Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS

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INVESTMENTS
3 Months Ended
Mar. 31, 2013
Investments, Debt and Equity Securities [Abstract]  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

4. INVESTMENTS

 

INVESTMENTS AT FAIR VALUE CONSIST OF THE FOLLOWING AT MARCH 31, 2013 AND DECEMBER 31, 2012.

 

    2013     2012  
             
Available-for-sale investments at fair value   $ 33,185     $ 56,949  
Total   $ 33,185     $ 56,949  

 

 

AVAILABLE-FOR-SALE SECURITIES

 

Activity in our available-for-sale securities may be summarized as follows:

 

    2013     2012  
             
Cost at beginning and end of periods   $ 263,331     $ 263,331  
Unrealized loss     (230,146 )     (206,382 )
Total   $ 33,185     $ 56,949  

 

Our available-for-sale securities consist of the following:

 

          Unrecognized           Realized     Loss  
          Holding     Fair     Holding     on  
    Cost     Losses     Value     Loss     Sale  
March 31, 2013                              
North Carolina Natural Energy     1,500       -       1,500       -       -  
North American Energy     126,000       (117,600 )     8,400       -       -  
North American Energy     10,500       (8,700 )     1,800       -       -  
North American Energy     125,331       (103,846 )     21,485       -       -  
    $ 263,331     $ (230,146 )   $ 33,185     $ -     $ -  
                                         
December 31, 2012                                        
North Carolina Natural Energy     1,500       -       1,500       -       -  
North American Energy     126,000       (111,300 )     14,700       -       -  
North American Energy     10,500       (7,350 )     3,150       -       -  
North American Energy     125,331       (87,732 )     37,599       -       -  
    $ 263,331     $ (206,382 )   $ 56,949     $ -     $ -  

 

North Carolina Natural Energy, Inc. (“NCNE”) – NCNE is a successor to Remodel Auction Incorporated whose business was discontinued. NCNE has plans to become involved in some form of natural energy. The Company received 100,000,000 shares of NCNE (less than 1% on a fully diluted basis) for management services during 2011. The shares were valued at $1,500 based on NCNE’s valuation as a shell.

 

North American Energy Resources, Inc. - During the quarter ended June 30, 2009, the Company exchanged its oil & gas property investments for 700,000 shares of North American Energy Resources, Inc. ("NAEY") which were valued at $126,000 based on the closing price of NAEY on the date of the trade. At March 31, 2013 and December 31, 2012, the stock was $0.012 and $0.02 per share, respectively, and the Company recorded an unrealized loss of $117,600 and $111,300, 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 March 31, 2013 and December 31, 2012, the Company recorded an unrealized loss of $8,700 and $7,350, respectively, based on the market value at the time. At December 31, 2011, the shares were valued at $18,000 and the Company recorded unrealized appreciation of $7,500.

 

During June 2011, the Company’s CEO contributed 1,790,440 shares of NAEY to the Company which was valued at $125,331 based on the trading price at the time. Mr. Pruitt did not receive additional compensation as a result of the transfer. At March 31, 2013 and December 31, 2012, the Company recorded an unrealized loss of $103,846 and $87,732, respectively, based on the market value of the securities.

 

NAEY appointed a new management team in December 2010 and they are seeking acquisition opportunities for onshore and offshore oil and gas properties. Accordingly, the Company determined that any decline was temporary.

 

OTHER INVESTMENTS ARE SUMMARIZED AS FOLLOWS AT MARCH 31, 2013 AND DECEMBER 31, 2012.

 

    2013     2012  
             
Investments accounted for under the equity method   $ 1,052,668     $ 1,066,915  
Investments accounted for under the cost method     1,050,000       1,050,000  
Total   $ 2,102,668     $ 2,116,915  

 

INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

 

Activity in investments accounted for using the equity method is summarized as follows:

 

    Three Months     Year Ended  
    Ended March, 31     December 31,  
    2013     2012  
             
Balance, beginning of year   $ 1,066,915     $ 815,550  
Equity in earnings (loss)     (14,247 )     (14,803 )
New investments     -       409,543  
Reclassification of investments     -       (143,375 )
Balance, end of period   $ 1,052,668     $ 1,066,915  

 

Equity investments consist of the following at March 31, 2013 and December 31, 2012:

 

    2013  
Carrying value:        
Hoot Campbelltown Pty. Ltd. (49%) - Australia   $ 541,084  
Second Hooters location (49%) - Australia     511,584  
    $ 1,052,668  

 

Equity in losses from equity investments during the three months ended March 31, 2013 and 2012 follows:

 

    2013     2012  
Equity in losses:            
Hoot Campbelltown (49%)     (14,247 )     (10,538 )
    $ (14,247 )   $ (10,538 )

 

The summarized financial data below includes the Hoot Campbelltown location in Australia, which we owned 49% of at March 31, 2013:

