Annual report pursuant to Section 13 and 15(d)

INVESTMENTS

v2.4.0.8
INVESTMENTS
 12 Months Ended
Dec. 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 DECEMBER 31, 2013 AND 2012.
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Available-for-sale investments at fair value
 
$
55,112
 
$
56,949
 
Total
 
$
55,112
 
$
56,949
 
 
AVAILABLE-FOR-SALE SECURITIES
 
Activity in our available-for-sale securities may be summarized as follows:
 
 
 
2012
 
2011
 
 
 
 
 
 
 
 
 
Cost
 
$
263,331
 
$
263,331
 
Unrealized loss
 
 
(208,219)
 
 
(206,382)
 
Total
 
$
55,112
 
$
56,949
 
 
Our available-for-sale securities consist of the following:
 
 
 
 
 
 
Unrecognized
 
 
 
 
Realized
 
Loss
 
 
 
 
 
 
Holding
 
Fair
 
Holding
 
on
 
 
 
Cost
 
Gains (Losses)
 
Value
 
Loss
 
Sale
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appalachian Mountain Brewery
 
 
1,500
 
 
43,050
 
 
44,550
 
 
-
 
 
-
 
North American Energy
 
 
126,000
 
 
(123,200)
 
 
2,800
 
 
-
 
 
-
 
North American Energy
 
 
10,500
 
 
(9,900)
 
 
600
 
 
-
 
 
-
 
North American Energy
 
 
125,331
 
 
(118,169)
 
 
7,162
 
 
-
 
 
-
 
 
 
$
263,331
 
$
(208,219)
 
$
55,112
 
$
-
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appalachian Mountain Brewery
 
 
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
 
$
-
 
$
-
 
 
Appalachian Mountain Brewery (“AMB”), formerly North Carolina Natural Energy, Inc. (“NCNE”) – AMB is a successor to NCNE and is currently traded under the ticker HOPS. AMB began trading under this symbol on January 7, 2014, previously it was traded under ticker NCNE on the OTC stock market. As of December 31, 2013, the Company held 16,200 shares of AMB with a closing price of $2.75 per share. AMB makes craft beer with plans to expand its distribution network. AMB expects to have a food service line in addition to its beer products. NCNE was a successor to Remodel Auction Incorporated whose business was discontinued. The Company originally received 100,000,000 shares of NCNE (less than 1% on a fully diluted basis) for management services during 2011. The shares were valued at $1,500 based on NCNE’s valuation as a shell and the Company did not adjust the cost upon the change to AMB.
 
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 December 31, 2013 and December 31, 2012, the stock was $0.004 and $0.02 per share, respectively, and the Company recorded an unrealized loss of $123,200 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 December 31, 2013 and December 31, 2012, the Company recorded an unrealized loss of $9,900 and $7,350, respectively, based on the market value at the time.
 
During June 2011, the Company’s CEO contributed 1,790,440 shares of NAEY to the Company which was valued at $125,331 based on the trading price at the time. Mr. Pruitt did not receive additional compensation as a result of the transfer. At December 31, 2013 and December 31, 2012, the Company recorded an unrealized loss of $118,169 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 DECEMBER 31, 2013 AND 2012.
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Investments accounted for under the equity method
 
$
941,963
 
$
1,066,915
 
Investments accounted for under the cost method
 
 
1,550,000
 
 
1,050,000
 
Total
 
$
2,491,963
 
$
2,116,915
 
 
INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
 
Activity in investments accounted for using the equity method is summarized as follows.
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Balance, beginning of year
 
$
1,066,915
 
$
815,550
 
Equity in loss
 
 
(125,017)
 
 
(14,803)
 
New investments
 
 
100,000
 
 
409,543
 
Reclassification of investments
 
 
-
 
 
(143,375)
 
Return of capital
 
 
(99,935)
 
 
-
 
Balance, end of year
 
$
941,963
 
$
1,066,915
 
 
Equity investments consist of the following at December 31, 2013 and December 31, 2012:
 
 
 
2013
 
2012
 
Carrying value:
 
 
 
 
 
 
 
Hoot Campbelltown Pty. Ltd. (49%) - Australia
 
$
483,603
 
$
555,331
 
Second Hooters location (49%) - Australia
 
 
384,605
 
 
511,584
 
Third Hooters location (49%) - Australia
 
 
73,755
 
 
-
 
 
 
$
941,963
 
$
1,066,915
 
 
Equity in earnings (loss) and distributions from equity investments during the years ended December 31, 2013 and 2012 follows.
 
