Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS

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INVESTMENTS
 9 Months Ended
Sep. 30, 2011
Investments, Debt and Equity Securities [Abstract]  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]
NOTE 2:        INVESTMENTS
 
INVESTMENTS ARE SUMMARIZED AS FOLLOWS AT SEPTEMBER 30, 2011 AND DECEMBER 31, 2010.

 
   
2011
    
2010
  
Trading securities:
            
Balance, beginning of year
   $ -     $ -  
Shares acquired from a related party
     -       26,334  
Cost of securities sold
     -       (26,334 )
Balance, end of period
   $ -     $ -  
                 
Proceeds from sale of trading securities
   $ -     $ 32,917  
Gain from sale of trading securities
   $ -     $ 6,583  
 
   
2011
    
2010
  
Available for sale securities:
            
Cost at beginning of year
   $ 284,473     $ 167,286  
Transfer from investments accounted for by the cost method
     -       100,000  
Contributed by the Company's CEO
     125,331       -  
Received as management fees
     -       33,000  
Acquired in exchange for DineOut shares
     -       124,573  
Impairment
     (147,973 )     -  
Proceeds from sale of securities
     -       (41,645 )
Realized loss
     -       (98,741 )
Cost at end of period
     261,831       284,473  
Unrealized gain (loss)
     (156,213 )     68,027  
Total
   $ 105,618     $ 352,500  
 
   
2011
    
2010
  
Investments using the equity method:
            
Balance, beginning of year
   $ 87,200     $ 82,500  
Investments made
     716,756       -  
Equity in earnings (loss)
     (9,256 )     58,337  
Sale of investment
     -       (37,500 )
Distributions received
     (8,140 )     (16,137 )
Balance, end of period
   $ 786,560     $ 87,200  
  
  
   
2011
    
2010
  
Investments at cost:
            
Balance, beginning of year
   $ 766,598     $ 1,191,598  
Impairment
     -       (250,000 )
Proceeds from sale of investment
     -       (75,000 )
Investment transferred to available-for-sale securities
     -       (100,000 )
Total
   $ 766,598     $ 766,598  
 
AVAILABLE-FOR-SALE SECURITIES
 
Our available-for-sale securities consist of the following:
 
         
Realized
    
Unrecognized
        
         
Holding
    
Holding
    
Fair
  
   
Cost
    
Loss
    
Gains (Losses)
    
Value
  
September 30, 2011
                        
Remodel Auction *
   $ 900     $ (900 )   $ -     $ -  
North American Energy
     126,000       -       (98,000 )     28,000  
North American Energy *
     10,500       -       (4,500 )     6,000  
North American Energy
     125,331       -       (53,713 )     71,618  
Efftec International, Inc. *
     22,500       (22,500 )     -       -  
Efftec International, Inc. (warrant) *
     -       -       -       -  
HiTech Stages
     124,573       (124,573 )     -       -  
    $ 409,804     $ (147,973 )   $ (156,213 )   $ 105,618  
                                 
December 31, 2010
                                
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  
 
* Investments acquired in exchange for management services.
 
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.
 
 
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.  At September 30, 2011, the value of HiTech had dropped to near zero and the Company determined that its investment was permanently impaired.  Accordingly, the Company fully impaired its investment in HiTech.
 
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, the stock had declined to $0.04 per share and the Company recorded an unrealized loss of $98,000, based on the Company's determination that the price decline was temporary.  At September 30, 2011, the Company valued the stock at $0.04 with an unrealized loss of $98,000.
 
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.  At September 30, 2011, the Company recorded an unrealized loss of $4,500 based on a market value of $6,000.
 
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.  At June 30, 2011, the Company recorded an unrealized loss of $53,713 based on a market value of $71,618.  Mr. Pruitt did not receive additional compensation as a result of this transfer.
 
NAEY appointed a new management team in December 2010.  On October 31, 2011, NAEY announced it had agreed to purchase a number of onshore and offshore oil and gas fields from a private seller for $175 Million in cash, subject to certain purchase price adjustments at closing.  The acquisition is subject to due diligence, financing and other customary closing conditions.  Accordingly, the Company determined that the decline was temporary.
 
 
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).  At September 30, 2011 and immediately after, the value of the EffTec stock dropped to near zero.  The Company determined the reduction was other than temporary and impaired its investment to zero.
 
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.
 
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.  At September 30, 2011, the Company valued its investment at $0 and recorded an impairment loss for the remaining balance of $900.
 
