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NOTE 1: |
NATURE OF BUSINESS |
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(1) |
Organization – The consolidated financial statements include the accounts of Chanticleer Holdings, Inc. (“Holdings”) and its wholly owned subsidiaries Chanticleer Advisors LLC (“Advisors”), Avenel Ventures LLC ("Ventures"), Avenel Financial Services LLC ("Financial"), Chanticleer Holdings Limited ("CHL") and DineOut S.A. Ltd. ("DineOut") (own 88.99% at June 30, 2011) (collectively the “Company”, "Companies," “we”, or “us”). All significant intercompany balances and transactions have been eliminated in consolidation. Holdings was organized October 21, 1999, under the laws of the State of Delaware. On April 25, 2005, the Company formed a wholly owned subsidiary, Chanticleer Holdings, Inc. and on May 2, 2005, Tulvine Systems, Inc. merged with and changed its name to Chanticleer Holdings, Inc. |
Information regarding the Company's subsidiaries is as follows:
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Advisors was formed as a Nevada Limited Liability Company on January 18, 2007 to manage related companies, Chanticleer Investors, LLC ("Investors LLC"), Chanticleer Investors II, LLC ("Investors II") and other investments owned by the Company; |
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Ventures was formed as a Nevada Limited Liability Company on December 24, 2008 to provide business management and consulting services to its clients; |
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AFS was formed as a Nevada Limited Liability Company on February 19, 2009 to provide unique financial services to the restaurant, real estate development, investment advisor/asset management and philanthropic organizations. AFS's business operation has not been activated and is expected to initially include captive insurance, CHIRA and trust services; |
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CHL is wholly owned and was formed as a Limited Liability Company in Jersey on March 24, 2009 and owns our 50% interest in Hooters SA, GP, the general partner of the Hooters restaurant franchises in South Africa; |
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DineOut was formed as a Private Limited Liability Company in England and Wales on October 29, 2009 to finance growth activity for the Company around the world. DineOut's common stock is listed on the Frankfurt stock exchange. As of June 30, 2011, the Company has sold 11.01% of its interest in DineOut. |
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(2) |
General - The consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. These consolidated financial statements have not been audited. |
Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report for the period ended December 31, 2010, which is included in the Company’s Form 10-K.
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(3) |
Going Concern - At June 30, 2011 and December 31, 2010, the Company had current assets of $226,543 and $158,718; current liabilities of $638,374 and $645,634; and a working capital deficit of $411,831 and $486,916, respectively. The Company had a loss of $280 during the six months ended June 30, 2011 and had an unrealized loss from available-for-sale securities of $52,209 resulting in a comprehensive loss of $52,489. |
The Company's general and administrative expenses were $489,285 during the six months ended June 30, 2011 as compared to $494,073 in the same period of 2010. The Company expects its general and administrative cost to be approximately $225,000 to $240,000 per quarter for the remainder of 2011.
As of June 30, 2011, the Company had raised $351,500, $412,500 and $433,250 from limited partners for its share of cost of the Durban and Johannesburg stores which opened in 2010 and the Cape Town store which opened in June of 2011, respectively. Additional funds are not expected to be needed for these stores.
The Company expects to meet its obligations in the next twelve months with some or all of the following:
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The Company holds 3,559,661 shares in DineOut at June 30, 2011, which are free-trading on the Frankfurt Exchange and were valued at $0.159 per share at June 30, 2011. The Company plans to continue to sell some of these shares to meet its short-term capital requirements and
collected cash proceeds of $190,325 and recognized a gain of $19,991 from sales during the six months ended June 30, 2011; |
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The Company currently is receiving its share of earnings from the Durban and Johannesburg, South Africa restaurants which commenced operations in 2010 and will begin receiving its share of earnings from the Cape Town, South Africa location which opened in June of 2011; |
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The Company is funding the initial formation of Chanticleer Dividend Fund, Inc. ("CDF"), including the registration of its common stock. The Company expects to get most of its capital outlay back after the registration statement becomes effective and CDF begins raising funds; and |
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The Company has completed a registration statement on Form S-1, which was declared effective on July 14, 2011, to register one Class A Warrant and one Class B Warrant for each share of the Company issued. If all warrants are sold this would raise approximately $98,000, less legal costs. |
If the above events do not occur or if the Company does not raise sufficient capital, substantial doubt about the Company’s ability to continue as a going concern exists. These consolidated financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.
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Reclassifications - Certain reclassifications have been made in the financial statements at December 31, 2010 and for the periods ended June 30, 2010 to conform to the June 30, 2011 presentation. The reclassifications had no effect on net earnings (loss). |
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(5) |
Fair value measurements - For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. |
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
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Level 1 |
Quoted prices for identical instruments in active markets. |
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Level 2 |
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
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Level 3 |
Significant inputs to the valuation model are unobservable. |
We maintain policies and procedures to value instruments using the best and most relevant data available. Our investment committee reviews and approves all investment valuations.
Our available-for-sale equity securities are all valued using Level 1 or Level 2 inputs.
Management has determined that it will not, at this time, adopt fair value accounting for nonfinancial assets or liabilities currently recorded in the consolidated financial statements, which includes property and equipment, equity method investments, investments carried at cost, deposits and other assets.
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New accounting pronouncements - There are several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company. At July 31, 2011, none of these pronouncements is expected to have a material effect on the financial position, results of operations or cash flows of the Company when adopted. |
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