 
 
2013
 
2012
 
Equity in earnings (loss):
 
 
 
 
 
 
 
Australia locations (49%)
 
 
(125,017)
 
 
(14,803)
 
 
 
$
(125,017)
 
$
(14,803)
 
Return of capital:
 
 
 
 
 
 
 
Second Australia location return portion of investment
 
 
(99,934)
 
 
-
 
 
 
$
(99,934)
 
$
-
 
 
The restaurant at the Hoot Campbelltown location opened in January 2012. Townsville and Surfer’s Paradise are under construction and expected to open in the second quarter of 2014: The condensed statements of operations for the years ended December 31, 2013 and 2012 follows:
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Revenue
 
$
2,328,015
 
$
3,348,928
 
Gross profit
 
 
1,643,287
 
 
2,381,245
 
Loss from continuing operations
 
 
(255,136)
 
 
(30,208)
 
Net loss
 
 
(255,136)
 
 
(30,208)
 
 
The above loss contains $108,753 of startup expenses for our second and third locations in Australia, which are expected to open in the second quarter of 2014.
 
The summarized balance sheets for the three locations in Australia of which we owned 49% at December 31, 2013 and December 31, 2012 follows:
 
 
 
2013
 
2012
 
ASSETS
 
 
 
 
 
 
 
Current assets
 
$
362,085
 
$
604,147
 
Non-current assets
 
 
3,089,230
 
 
2,909,276
 
TOTAL ASSETS
 
$
3,451,315
 
$
3,513,423
 
LIABILITIES
 
 
 
 
 
 
 
Current liabilities
 
$
972,885
 
$
1,057,911
 
PARTNER'S EQUITY
 
 
2,478,430
 
 
2,455,512
 
TOTAL LIABILITIES AND PARTNERS' EQUITY
 
$
3,451,315
 
$
3,513,423
 
 
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 had 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 opened in Cape Town in June of 2011 with similar structures. Effective September 30, 2011, the Company acquired majority control of the South African operations and began consolidating its operations on October 1, 2011. The fourth location opened in February 2012 in Emperor’s Palace Casino in Johannesburg funded approximately 12% by minority investors.
 
CHA (Hoot Campbelltown Pty. Ltd, Hoot Townsville 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. The second and third locations are under construction and we expect them to open in the second quarter of 2014.
 
INVESTMENTS ACCOUNTED FOR USING THE COST METHOD
 
A summary of the activity in investments accounted for using the cost method follows.
 
 
 
2013
 
2012
 
Investments at cost:
 
 
 
 
 
 
 
Balance, beginning of year
 
$
1,050,000
 
$
766,598
 
Impairment
 
 
-
 
 
(16,598)
 
New investments
 
 
500,000
 
 
300,000
 
Total
 
$
1,550,000
 
$
1,050,000
 
 
Investments at cost consist of the following at December 31, 2013 and 2012:
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Chanticleer Investors, LLC
 
$
800,000
 
$
800,000
 
Edison Nation LLC (FKA Bouncing Brain Productions)
 
 
250,000
 
 
250,000
 
Beacher's Madhouse
 
 
500,000
 
 
-
 
 
 
$
1,550,000
 
$
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, 2013.
 
Based on the current status of this investment, the Company does not consider the investment to be impaired.
 
Beacher's Madhouse – the Company acquired a 5% minority interest for $500,000 in Beacher’s, a variety show and nightclub experience. Beacher’s opened in late 2013 at an 8,500 square-foot performance theater located in the MGM Grand Hotel & Casino located on the strip in Las Vegas. Prior to the Las Vegas opening, the show was located in Los Angeles, California, which the Company has no stake in. The Company also received the right to participate in the financing of up to 25% offered to third party investors in any new Beacher's Madhouse location as well as the exclusive rights to the United Kingdom, South Africa and Australia.
 
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 2014 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.