 
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 an original cost of $1,114,221 and a fair value as of September 30, 2011 and December 31, 2010 of $0.  The Company considers this decline in value to be other than temporary and has recognized an impairment loss for the full amount of the investment.
 
INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
 
In the third quarter of 2011, the Company determined it would increase the direction of its business on the ownership and operation of Hooters franchises.  In this regard, the Company has made the following investments and is initially directing its efforts in the countries discussed below.
 
Equity investments consist of the following at September 30, 2011 and December 31, 2010:
 
   
2011
    
2010
  
Carrying value:
            
South Africa
   $ 536,560     $ 87,200  
Australia
     250,000       -  
    $ 786,560     $ 87,200  
 
Hooters S.A., GP - The Company formed CHL to own the Company's 50% general partner ("GP") interest in Hooters S.A., GP, the general partner of the Hooters' restaurant franchises in South Africa.  During September 2011, the Company purchased the remaining 50% GP interest and now owns 100% of the GP interest.  The initial restaurant opened in December 2009 in Durban, South Africa and operations commenced in January 2010.  The second location opened in Johannesburg in June 2010 and a third location opened in Cape Town in June of 2011.  The Company owns the following interest before the acquisition and after the acquisition as of September 30, 2011.  After the LPs receive their investment back plus a 20% return, the LP interest will reduce to 20% and the GP interest will increase to 80% in each of these three restaurants.  After completing the acquisition and effective October 1, 2011, the Company formed a management company to operate the current South African Hooters locations.  We own 80% of the management company and key management company personnel own the remaining 20%.
 
 
   
Before Acquisition
    
After Acquisition
  
   
GP
    
LP
    
Total
    
GP
    
LP
    
Total
  
                                     
Durban
     10.00 %     1.17 %     11.17 %     20.00 %     1.17 %     21.17 %
                                                 
Johannesburg
     10.00 %     8.32 %     18.32 %     20.00 %     24.70 %     44.70 %
                                                 
Cape town
     10.00 %     15.85 %     25.85 %     20.00 %     32.73 %     52.73 %
 
Activity from equity investments in South Africa during the nine months ended September 30, 2011 and 2010 (the restaurant in Australia is not scheduled to open until January 2012):
 
   
2011
    
2010
  
Equity in earnings (loss):
            
Durban
     (4,901 )     21,023  
Johannesburg
     (9,933 )     21,827  
Cape Town
     5,578       -  
    $ (9,256 )   $ 42,850  
Distributions:
                
Durban
     6,248       11,834  
Johannesburg
     1,892       -  
Cape Town
     -       -  
    $ 8,140     $ 11,834  
 
The summarized financial data for our three restaurants in South Africa is as follows for the nine months ended September 30, 2011 and 2010.
 
   
2011
    
2010
  
             
Revenues
   $ 3,364,265     $ 2,696,902  
Gross profit
     2,122,073       1,715,081  
Income from continuing operations
     125,730       269,519  
Net income
     125,730       269,519  
 
 
·
Chanticleer Holdings Australia Pty, Ltd ("CHA") - We are partnering with the current Hooters franchisee in Australia in a joint venture.  The first Hooters restaurant under this joint venture (which will be the third Hooters restaurant to be opened in Australia) is expected to open in January 2012 in Campbelltown, a suburb of Sydney and we will own a 49% interest.  We are in discussions to purchase from the same franchisee a partial interest in the first two existing Hooters locations in the Sydney area.  We have invested $250,000 as of September 30, 2011.
 
 
INVESTMENTS ACCOUNTED FOR USING THE COST METHOD
 
Investments at cost consist of the following at September 30, 2011 and December 31, 2010.
 
   
2011
    
2010
  
             
Chanticleer Investors, LLC
   $ 500,000     $ 500,000  
Edison Nation LLC (FKA Bouncing Brain Productions)
     250,000       250,000  
Chanticleer Investors II
     16,598       16,598  
    $ 766,598     $ 766,598  
 
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 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.  In December 2010, the Company sold an additional $75,000 of its investment at cost.
 
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.
 
The Company received $400,000 in January 2011 for services provided in completion of the purchase of HOA and TW by HOA LLC.  The Company has a consulting agreement with HOA LLC and is scheduled to receive $100,000 in January of each year for director and other services provided by Mr. Pruitt.  We have accrued eight months of the consulting fee in the amount of $66,667 at September 30, 2011.
 
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 now carries its ownership in HOA LLC directly.  The Company now owns approximately 14% of Investors LLC.
 
 
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.
 
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.