Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS

v2.4.0.8
INVESTMENTS
 3 Months Ended
Mar. 31, 2014
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, 2014 AND DECEMBER 31, 2013.
 
 
 
March 31,
 
December 31,
 
 
 
2014
 
2013
 
Available-for-sale investments at fair value
 
$
43,394
 
$
55,112
 
Total
 
$
43,394
 
$
55,112
 
 
AVAILABLE-FOR-SALE SECURITIES
 
Activity in our available-for-sale securities may be summarized as follows:
 
 
 
March 31,
 
December 31,
 
 
 
2014
 
2013
 
Cost at beginning and end of periods
 
$
263,331
 
$
263,331
 
Unrealized loss
 
 
(219,937)
 
 
(208,219)
 
Total
 
$
43,394
 
$
55,112
 
 
Our available-for-sale securities consist of the following:
 
 
 
 
 
 
Unrecognized
 
 
 
 
Realized
 
Loss
 
 
 
 
 
 
Holding
 
Fair
 
Holding
 
on
 
 
 
Cost
 
Losses
 
Value
 
Loss
 
Sale
 
March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appalachian Mountain Brewery
 
 
1,500
 
 
31,332
 
 
32,832
 
 
-
 
 
-
 
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
 
$
(219,937)
 
$
43,394
 
$
-
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
-
 
$
-
 
 
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 March 31, 2014, the Company held 7,200 shares of AMB stock with a closing price of $4.56 per share. 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 March 31, 2014 and December 31, 2013, the stock was $0.004 per share, and the Company recorded an unrealized loss of $123,200  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, 2014 and December 31, 2013, the Company recorded an unrealized loss of $9,900, 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, 2014 and December 31, 2013, the Company recorded an unrealized loss of $118,169, based on the market value of the securities.
 
OTHER INVESTMENTS ARE SUMMARIZED AS FOLLOWS AT MARCH 31, 2014 AND DECEMBER 31, 2013.
  
 
 
March 31,
 
December 31,
 
 
 
2014
 
2013
 
Investments accounted for under the equity method
 
$
1,001,269
 
$
941,963
 
Investments accounted for under the cost method
 
 
1,550,000
 
 
1,550,000
 
Total
 
$
2,551,269
 
$
2,491,963
 
  
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,
 
 
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Balance, beginning of year
 
$
941,963
 
$
1,066,915
 
Equity in losses
 
 
(40,694)
 
 
(125,017)
 
New investments
 
 
100,000
 
 
100,000
 
Return of capital
 
 
-
 
 
(99,935)
 
Balance, end of period
 
$
1,001,269
 
$
941,963
 
 
Equity investments consist of the following at March 31, 2014 and December 31, 2013:
 
 
 
March 31,
 
December 31,
 
 
 
2014
 
2013
 
Carrying value:
 
 
 
 
 
 
 
Hoot Campbelltown Pty. Ltd. (49%) - Australia
 
$
550,782
 
$
483,603
 
Second Hooters location (49%) - Australia
 
 
358,833
 
 
384,605
 
Third Hooters location (49%) - Australia
 
 
91,654
 
 
73,755
 
 
 
$
1,001,269
 
$
941,963
 
 
Equity in losses from equity investments during the three months ended March 31, 2014 and 2013 follows:
 
 
 
Three months ended March 31,
 
 
 
2014
 
2013
 
Equity in losses:
 
 
 
 
 
 
 
Australia locations (49%)
 
 
(40,694)
 
 
(14,247)
 
 
 
$
(40,694)
 
$
(14,247)
 
 
The summarized financial data below includes the Hoot Campbelltown location in Australia, which we owned 49% of at March 31, 2014 and 2013 and the two Hooters locations under construction which we own 49% of at March 31, 2014 and have incurred certain pre-opening costs. Subsequent to the end of the fiscal quarter, we increased our ownership of the Campbelltown location and the two other Hooters locations under construction in Australia to 60% each.:
 
 
 
Three months ended March 31,
 
 
 
2014
 
2013
 
Revenue
 
$
501,835
 
$
634,574
 
Gross profit
 
 
354,360
 
 
444,896
 
Recurring expenses
 
 
370,321
 
 
473,972
 
Pre-opening costs
 
 
67,086
 
 
-
 
Loss from continuing operations
 
 
(83,047)
 
 
(29,076)
 
Net loss
 
 
(83,047)
 
 
(29,076)
 
 
The summarized balance sheets for the three locations in Australia of which we owned 49% at March 31, 2014 and December 31, 2013 follows:
 
 
 
March 31,
 
December 31,
 
 
 
2014
 
2013
 
ASSETS
 
 
 
 
 
 
 
Current assets
 
$
380,913
 
$
362,085
 
Non-current assets
 
 
3,302,545
 
 
3,089,230
 
TOTAL ASSETS
 
$
3,683,458
 
$
3,451,315
 
LIABILITIES
 
 
 
 
 
 
 
Current liabilities
 
$
879,637
 
$
972,885
 
PARTNER'S EQUITY
 
 
2,803,821
 
 
2,478,430
 
TOTAL LIABILITIES AND PARTNERS' EQUITY
 
$
3,683,458
 
$
3,451,315
 
 
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 with plans to open late in the second quarter of 2014. Subsequent to the end of the fiscal quarter, we increased our ownership of the Campbelltown location and the two other Hooters locations under construction in Australia to 60% each.
 
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,
 
 
 
2014
 
2013
 
Investments at cost:
 
 
 
 
 
 
 
Balance, beginning of year
 
$
1,550,000
 
$
1,050,000
 
New investments
 
 
-
 
 
500,000
 
Total
 
$
1,550,000
 
$
1,550,000
 
 
Investments at cost consist of the following at March 31, 2014 and December 31, 2013:
 
 
 
March 31,
 
December 31,
 
 
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Chanticleer Investors, LLC
 
$
800,000
 
$
800,000
 
Edison Nation LLC (FKA Bouncing Brain Productions)
 
 
250,000
 
 
250,000
 
Beacher's Madhouse
 
 
500,000
 
 
500,000
 
 
 
$
1,550,000
 
$
1,550,000
 
 
Chanticleer Investors LLC - The Company sold half 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 on 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 half 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 March 31, 2014 and December 31, 2013.
 
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.
 
Beacher's Madhouse – In December 2013,  the Company acquired a 5% minority interest in Beacher’s, a variety show and nightclub experience, for $500,000. 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, and in which the Company has no stake. 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.