenses     3,895,035       487,788       4,382,823  
Loss from operations     (834,521 )     (407,986 )     (1,242,507 )
Other income (expense)                        
Equity in earnings (losses) of investments     (43,886 )     -       (43,886 )
Interest expense     (378,768 )     (14,444 )     (393,212 )
Total other income (expense)     (422,654 )     (14,444 )     (437,098 )
Net loss before income taxes     (1,257,175 )     (422,430 )     (1,679,605 )
Provision for income taxes     51,143       (51,143 )     -  
Net loss before non-controlling interest     (1,308,318 )     (371,287 )     (1,679,605 )
Non-controlling interest     6,824       125,380       132,204  
Net loss     (1,301,494 )     (245,907 )     (1,547,401 )
Other comprehensive income (loss):                        
Unrealized gain (loss) on available-for-sale securities                        
(none applies to non-controlling interest)     (237,639 )     -       (237,639 )
Foreign translation losses     (5,472 )     4,424  )     (1,048 )
Other comprehensive loss   $ (1,544,605 )   $ (241,483 )   $ (1,786,088 )
                         
Net earnings (loss) per share, basic and diluted   $ (0.52 )   $ (0.10 )   $ (0.62 )
Weighted average shares outstanding     2,498,882       2,498,882       2,498,882  

 

Condensed Consolidated Statement of Cash Flows

 

    Six Months Ended June 30, 2012  
    As Previously              
    Reported     Adjustments     As Restated  
Cash flows from operating activities:                        
Net loss   $ (1,301,494 )   $ (245,907 )   $ (1,547,401 )
Adjustments to reconcile net loss to net cash used in operating activities:                        
Non-controlling interest     (6,824 )     (125,380 )     (132,204 )
Services rendered in exchange for investment securities     9,406       -       9,406  
Depreciation and amortization     235,699       (68,514 )     167,185  
Equity in (earnings) loss of investments     43,886       -       43,886  
Amortization of warrants     72,063       -       72,063  
Bad debt expense     12,315       (12,315 )     -  
(Increase) decrease in accounts and other receivables     50,000       (74,010 )     (24,010 )
(Increase) decrease in prepaid expenses and other assets     170,374       (86,358 )     84,016  
(Increase) decrease inventory     (63,233 )     28,299       (34,934 )
Increase (decrease) in accounts payable and accrued expenses     424,261       141,039       565,300  
Increase (decrease) in income taxes payable     47,947       (47,947 )     -  
Advance from related party for working capital     (63,202 )     -       (63,202 )
Increase (decrease) in deferred revenue and other liabilities     (70,802 )     70,802       -  
Increase (decrease) in deferred rent     -       31,284       31,284  
Net cash used by operating activities     (439,604 )     (389,007 )     (828,611 )
                         
Cash flows from investing activities:                        
Proceeds from non-controlling interest     -       90,000       90,000  
Purchase of investments     (933,948 )     29,091       (904,857 )
Franchise fees incurred     (312,674 )     72,674       (240,000 )
Purchase of property and equipment     (816,341 )     119,502       (696,839 )
Net cash provided (used) by investing activities     (2,062,963 )     311,267       (1,751,696 )
                         
Cash flows from financing activities:                        
Proceeds from sale of common stock     7,051,464       -       7,051,464  
Loan proceeds     2,915,000               2,915,000  
Other liabilities     -       (25,012 )     (25,012 )
Loan and capital lease repayment     (3,942,820 )     (13,993 )     (3,956,813 )
Net cash provided by financing activities     6,023,644       (39,005 )     5,984,639  
Effect of exchange rate changes on cash     -       (1,045 )     (1,045 )
Net increase in cash and cash equivalents     3,521,077       (117,790 )     3,403,287  
Cash and cash equivalents, beginning of year     151,928       13,201       165,129  
Cash and cash equivalents, end of year   $ 3,673,005     $ (104,589 )   $ 3,568,416