 

    Three months ended March 31,  
    2013     2012  
Revenue   $ 634,574     $ 1,108,063  
Gross profit     444,896       781,253  
Recurring expenses     473,972       706,147  
Pre-opening costs     -       96,613  
Loss from continuing operations     (29,076 )     (21,507 )
Net loss     (29,076 )     (21,507 )

 

The summarized balance sheets for the two locations in Australia of which we owned 49% at March 31, 2013 and December 31, 2012 follows:

 

    March 31,     December 31,  
    2013     2012  
ASSETS            
Current assets   $ 549,967     $ 604,147  
Non-current assets     2,887,581       2,909,276  
TOTAL ASSETS   $ 3,437,548     $ 3,513,423  
LIABILITIES                
Current liabilities   $ 1,013,253     $ 1,057,911  
PARTNER'S EQUITY     2,424,295       2,455,512  
TOTAL LIABILITIES AND PARTNERS' EQUITY   $ 3,437,548     $ 3,513,423  

 

CHA (Hoot Campbelltown Pty. Ltd and Hoot Surfers Paradise Pty. Ltd.) – CHA entered into a partnership with the current local Hooters franchisee in Australia in which CHA will own 49% and its partner own 51%. The local partner will also manage the restaurants. The first location, Hoot Campbelltown Pty. Ltd. opened in Campbelltown, a suburb of Sydney, in January 2012. A second location in Townsville, is underway with plans to open in the second quarter of 2013.

 

INVESTMENTS ACCOUNTED FOR USING THE COST METHOD

  

A summary of the activity in investments accounted for using the cost method follows.

 

    March 31,     December 31,  
    2013     2012  
Investments at cost:            
Balance, beginning of year   $ 1,050,000     $ 766,598  
Impairment     -       (16,598 )
New investments     -       300,000  
Total   $ 1,050,000     $ 1,050,000  

 

Investments at cost consist of the following at March 31, 2013 and December 31, 2012:

 

    2013     2012  
             
Chanticleer Investors, LLC   $ 800,000     $ 800,000  
Edison Nation LLC (FKA Bouncing Brain                
Productions)     250,000       250,000  
    $ 1,050,000     $ 1,050,000  

 

Chanticleer Investors LLC - The Company sold 1/2 of its investment in Investors LLC in May 2009, which reduced its ownership from 23% to 11.5%. Accordingly, in May 2009, the Company discontinued accounting for this investment using the equity method and began to account for the investment using the cost method. In December 2010, the Company sold an additional $75,000 of its investment at cost.

 

On April 18, 2006, the Company formed Investors LLC and sold units for $5,000,000. Investors LLC’s principal asset was a convertible note in the amount of $5,000,000 with Hooters of America, Inc. (“HOA”), collateralized by and convertible into 2% of Hooters common stock. The original note included interest at 6% and was due May 24, 2009. The note was extended until November 24, 2010 and included an increase in the interest rate to 8%.

 

The Company owned $1,150,000 (23%) of Investors LLC until May 29, 2009 when it sold 1/2 of its share for $575,000. Under the original arrangement, the Company received 2% of the 6% interest as a management fee ($25,000 quarterly) and 4% interest on its investment ($11,500 quarterly). Under the extended note and revised operating agreement, the Company received a management fee of $6,625 quarterly and interest income of $11,500 quarterly until it was repaid in January 2011.

 

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

 

Investors, LLC had a note receivable in the amount of $5,000,000 from HOA that was repaid at closing. Investors LLC then invested $3,550,000 in HOA LLC (approximately 3.1%) ($500,000 of which was the Company's share). One of the investors in Investors LLC that owned a $1,750,000 share is a direct investor in HOA LLC and will now carry its ownership in HOA LLC directly. In July 2012, the Company acquired an additional interest of $300,000, at cost, from one of the partners for cash, which increased our ownership to approximately 22% of Investors LLC as of December 31, 2012.

 

Based on the current status of this investment, the Company does not consider the investment to be impaired.

 

EE Investors, LLC - On January 26, 2006, we acquired an investment in EE Investors, LLC with cash in the amount of $250,000. We acquired 1,205 units (3.378%) in EE Investors, LLC, whose sole asset is 40% of Edison Nation, LLC (formerly Bouncing Brain Productions, LLC). Edison Nation was formed to provide equity capital for new inventions and help bring them to market. The initial business plan included developing the products and working with manufacturers and marketing organizations to sell the products. This has evolved into a less hands-on program which involves selling products with patents to other larger companies and retaining royalties. Edison Nation has now reached cash flow break-even, and in addition has been retained by a number of companies for which they do product searches to supplement its business. Edison Nation plans to repay the majority of its debt in 2013 and expects to subsequently begin making distributions to its owners. Based on the current status of this investment, the Company does not consider the investment to be impaired.